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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _________________.
Commission file number: 1-10963
Rx MEDICAL SERVICES CORP.
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(Exact name of Registrant as specified in its charter)
Nevada No. 87-0436782
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
888 East Las Olas Boulevard - Suite 210, Ft. Lauderdale, Florida 33301 (954) 462-1711
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(Address of principal executive offices) (Zip Code) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.002 Par Value None
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(Title of each class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act: None
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 period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant (determined on the basis of the closing price of Registrant's
Common Stock on the OTC Electronic Bulletin Board on December 31, 2000 was
$237,519.
As of December 31, 2000, Registrant had 23,751,920 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Rx Medical Services Corp. ("RXM" or the "Company") is a holding company, which
through its subsidiaries, is a provider of healthcare services in the United
States. At December 31, 1998, the Company was engaged in two healthcare
businesses: the operation of hospitals and clinics located predominantly in
rural markets in the southeast, and the distribution of biological products.
The hospital management operation is conducted through the Company's
wholly-owned subsidiary, Consolidated Health Corporation of Mississippi, Inc., a
Mississippi corporation which the Company acquired in July 1995 through a merger
transaction and its subsidiaries ("CHC"). At December 31, 1998 CHC, via various
wholly owned subsidiaries, operated one hospital in Mississippi, one hospital in
Pennsylvania, and one hospital and three medical clinics in Virginia, for a
total of 91 licensed hospital beds. CHC closed the hospital in Mississippi
effective August 31, 1999 and sold the hospital in Pennsylvania in February
2000.
The biological product distribution operation, is conducted through BioSource
Corporation ("BSC"), which is majority owned by a Florida corporation that is a
wholly-owned subsidiary of the Company. BSC is engaged in the business of
distributing, on a wholesale basis, biological and biotech products for chronic
care outpatients through retail pharmacy providers.
The Company was incorporated in Nevada in 1985. The Company's principal
executive offices are located at 888 East Las Olas Boulevard, Suite 210, Fort
Lauderdale, Florida 33301 and its telephone number is (954) 462-1711.
BUSINESS STRATEGY
The Company, through asset sales and a bankruptcy proceeding, has divested
itself of substantially all of the assets that were acquired and used initially
in its business. Since July 1995, the Company has acquired all of the assets
that are used in its current operations.
HISTORICAL PERSPECTIVE: The Company acquired its first operating assets in May
1990, and entered the health care industry in 1991 when it acquired a group of
clinical laboratories in several separate transactions. In 1992 and 1993
additional clinical laboratories were purchased, as well as three magnetic
resonance imaging ("MRI") centers. The medical diagnostic facilities were
acquired by the Company's wholly owned subsidiary, Manatee Medical Laboratories,
Inc. ("Manatee"). Operations were
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concentrated primarily on the east and west coasts of Florida and southern and
central California.
From inception, the Company was unable to achieve profitability in its medical
diagnostic business. The losses stemmed mainly from reductions in Medicare and
Medicaid reimbursement levels, the rise of managed health care plans and
resulting cost containment pressures, and the inability to effectively
consolidate the various clinical laboratory operations that were acquired by the
Company. The Company unsuccessfully attempted many strategies to increase
revenues, effect consolidations of business lines and reduce operating costs.
Commencing in 1995, and continuing in 1996, management embarked on a plan to
reorganize the Company. In March 1995, the Company closed an MRI center in Fort
Lauderdale, Florida that had been acquired in July 1993. An MRI center, in
Victorville, California, had previously been closed by the Company in June 1994.
In August 1995, the Company sold its California clinical laboratory operations.
In January 1996, the Company sold its Louisiana clinical laboratory operations.
Finally, in April 1996, Manatee filed a voluntary petition under Chapter 7 of
the U.S. Bankruptcy Code resulting in the closing of the Company's remaining
medical diagnostic facilities primarily located on the west coast of Florida and
an MRI center in Pinole, California (see "Discontinued Operations" below).
In July 1995, the Company acquired all of the issued and outstanding shares of
capital stock of CHC. At the time of acquisition, CHC operated and managed three
hospitals and three medical clinics in rural Mississippi. In the same month, the
Company entered into a joint venture with Biologic Health Resources, a Nevada
corporation, to form BHC, a business specializing in the delivery of biotech
products and home infusion services to chronically ill patients.
In March 1996, subsidiaries of CHC entered into operating lease agreements on
two rural hospitals owned by the Financing Source ("Related Party"). The
hospitals are the Whitwell Medical Center located in Whitwell, Tennessee, which
has 17 medical/surgical and 35 alcohol and drug abuse beds, and the Dickenson
County Medical Center, a 50 bed acute care facility located in Clintwood,
Virginia. Included in the operations of Dickenson County Medical Center are
three medical clinics.
In October 1996, CHC sold the operations of the Whitwell Medical Center.
In January 1997, CHC acquired the operating assets of the Pittsburgh Specialty
Hospital (formerly known as the Podiatry Hospital of Pittsburgh) located in
Pittsburgh, Pennsylvania, a 13 licensed bed specialty hospital, with operations
consisting primarily of podiatry surgical procedures.
Effective August 31, 1999, CHC ceased operations at the Smith County General
Hospital due to continued lack of financial performance.
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In February 2000, CHC sold the Pittsburgh Specialty Hospital.
RECENT DEVELOPMENTS: The Company's strategy is to reorganize the hospital
ownership and management business and attempt to sustain its biological product
distribution business.
With respect to its hospital ownership and management business, it is the
Company's intention to reorganize this line of business. This line of business
has and currently is incurring significant operating losses due to a reduction
in patient services eligible for reimbursement and reimbursement rates from
third party payors, such as Medicare and Medicaid. The Company anticipates
entering into individual agreements to sell or to close each of the hospitals it
currently operates while looking to expand its presence, through joint ventures
and/or acquisitions, into new markets with perceived potential. There can be no
assurance that suitable candidates can be found to acquire the Company's
hospitals or that the sales can be negotiated on terms acceptable or
economically feasible to the Company. If the Company can not find suitable
candidates to acquire its hospitals, the Company may have to or could be forced
to close the remaining hospitals it operates. There also can be no assurance
that suitable joint venture and/or acquisition candidates can be found, that
joint ventures and/or acquisitions can be negotiated on acceptable terms, that
adequate financing can be obtained or that the operations of acquired businesses
can be effectively or profitably integrated into the Company's existing
operations.
With respect to its biological product distribution business, the Company
originally entered the business in July 1995 as a minority partner (25%) of a
California partnership with the same name, Biologic Health Care ("BHC"). During
1996, the Company expanded this business into Southern California and the State
of Florida. The Company has structured the biological product distribution
business as a cost effective, alternate site care model for the distribution of
biological and biotech products and services through a vertically integrated
pharmacy benefits management network. However, progress in growing this business
through BHC has ceased (see Item 3. "Legal Proceedings", below) and BHC
generated no revenues during the 1998 fiscal year. In 1998, the Company began
the wholesale distribution of biological products through BSC with operations
predominately in the State of Florida. Progress in growing the business through
BSC has seen limited success to date though the Company currently is facing
serious challenges in securing reliable suppliers of biological products to
distribute. BSC generated revenues of approximately $1.0 million in 1998.
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BUSINESS SEGMENTS
HOSPITAL MANAGEMENT
In July 1995, the Company acquired, through a merger transaction, all of the
stock of CHC, then based in Nashville, Tennessee. CHC, a hospital company, at
the time it was acquired, operated three acute care hospitals, with a total of
98 licensed beds, and three medical clinics, all located in rural communities in
Mississippi. Under the acquisition agreement, in exchange for all of the issued
and outstanding common and preferred stock of CHC, the Company paid $1.0 million
in cash, agreed to issue 330,000 shares of RXM Common Stock and 1.09 million
shares of Preferred Stock (designated series F convertible preferred stock)
convertible into RXM Common Stock at $5.00 per share. The cash portion of this
acquisition was provided by a loan from an affiliate of the Financing Source
("Related Party"). In consideration for the financing and as security for
repayment, the Company pledged to the Financing Source ("Related Party") the
stock of CHC it received in the merger transaction. See Item 12. "Security
Ownership of Certain Beneficial Owners and Management".
Effective as of March 30, 1996, newly formed subsidiaries of CHC entered into
operating lease agreements on two rural hospitals owned by an affiliate of the
Financing Source ("Related Party"). The hospitals are the Whitwell Medical
Center located in Whitwell, Tennessee, which has 17 medical/surgical and 35
alcohol and drug abuse beds, and the Dickenson County Medical Center, a 50 bed
acute care facility located in Clintwood, Virginia. Included in the operations
of Dickenson County Medical Center are three medical clinics. These facilities
were acquired by the affiliate of the Financing Source ("Related Party") on
March 29, 1996, from Volunteer Healthcare Systems, Inc., a debtor in bankruptcy
pursuant to a petition for reorganization under Chapter 11 of the Bankruptcy
Code. The operating leases, each for 20 years, provide that CHC will operate and
manage the facilities and pay the lessor approximately $95,500 per month for the
Dickenson facility and equipment and approximately $27,300 per month for the
Whitwell facility and equipment. In connection with the operating leases, the
owner granted CHC an option to purchase both hospitals for a purchase price
equal to the assumption of all liabilities and indebtedness attributable to or
secured by the facilities and equipment.
In May 1996, the Company repurchased (a) the rights to the 330,000 shares of RXM
Common Stock and (b) a total of 400,000 shares of series F convertible preferred
stock issued to the minority shareholders of CHC at the time CHC was acquired by
the Company in July 1995. In consideration therefore, the Company transferred to
such minority shareholders the right to exercise CHC's option to purchase the
Whitwell Medical Center, and entered into various agreements pursuant to which
the minority shareholders, through their company Star Health Services, Inc., now
Ameris Health Systems, ("Ameris"), would manage or sub-manage, as the case may
be, four hospital facilities in CHC's portfolio (excluding the Dickenson County
Medical Center) and the
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one medical clinic in Mississippi, and be paid a portion of the management fees
payable to CHC. On August 13, 1996, Ameris notified the Company and the owner of
Whitwell Medical Center, of its decision to exercise the option to purchase the
land, building and equipment comprising the Whitwell Medical Center. Closing on
this purchase occurred on October 31, 1996, at which date CHC ceased operating
the Whitwell Medical Center.
CHC's option to purchase Dickenson County Medical Center has been extended by
the owner of that facility from May 1, 1997 to December 31, 2000.
On April 30, 1996, one month following the acquisition of Dickenson County
Medical Center by the affiliate of the Financing Source ("Related Party"), the
bankruptcy court entered an order rejecting all executory contracts, including
Dickenson County Medical Center's Medicare provider contract. This occurred
without the knowledge or consent of CHC or the purchaser of the facility, and
has resulted in the denial of Medicare claims from that facility for the period
from March 30, 1996 through June 2, 1996, amounting to $793,856. CHC has
requested the Health Care Financing Administration ("HCFA") to reconsider its
decision to issue a new provider agreement effective June 3, 1996 and to revise
the effective date of the agreement to March 30, 1996, or, alternatively, May 1,
1996. Since HCFA has yet to reconsider its decision (a proceeding seeking such
reconsideration is still pending), and CHC and the owner of the facility may
have no further viable legal recourse to contest that decision, the Company
recorded a loss of revenue equal to 100% of the denied Medicare claims.
Two of the three medical clinics operated by CHC at the time of the Company's
acquisition of CHC, the Dedeaux and Owen clinics, located in Morton,
Mississippi, were closed in March 1996 due to poor performance. Effective
October 1, 1996, CHC agreed to a lease arrangement for the remaining clinic, the
Family Medical Group clinic in Forest, Mississippi, pursuant to which CHC
transferred operational control of the clinic to a Meridien, Mississippi medical
services company for a monthly lease fee. The term of the lease was for one
year, with the lessee having the option during the year to purchase the clinic
from CHC at a price of $750,000. The lessee exercised its right under the lease
agreement to purchase the clinic and the closing of this sale occurred on July
21, 1997.
Effective August 31, 1999, CHC ceased operations at the Smith County General
Hospital due to continued lack of financial performance.
In February 2000, CHC sold the Pittsburgh Specialty Hospital.
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The following table sets forth the name of each of CHC's hospitals and their
locations, number of licensed beds and whether the hospital is owned, leased or
managed as of December 31, 1998:
Owned, Leased
Name Location Licensed Beds or Managed
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Smith County General Hospital Raleigh, MS 28 Leased *
Scott Regional Hospital Morton, MS 30 Managed **
Newton Regional Hospital Newton, MS 39 Managed ***
Dickenson County Med. Center Clintwood, VA 50 Leased
Pittsburgh Specialty Hospital Pittsburgh, PA 13 Owned ****
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* CHC ceased operating this hospital effective August 31, 1999.
** The management agreement for this facility terminated in April 1998 and was
not renewed.
*** On February 4, 1998, CHC settled certain claims it had against Newton
Hospital located in Newton, Mississippi. The hospital agreed to pay CHC the
sum of $500,000, payable $200,000 in cash and $300,000 in a two year note
at 8% interest per annum, in settlement of outstanding notes and management
fees. As part of the settlement, CHC agreed to terminate its management
responsibilities to manage Newton Hospital retroactive to December 31,
1997. Effective January 1, 1998, Ameris assumed CHC's role as manager of
this facility.
**** This facility formerly known as the Podiatry Hospital of Pittsburgh was
sold by CHC in February 2000.
Leased hospitals are operated by CHC under operating lease agreements pursuant
to which CHC pays the owner a stipulated rental and assumes the risk of the
hospital not generating sufficient revenues to pay all operating expenses. Any
net revenues belong to CHC under these operating agreements. Managed hospitals
are operated by CHC under management agreements pursuant to which the owners of
the hospitals pay a stipulated management fee to CHC for the services performed
by CHC in managing the hospitals. The risk of loss remains with the hospital
owners in such instances.
The Company believes that rural acute care hospitals generally face less direct
competition than similar urban facilities from specialty healthcare providers
such as outpatient surgery and diagnostic treatment centers, and rehabilitation,
psychiatric and chemical dependency hospitals. The Company sought to develop its
acute care hospitals as the providers of primary care services in their
respective markets and to reduce the migration of the local population to larger
urban hospitals and other rural hospitals. This is based on the Company's belief
that the delivery of healthcare services is local in nature.
The Company employs experienced administrators and controllers at each of the
hospitals operated or managed by CHC who have responsibility for carrying out
the strategic plan established for their respective hospital. The Company's
management
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works closely with its local administrators to review hospital performance and
provide operating and financial guidance.
SOURCES OF REVENUES
Hospital revenues are received primarily from three categories of payors:
private payors (primarily private insurance), the federal government under the
Medicare program and state governments under their respective Medicaid programs.
The following table sets forth the percentages of net operating revenues
received by CHC's hospitals from each category of payor for the year ended
December 31, 1998:
Medicare and Medicaid......................................... 54%
Private and other sources..................................... 46%
The Medicare and Medicaid reimbursement programs have been changed by
legislative and regulatory actions many times since their inception. The changes
have usually reduced the rate of growth in reimbursement payments and placed a
greater administrative burden on hospitals and other providers of healthcare
services. Although the Company will attempt to offset the reduction in
reimbursement rates under Medicare and Medicaid and the additional
administrative burdens imposed by applicable laws and regulations there can be
no assurance that the Company's profitability will not be adversely affected.
(see "Business Segments - Hospital Management" above for a description of a
Medicare denial of claims at one of CHC's hospitals).
EMPLOYEES AND MEDICAL STAFFS
CHC, at December 31, 1998, has approximately 307 full-time and part-time
employees at its hospitals, of which approximately 39% are nursing personnel
(i.e. registered nurses, licensed vocational nurses and licensed practical
nurses). Other than for the Dickenson County Medical Center in Clintwood,
Virginia, which has 204 employees, CHC's employees are not represented by any
labor union. The union agreement pertaining to Dickenson County Medical Center
has an initial expiration date of September 20, 2000, and is renewable on a
year-to-year basis thereafter unless either party, after due notice, desires to
modify or terminate the agreement.
Physicians on the medical staffs of CHC's hospitals are generally not employees
of CHC or its hospitals; however, they utilize the hospitals to serve and treat
their patients. Physician staff members may also serve on the medical staffs of
other hospitals and each may terminate his or her affiliation with CHC's
hospital at any time.
DEPENDENCE ON HEALTHCARE PROFESSIONALS
CHC's hospitals are dependent upon the physicians practicing in the communities
served by CHC's hospitals. A small number of physicians account for a
significant
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portion of patient admissions at some of CHC's hospitals. Changes in the
healthcare industry may increase the competition for physicians specializing in
primary care. There can be no assurance that, despite vigorous physician
recruitment efforts, CHC's hospitals will be able to recruit physicians
successfully or to retain the loyalty of the physicians whose patient admissions
are important to the hospitals. Many of the markets where CHC's hospitals are
located are also facing shortages of nursing personnel, and it is expected that
such shortage will continue.
COMPETITION
Competition for patients among hospitals and other healthcare providers has
intensified in recent years. During this period, hospital occupancy rates in the
United States have declined as a result of cost containment pressures, changing
technology, changes in regulations and reimbursement, the advent of managed
care, changes in practice patterns from inpatient to outpatient treatment and
other factors. In certain areas in which CHC operates, there are other hospitals
or facilities that provide inpatient and outpatient services comparable to those
offered by CHC's hospitals. Certain of these facilities may have greater
financial resources and may offer a wider range of services than CHC's
hospitals. Even in communities in which CHC's hospitals are the sole or dominant
providers of acute care hospital services, CHC may face competition from
hospitals and other healthcare providers in nearby communities. The competitive
position of CHC's hospitals will, in all likelihood, be affected by cost
containment strategies imposed by the federal and state governments and other
major purchasers of healthcare services.
HOSPITAL ACCREDITATION AND LICENSING
Of the three hospitals, at December 31, 1998, owned or leased by CHC, one is
accredited by the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"). With regard to accreditation by JCAHO, or the American Osteopathic
Association, another accrediting body, it is CHC's intention to meet the
requirements of the managed care contract providers for each of its hospitals.
All hospitals, and the healthcare industry generally, are subject to extensive
federal, state and local regulation relating to licensure, conduct of
operations, billing and reimbursement, relationships with physicians,
construction of new facilities, expansion or acquisition of existing facilities
and the offering of new services. Each of CHC's hospitals is licensed by the
department of health or an equivalent agency in the state in which the hospital
is located. Federal and state agencies conduct periodic inspections to ensure
that a hospital maintains adequate standards of medical care, equipment and
cleanliness. Failure to comply with applicable laws and regulations could result
in, among other things, the imposition of fines, temporary suspension of the
ability to admit new patients to the facility or, in extreme circumstances,
exclusion from participation in government healthcare reimbursement programs
such as Medicare and Medicaid (from which the Company derives substantial
revenues) or the revocation of facility licenses. The Company believes that it
is in substantial compliance with all material regulations,
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although there is no assurance that CHC's hospitals will be able to comply in
the future and there can be no assurance that future regulatory changes will not
have an adverse impact on the Company.
CERTIFICATE OF NEED. Certificate of need regulations continue to
control the development and expansion of healthcare services and facilities in
many of the states in which CHC's leased hospitals operate. Those regulations
generally require proper government approval for the expansion or acquisition of
existing facilities, the construction of new facilities, the addition of new
beds, the acquisition of major items of equipment and the introduction of new
healthcare services. Failure to obtain necessary approval can result in the
inability to complete a project, the imposition of civil and, in some cases,
criminal sanctions, the inability to receive Medicare and Medicaid reimbursement
and/or revocation of a facility's license.
BIOLOGICAL PRODUCT DISTRIBUTION
Beginning in July 1995, the Company, through a joint venture and majority owned
corporations that are further described below, implemented a business model
specializing in the delivery of biotech products and patient services. This
business model provides health care payors and providers a cost efficient
alternative to the traditional home infusion companies for the delivery of
biotech products and patient services. The model seeks to lower the cost of care
associated with home infusion services through a vertically integrated pharmacy
benefits management organization for biological and biotech therapeutics used to
treat many rare chronic diseases. As an alternative to treatment centers and
home infusion companies, contracts are entered into with pharmaceutical
manufacturers to purchase biological and biotech products. These biological and
biotech products, via arrangements with non-chain retail pharmacies, are then
dispensed by the non-chain retail pharmacies to patients. This delivery model is
patient focused and can be custom-tailored to function effectively within any
integrated delivery system for their rare chronically-ill patients. This
business model enables a more efficient management of all the cost points
relative to alternate-site chronic care and will enhance the health care
provider's ability to better manage risk.
In July 1995, the Company entered into a joint venture, know as BioLogic Health
Care ("BHC"), with Biologic Health Resources, a Nevada corporation ("BHR"), to
implement the business model described above. Initially, BHC was formed as a
general partnership in California to service the northern California market. The
Company owns a 25% interest in BHC, through its wholly-owned subsidiary, RxMIC.
BHC first generated revenues in September 1995. The Company expanded the BHC
operation into Southern California and Florida during the second half of 1996.
In October 1996, BSC (formerly known as BioLogic Health Care-Florida, Inc.) was
incorporated in Florida to service the Florida market. BSC is owned 87.5% by Rx
Medical Management Inc. ("RXM Management"), a wholly-owned subsidiary of the
Company. The remaining 12.5% of BSC is owned by one of the principals of BHR. In
November 1996, BioLogic
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Health Care-Southern California, Inc. ("BHC-SC") was incorporated in California
to service the Southern California market. BHC-SC is owned 75% by RXM
Management. The remaining 25% of BHC-SC is owned by one of the principals of
BHR.
In March 1997, the Company learned that the principals of BHR had conspired to
violate the BHC agreements by entering into direct competition with the BSC and
BHC-SC operations in Florida and California. In April 1997, the Company
commenced an action in the Florida Circuit Court (Dade County) against BHR's new
Florida operation seeking to enjoin BHR from stealing BSC's patients and for
damages in an unspecified amount for breach of contract and tortious
interference with BSC's business. In addition, in June 1997, the Company
commenced an action in the Superior Court of California (Santa Clara County)
seeking a dissolution of the BHC general partnership, an accounting of monies
alleged to have been diverted by BHR from BHC for BHR's own use, and for damages
for breach of contract. See Item 3. "Legal Proceedings". The actions of BHR that
are the subject of the lawsuit in Florida significantly weakened the BSC
operation in Florida. BHC ceased operations in the last quarter of 1997 as a
result of the dispute between the BHC partners. Based on the above facts the
Company has provided a reserve equal to 100% of its investment in BHC.
Notwithstanding these setbacks, the Company is attempting to sustain its
biological products distribution business in the Florida and California markets
through BSC. BSC has seen limited success to date though the Company currently
is facing serious challenges in securing reliable suppliers of biological
products to distribute. BSC generated revenue of $1.0 million for the year ended
December 31, 1998.
FINANCIAL INFORMATION
The Company's net revenues from continuing operations, by business segment
during the past three fiscal years, were as follows (in thousands):
Years Ended December 31,
--------------------------------------------
1998 1997 1996
------- ------- -------
Hospitals and Medical Clinics $15,486 $19,627 $16,926
Biological Products $ 1,012 $ 345 $ 54
Revenue from hospitals and medical clinics is recognized upon completion of
patient services and is recorded at amounts estimated to be received under
reimbursement arrangements with third party payors.
GOVERNMENTAL REGULATION
GENERAL. The health care industry is subject to extensive federal, state and
local regulation relating to licensure, conduct of operations, ownership of
facilities, addition of facilities and services and prices for services, as
described below. The Company is
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unable to predict the future course of federal, state and local regulation or
legislation, including Medicare and Medicaid statutes and regulations. Further
changes in the regulatory framework could have a material adverse effect on the
financial results of the Company's operations.
FEDERAL AND STATE ANTI-FRAUD AND ANTI-REFERRAL LEGISLATION.
MEDICARE ANTI-KICKBACK STATUTE. Section 1128B(b) of the Social Security
Act (the "Antikickback Statute") prohibits offering, paying, soliciting, or
receiving remuneration to induce, or in exchange for, the referral of business
that is reimbursable under the Medicare or Medicaid program. A person who
violates the Antikickback Statute may be subject to fines of up to $25,000,
imprisonment for up to five years, civil monetary penalties, and exclusion from
participation in the Medicare and Medicaid programs. The Antikickback Statute
has been interpreted broadly by federal courts and enforcement agencies. Many
common kinds of business arrangements, including joint ventures, investment
interests, leases, and service or supply contracts, can violate the Antikickback
Statute if they involve the payment of any remuneration that is intended to
induce the referral of Medicare or Medicaid business. The federal government
encourages the public to report persons believed to be in violation of the
Antikickback Statute.
"STARK" SELF-REFERRAL STATUTE. If a physician has a financial
relationship with an entity (including any ownership or investment interest in,
or any compensation arrangement with, an entity), Section 1877 of the Social
Security Act (the "Stark Law") prohibits the physician from referring patients
to the entity for the provision of any "designated health service" for which
reimbursement is available under Medicare or Medicaid. The Stark Law also
prohibits the entity from billing Medicare, Medicaid, or any other payer for
services provided pursuant to a prohibited referral. "Designated health
services" include (among others) clinical laboratory services, physical and
occupational therapy services, radiology services, durable medical equipment,
home health services, and inpatient and outpatient hospital services. Sanctions
for violating the Stark Law include civil money penalties of up to $15,000 per
prohibited service provided, assessments equal to 200% of the dollar value of
each such service provided, and exclusion from the Medicare and Medicaid
programs. The Stark Law contains certain exceptions to the self-referral
prohibition.
FALSE CLAIMS. The Social Security Act also imposes criminal and civil
penalties for making false claims to Medicare and Medicaid for services not
rendered or for misrepresenting actual services rendered in order to obtain
higher reimbursement. Like the Antikickback Statute, the false claims statute is
very broad. The false claims statute requires careful and accurate coding of
claims for reimbursement.
STATE ANTIKICKBACK LAWS. Many states in which the Company operates also
have laws that prohibit payments to physicians for patient referrals. Although
some of these statutes are similar to the federal Antikickback Statute, they are
broader in the sense
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that they apply regardless of the source of the payment for the care. These
statutes typically provide for criminal and civil penalties as well as loss of
licensure. Many states also have passed legislation similar to the Stark Law,
but also with broader effect because the legislation applies regardless of the
source of the payment for the care.
CERTAIN COMPANY TRANSACTIONS. Certain of the Company's prior or current
arrangements with physicians, including joint ventures, may be subject to
enforcement action under the Antikickback Statute, Stark Law, or state laws. The
Company's future development of joint ventures and other financial arrangements
with physicians also could be adversely affected by the failure of such
arrangements to comply with those laws or similar laws adopted in the future.
The Company has not been the subject of, and is not currently the subject of,
any legal proceedings concerning violations of federal or state anti-kickback or
self-referral laws.
As of January 1, 1995, the Company was unable to comply with certain provisions
of the Stark Law, as well as certain similar state self-referral statutes, as
they applied to the medical diagnostic business of the Company's Manatee
subsidiary. The Company took steps during 1995, before the Company's medical
diagnostic business ceased operations, to notify its physician shareholders of
its intent not to accept referrals that would be prohibited under the Stark Law.
The Company has determined that, based on prohibited referrals to the Company's
medical diagnostic business (before it ceased operations), the Company could be
subject to penalties and the return of monies collected on certain services
provided in an aggregate amount of up to approximately $50 million. The Company
believes, however, that enforcement action is unlikely, because of the filing of
the Chapter 7 bankruptcy petition by Manatee and the cessation of the Company's
medical diagnostic operations. Nevertheless, the Company cannot be certain
concerning the probability of an enforcement action.
MEDICARE AND MEDICAID REIMBURSEMENT. The Company is dependent upon
reimbursement from the Medicare and Medicaid programs. Recent legislation
adopted or proposed in Congress in connection with efforts to reduce the federal
budget deficit likely will have the effect of reducing, or limiting increases
in, federal expenditures on the Medicare and Medicaid programs. Such legislation
could have a material adverse effect on the Company.
DISCONTINUED OPERATIONS
Following the sale of its California clinical laboratory operations in August
1995, the Company, through its Manatee subsidiary, owned and operated eight
clinical laboratories which analyzed human tissue, blood and other bodily fluids
for the medical community. The Company's clinical laboratories serviced clients
in the metropolitan areas surrounding Tampa, Miami, Orlando and Jacksonville,
Florida and New Orleans, Louisiana. In addition, Manatee owned and operated an
imaging center in Pinole, California which performed MRI's. Due to continuing
unprofitability of Manatee, and intense pressure from certain of Manatee's
creditors who were in the process of
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executing on previously obtained judgments, on April 4, 1996, Manatee filed a
voluntary petition under Section 301 of Chapter 7 of Title 11 of the United
States Code, 11 U.S.C. Sections 101 et. seq. in the Bankruptcy Court for the
Southern District of Florida (Case No. 96-21552 BKC-RBR). On April 10, 1996,
John P. Barbee of Fort Lauderdale, Florida was appointed Trustee of the bankrupt
estate. The bankruptcy filing forced the closing of all the Company's remaining
clinical laboratory facilities in Florida (the assets of the New Orleans lab had
been sold in January 1996 to another laboratory company in an arms-length
transaction). The trustee in bankruptcy has assumed Manatee's position as
general partner of the partnership that owns and operates the Pinole, California
MRI center. The bankruptcy proceeding is presently pending.
EMPLOYEES.
The Company has a total of approximately 315 employees, of whom approximately
309 are engaged in the operation of the Company's hospital management and
biological product distribution businesses, and the remainder are engaged in
administrative functions at the Company's Fort Lauderdale, Florida corporate
headquarters.
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ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Fort Lauderdale, Florida,
where it leases approximately 3,200 square feet at a monthly rental of $8,253
through September 2000. In addition, BHC-SC leases premises in Pasadena,
California (1,100 square feet) and BSC leases premises in Clearwater, Florida
(1,000 square feet), on a month to month basis, at an aggregate monthly rental
of $2,686.
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ITEM 3. LEGAL PROCEEDINGS
On July 22, 1994, two individuals who hold an aggregate of 1,125 shares of RXM
Common Stock filed a stockholders' lawsuit against the Company and the Company's
Chief Executive Officer (who is also a director of the Company), in the United
States District Court for the Southern District of Florida under the title
ABRAHAM KRELOFF AND SHEILA RICH V. RX MEDICAL SERVICES CORP. AND MICHAEL L.
GOLDBERG (Case No. 94-6671-Civ-Zloch). The Company was served with the summons
and complaint on August 3, 1994. The two plaintiffs in this action sought to
represent a class composed of all persons who purchased or otherwise acquired
shares of RXM Common Stock in the period from June 3, 1992 through April 22,
1994. The complaint alleged the dissemination of materially false and misleading
statements in connection with certain press releases and filings by the Company
with the Securities and Exchange Commission between 1991 and 1994 allegedly
causing an artificial inflation of the market price of RXM Common Stock. The
complaint sought damages in an unspecified amount. The Company retained
securities litigation counsel to represent it and Michael L. Goldberg in this
matter. The Company and Mr. Goldberg filed an answer denying the allegations
contained in the complaint and raising several affirmative defenses. In February
1996, the parties entered into a stipulation in which settlement of the class
action lawsuit was reached. The Stipulation of Class Settlement was filed but
never acted upon by the Court. On January 29, 1998, the lawsuit was voluntarily
dismissed. An order Approving Stipulation of Dismissal and Dismissing Action
Without Prejudice was entered by the presiding Judge and filed with the Clerk of
the Court. In consideration for the voluntary dismissal without prejudice, the
Company agreed to pay plaintiffs' counsel their out-of-pocket costs incurred in
the lawsuit, amounting to approximately $16,000. No release of any claims was
given to the defendants by virtue of this stipulation of dismissal.
The Company, in March 1995, received from the U.S. Securities and Exchange
Commission (the "Commission") a Formal Order Directing Private Investigation And
Designating Officers To Take Testimony In The Matter of Rx Medical Services
Corp., dated March 8, 1995. The Company has been advised by the Commission that
the investigation is confidential and should not be construed as an indication
by the Commission or its staff that any violation of law has occurred. No
proceedings in furtherance of this investigation have occurred in over four
years; however, no assurance can be given that this investigation will not be
activated in the future.
On July 21, 1995, an action was commenced against the Company and three of its
directors in the United States District Court, Eastern District of California
(Fresno), under the title SHARI RAINWATER AND GREG RAINWATER V. RX MEDICAL
SERVICE CORP., ET. AL. (Case No. CV-F-95-5596 REC/DIR). The complaint alleged
fraud and misrepresentation and breach of a written employment agreement and
sought damages of not less than $600,000, declaratory relief and injunctive
relief. The suit relates to the acquisition by the Company, through a merger
transaction, of Quail Diagnostic Laboratories, Inc. in October 1992 and the
subsequent employment of Shari Rainwater
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as the officer in charge of the Company's California clinical laboratory
operations. Due to the filing of the Chapter 7 petition in bankruptcy by
Manatee, most of the claims made by the plaintiffs can no longer be prosecuted.
The only cause of action that remained to be litigated was one of fraud and
rescission against the Company as a result of the merger. In March 1998, a
settlement was reached between the parties, pursuant to which the plaintiffs
agreed to accept the sum of $200,000 in complete satisfaction of their claims
against the defendants. In July 1998, the sum of $200,000 was paid to the
plaintiffs and the plaintiffs subsequently filed a dismissal of the action with
prejudice and general releases were exchanged.
In February 1996, an action was commenced against the Company and Manatee by
Eduardo R. Latour, as Trustee for Physicians Reference Lab Short Term Trust (the
"Trust") in the Circuit Court for Pinellas County, Florida (Case No.
96-00683-CI-15). The beneficiary of the Trust is Deborah H. Behar, the wife of
Morris Behar. Mr. Behar was a director of the Company until November 1997 and
was formerly an executive vice president and a director of Manatee, and was
previously the trustee of the Trust. The complaint filed in this action alleged
a default under a promissory note from Manatee, which note had been guaranteed
by the Company, and sought damages in the amount of $3,060,000 against Manatee
and the Company. In addition, the complaint sought to foreclose a security
interest in certain assets of Manatee that had been pledged to the Trust by
Manatee. The promissory note and pledge had been delivered to the Trust in
connection with the Trust's sale, in December 1991, to Manatee of the
Physician's Reference Laboratory Services group of clinical laboratories located
in Florida. Due to the Manatee bankruptcy, the Company remained as the sole
defendant in the action. In March 1998, an agreement was reached, prior to the
date set for trial, to settle this lawsuit for a total of $577,500 payable in
one lump sum. In July 1998, the sum of $577,500 was paid to the plaintiffs and
the plaintiffs filed a voluntary dismissal of the action with prejudice.
On April 4, 1996, Manatee filed a voluntary petition under Section 301 of
Chapter 7 of Title 11 of the United States Code, 11 U.S.C. Sections 101 et. seq.
in the Bankruptcy Court for the Southern District of Florida (Case No. 96-21552
BKC-RBR). On April 10, 1996, John P. Barbee of Fort Lauderdale, Florida was
appointed trustee of the bankrupt estate. The bankruptcy proceeding is pending.
On April 8, 1997, the Company commenced an action against Biologic Health
Resources (Florida) LLC ("BHR LLC") and five individuals, in the Circuit Court
for Dade County, Florida, under the title BIOLOGIC HEALTH CARE - FLORIDA, INC.
V. BIOLOGIC HEALTH RESOURCES (FLORIDA) LLC, ET. AL. (Case No. 97-07747 CA 25).
The complaint alleges that the principals of BHR conspired to violate the BHC
agreements by entering into direct competition with the BSC operation, and seeks
injunctive relief and damages against two former BHC employees for violations of
restrictive covenants contained in their employment agreements, and damages
against BHR LLC and its principals for tortious interference with the business
of BSC. A motion by the Company for a temporary injunction against one of the
former BSC employees was granted in August
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1997. In May 1999, this action, along with the California action described below
was settled.
On June 10, 1997, the Company commenced an action against BHR in the Superior
Court of California, County of Santa Clara, under the title RX MEDICAL IMAGING
CORP V. BIOLOGIC HEALTH RESOURCES, ET. AL. (Case No. CV-766768). The complaint
alleges that the defendants violated the partnership agreement of BHC in a
number of respects, including misappropriation of partnership assets and
diverting partnership customers, and seeks a dissolution of BHC, an accounting
of BHC's affairs, and damages. On August 7, 1997, the defendants filed a
cross-complaint in the pending action against the Company, RxMIC, the Financing
Source ("Related Party"), the Company's president and general counsel, and Bay
Cities Pharmaceutical Services and its two principals, seeking a dissolution of
the partnership and an accounting, and damages for breach of contract, breach of
fiduciary duty, fraud, recission, conversion, constructive trust, and conspiracy
to defraud. The action was dismissed in connection with a global settlement
reached between the parties, effective May 1999.
On January 29, 1998, an action was commenced by Morton Medical Center, Inc.
("MMC") in the Chancery Court of Scott County, Mississippi against CHC, Ameris
and Scott County (Civil Action Case Number 98-085). The suit relates to an
option originally held by MMC to purchase Scott Regional Hospital (the
"Hospital") from Scott County. In 1993, Scott County had leased the Hospital to
MMC and the lease contained the option to purchase, which MMC thereafter
assigned to CHC as partial consideration for CHC's agreement to manage the
Hospital for MMC. In 1996, CHC assigned the option to Ameris. The complaint
seeks a declaratory judgment that the option to purchase the Hospital is void on
public policy grounds and that CHC's assignment to Ameris lacked the required
approval of MMC and was, therefore, invalid. After the action was commenced, CHC
formally exercised the option to purchase, for itself or on behalf of Ameris,
should Ameris decide to purchase the Hospital. Pursuant to the grant of option,
the purchase price for the Hospital is $500,000, payable $100,000 at closing and
the balance over four years in equal annual installments. In July 1999, the
Company decided to no longer defend this case and thus will allow MMC to be
successful in this action.
In July 1998, an action was commenced against the Company in the Superior Court
of California, County of Contra Costa, under the title NORTH BAY MRI ASSOCIATES
V. RX MEDICAL SERVICES CORP. (Case No. C 98-02610). The complaint stated many
issues though the primary issue was that Rx Medical Services Corp. guaranteed
the performance of a lease agreement entered into by a partnership of which a
subsidiary of Manatee was a general partner. This subsidiary was included in
voluntary bankruptcy petition of Manatee filed on April 4, 1996. The Company
chose not to defend against this action and on October 20, 1998 a judgment by
default was entered against the Company in the amount of $1,432,900. The Company
currently is negotiating with the attorneys for the plaintiffs to settle this
judgment for an amount that
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is substantially less than the amount stated in the default judgment. The
Company nevertheless has established a liability account for the full amount of
the judgment.
In November 1998, an action was commenced against Biologic Health Care, which
the Company's wholly owned subsidiary RxMIC was a 25% general partner, in the
Superior Court of California, County of Santa Clara, under the title of CENTEON
LLC V. BIOLOGIC HEALTH (Case No. CV775830). The complaint stated that BHC owed
Centeon LLC for biological and other medical products purchased but not paid
for. The partnership was subsequently dissolved and Centeon LLC on January 8,
1999, entered and was granted a default judgment against RxMIC, who was the 25%
general partner in BHC, and Biologic Health Resources, who was the 75% general
partner in BHC, in the amount of $437,343. This default judgment as of May 22,
2000, had increased to $472,245. The Company has not established a liability
account for this judgment as the only asset of RxMIC was the investment in the
BHC partnership, which was written off in a previous year, and the Company did
not guarantee the performance of BHC or RxMIC. Therefore, Centeon LLC, in the
Company's opinion, has no viable way to collect on the default judgment granted
to them.
In addition to the foregoing, the Company is involved in routine litigation
arising in the ordinary course of its business which the Company believes would
not have a material adverse effect on its financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not hold an annual meeting of its stockholders in 1998.
EXECUTIVE OFFICERS
The executive officers of the Company as of December 31, 1998, are as follows:
Name Age Position
---- --- ---------
Michael L. Goldberg 49 Chairman of the Board and
Chief Executive Officer
Randolph H. Speer 48 Director, President and Chief
Operating Officer
Dennis A. Dolnick 35 Chief Financial Officer
MICHAEL L. GOLDBERG, 49 (a director since 1990). Mr. Goldberg was an Assistant
District Attorney in the Philadelphia District Attorney's office from 1974 to
1977 before entering private practice with a specialty in complex commercial
litigation. Mr. Goldberg joined the Company in May 1990. He was Chairman,
President and Chief Executive Officer of the Company from November 1991 to June
1994 at which time he relinquished the position of President.
RANDOLPH H. SPEER, 48 (a director since 1994). Mr. Speer was named President and
Chief Operating Officer of the Company in July 1994. On August 2, 1994, Mr.
Speer was appointed to the Board of Directors. Previously, he was Senior Vice
President, Treasurer and Chief Financial Officer of Summit Health Ltd. from
April 1989 through April 1994. In April 1994, Summit Health Ltd. was merged into
OrNda HealthCorp. Previous to Summit Health Ltd., from January 1981 until April
1989, Mr. Speer was Vice President and Chief Financial Officer of Sierra Land
Group, Inc. which, prior to the merger with OrNda HealthCorp., was the largest
shareholder of Summit Health Ltd. Mr. Speer is a CPA, licensed in the State of
California.
DENNIS A. DOLNICK, 35. Mr. Dolnick joined the Company in 1997 as Chief Financial
Officer. Previously, Mr. Dolnick was Controller of SII Pak-Tek, Ltd. and SII
Cassettes, Ltd. manufacturers of plastic injected molding supplies used
primarily by the entertainment industry. Previous to SII Pak-Tek, Ltd. and SII
Cassettes, Ltd., Mr. Dolnick was a manager in the audit department of the
accounting and management consulting firm of Grant Thornton LLP. Mr. Dolnick is
a CPA, licensed in the State of Florida.
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The executive officers hold office at the pleasure of the Board of Directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Effective December 3, 1996, shares of RXM Common Stock were formally delisted
from the American Stock Exchange (the "Exchange"). Prior to that date, there had
been no trading of the RXM Common Stock since April 1, 1996. RXM Common Stock is
qualified for trading on the OTC Electronic Bulletin Board (the "OTC Bulletin
Board"). Trading of RXM Common Stock on the OTC Bulletin Board commenced in
mid-December, 1996; however, such trading has been limited due to the Company's
inability to comply with the filing requirements of the Securities Exchange Act
of 1934 since April 1, 1996. The following table sets forth the high and low
closing prices on the Exchange for 1996 and on the OTC Bulletin Board for 1997,
1998, 1999 and 2000:
High Low
---- ----
1996 First Quarter 1.50 .50
Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth Quarter N/A N/A
1997 First Quarter .56 .06
Second Quarter .38 .13
Third Quarter .22 .09
Fourth Quarter .44 .10
1998 First Quarter .31 .19
Second Quarter .25 .17
Third Quarter .23 .15
Fourth Quarter .14 .06
1999 First Quarter .09 .06
Second Quarter .07 .06
Third Quarter .31 .06
Fourth Quarter .31 .07
2000 First Quarter .10 .01
Second Quarter .02 .01
Third Quarter .13 .01
Fourth Quarter .07 .01
On December 31, 2000, the closing price of RXM Common Stock on the OTC Bulletin
Board was $0.01 per share. As of December 31, 2000, based on the records of the
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Company's transfer agent, there were 744 holders of record of RXM Common Stock,
excluding the number of beneficial owners whose shares are held in street name.
Although RXM Common Stock is qualified for trading on the OTC Bulletin Board,
there can be no assurance that an active trading market will develop for such
common stock.
Effective November 1, 1996, the 1,250,000 shares of the Company's Series E
Preferred Stock were automatically fully converted into 625,000 shares of RXM
Common Stock, as specified in the preferences and rights of the Series E
Preferred Stock. Pursuant to the terms of the Series E Preferred Stock, the
Company was required to make monthly dividend payments, at the rate of 12% per
annum payable in arrears, calculated on the average of the total dollar value of
the Series E Preferred Stock remaining unconverted for the preceding month. At
December 31, 1998 the Company had dividends in arrears, for this series of
preferred stock, in the amount of $304,589.
Effective July 1, 1998, the 600,270 shares of the Company's Series F Preferred
Stock were automatically fully converted into 600,270 shares of RXM Common
Stock, as specified in the preferences and rights of the Series F Preferred
Stock. Pursuant to the terms of the Series F Preferred Stock, the Company was
required to make quarterly dividend payments, in cash at the rate of $.40 per
annum per share or, at the election of the holder, in RXM Common Stock, payable
in arrears. At December 31, 1998, the Company did not have dividends in arrears
for this series of preferred stock.
On October 1, 1998 and on a quarterly basis thereafter (January 1, April 1, and
July 1) until the shares of the Company's Series G Preferred Stock are fully
converted (on or before July 1, 2002), as specified in the preferences and
rights of the Series G Preferred Stock, the Company is required to make
quarterly dividend payments, at the rate of $.15 per annum per share payable at
the Company's discretion in cash or the Company's Common Stock, payable in
arrears (see Note 6 to the Notes to Consolidated Financial Statements). At
December 31, 1998, the Company had dividends in arrears, for this series of
preferred stock, in the amount of $55,643.
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ITEM 6. SELECTED FINANCIAL DATA
Rx Medical Services Corp.
Summary of Financial Information
(Dollar amounts in thousands, except per share amounts)
For The Years Ended December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Revenues $ 16,498 $ 19,972 $ 16,980 $ 1,844 $ --
Loss from
continuing
operations $(12,521) $ (9,147) $ (9,988) $ (4,731) $ (3,637)
Net loss $ (9,240) $ (8,993) $ (7,669) $(20,421) $(12,904)
Loss per common
share:
Loss from
continuing
operations $ (0.95) $ (1.03) $ (1.20) $ (0.58) $ (0.58)
Net loss $ (0.70) $ (1.01) $ (0.93) $ (2.42) $ (2.05)
Distributions $ -- $ -- $ -- $ -- $ --
Total assets $ 5,340 $ 6,473 $ 6,390 $ 2,547 $ 9,379
Working capital
deficit $(51,644) $(44,912) $(34,711) $(25,503) $(15,381)
Long-term debt $ 638 $ 202 $ 592 $ 736 $ --
Total shareholders'
deficit $(50,724) $(43,629) $(34,396) $(26,361) $ (6,059)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
From inception, the Company was unable to achieve profitability in its medical
diagnostic business. Commencing in 1995, and continuing in 1996, management
embarked on a plan to reorganize the Company. In March 1995, the Company closed
an MRI center in Fort Lauderdale, Florida. An MRI center, in Victorville,
California, was closed in June 1994. In August 1995, the Company sold its
clinical laboratory operations in California and in January 1996 it sold its
Louisiana clinical laboratory operation.
In April 1996, due to continuing losses and intense pressure from creditors,
Manatee, which operated the Company's medical diagnostic services business
segment, filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code.
This resulted in the closing of the Company's remaining medical diagnostic
facilities and imaging center. Management decided that, at that point in time,
it was in the best interests of the Company and its shareholders to discontinue
the operations of this division, and to focus its future efforts on the
expansion of its hospital management and biological product distribution
businesses.
As a result of this decision, for all years presented, the medical diagnostic
services business segment has been accounted for as discontinued operations in
accordance with Accounting Principles Board Opinion No. 30, which provides for
the reporting of operating results of discontinued operations separately from
the continuing operations. Gains from discontinued operations amounted to
$136,000, $181,000 and $229,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
Also, gains and losses on the settlement of liabilities, indebtedness and on the
purchase of accounts receivable have been accounted for as extraordinary items
in accordance with Accounting Principles Board Opinion No. 30, which provides
for the reporting of such material, non-recurring events separately from the
continuing operations. Gains and (losses) from extraordinary items amounted to
$3,145,000, $(27,000) and $2,090,000 for the years ended December 31, 1998, 1997
and 1996, respectively.
Including losses from continuing operations, net losses of the Company were
$(9,240,000), $(8,993,000) and $(7,669,000) for the fiscal years 1998, 1997 and
1996, respectively.
RESULTS OF OPERATIONS
1998 VS. 1997
Revenues from hospitals and medical clinics for the year ended December 31, 1998
were $15.5 million compared to $19.6 million for the year ended December 31,
1997.
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The decrease in revenues from hospitals and medical clinics is primarily the
result of (a) a decrease in patient services provided at the Dickenson County
Medical Center located in Clintwood, Virginia ("DCMC") which resulted in a
decrease in revenues of approximately 3.2 million; (b) termination of two
hospital management agreements which resulted in a decrease in revenues of
approximately $0.4 million; and (c) a cumulative decrease of revenues at other
Company hospital and medical clinics of approximately $0.5 million.
Revenues from biological product distribution for the year ended December 31,
1998 were $1.0 million compared to $0.3 million for the year ended December 31,
1997. This increase in revenues is primarily due to the current biological
product mix being in high demand and commanding higher sales prices.
Costs and expenses decreased 12% to $20.4 million for the year ended December
31, 1998 from $22.8 million for the year ended December 31, 1997. Of these 1998
expenses, hospital management operations accounted for $18.4 million, biological
product distribution accounted for $0.8 million, and the corporate expenses of
the Company were $1.2 million. The decrease in costs and expenses is primarily
the result of (a) a decrease in patient services provided at DCMC which resulted
in a decrease in costs and expenses of approximately $1.6 million; (b) an
increase in biological product sales which resulted in an increase in costs and
expenses of $0.2 million; and (c) a cumulative decrease in costs and expenses at
other Company hospital and medical clinics and the Company's corporate
headquarters of approximately $1.0 million.
Interest expense increased 20% to $7.7 million for the year ended December 31,
1998 from $6.4 million for the year ended December 31, 1997. This increase is
due primarily to a higher level of borrowings from the Financing Source
("Related Party"). (See "Financial Condition, Liquidity, and Capital
Resources").
No provision for income taxes is required on the gain from discontinued
operations.
RESULTS OF OPERATIONS
1997 VS. 1996
Revenues from hospitals and medical clinics for the year ended December 31, 1997
were $19.9 million compared to $16.9 million for the year ended December 31,
1996. The increase in revenues from hospitals and medical clinics is primarily
the result of (a) the year ended December 31, 1997 includes twelve months of
operations from DCMC while the year ended December 31, 1996 only includes nine
months of operations from DCMC resulting in an increase of revenues of
approximately $5.6 million; (b) the Company ceased operating the Whitwell
Medical Center located in Whitwell, Tennessee ("WMC") on October 31, 1996,
therefore no revenues were generated during the year ended December 31, 1997,
which resulted in a decrease in revenues of approximately $4.1 million; (c) the
acquisition of the Pittsburgh Specialty Hospital ("PSH") (formerly known as the
Podiatry Hospital of Pittsburgh) effective January 1,
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1997 which generated revenues of approximately $2.3 million for the year ended
December 31, 1997; and (d) a cumulative decrease in revenues at other Company
hospital and medical clinics of approximately $1.1 million.
Revenues from biological product distribution for the year ended December 31,
1997 were $0.3 million compared to $0.1 million for the year ended December 31,
1996. The increase in revenues from biological product distribution is primarily
the result of the Company beginning this line of business in July 1996 and
therefore the year end December 31, 1997 includes twelve months of operations
while the year ended December 31, 1996 includes only six months of operations.
Costs and expenses increased 3% to $22.8 million for the year ended December 31,
1997 from $22.1 million for the year ended December 31, 1996. Of these 1997
expenses, hospital management operations accounted for $20.9 million, biological
product distribution accounted for $0.6 million, and the corporate expenses of
the Company were $1.3 million. The increase in costs and expenses is primarily
the result of (a) the year ended December 31, 1997 includes twelve months of
operations from DCMC while the year ended December 31, 1996 only includes nine
months of operations from DCMC which resulted in an increase of costs and
expenses of approximately $4.8 million; (b) the Company ceased operating WMC on
October 31, 1996, therefore no costs and expense were incurred during the year
ended December 31, 1997, which resulted in a decrease in cost and expenses of
approximately $5.7 million; (c) the acquisition of PSH effective January 1, 1997
which generated costs and expenses of approximately $3.6 million for the year
ended December 31, 1997; (d) costs and expenses associated with the biological
product distribution line of business, which first incurred costs in the fourth
quarter of 1996, of approximately $0.4 million; and (e) a cumulative decrease in
costs and expenses at other Company hospital and medical clinics and the
Company's corporate headquarters of approximately $2.4 million.
Interest expense increased 37% to $6.4 million for the year ended December 31,
1997 from $4.7 million for the year ended December 31, 1996. This increase is
due primarily to a higher level of borrowings from the Financing Source
("Related Party"). (See "Financial Condition, Liquidity, and Capital
Resources").
No provision for income taxes is required on the gain from discontinued
operations.
RESULTS OF OPERATIONS
1996 VS. 1995
Revenues from hospitals and medical clinics for 1996 were $16.9 million compared
to $1.8 million in 1995. The Company began operating its hospital management
line of business in 1995 and revenues include the results of operations from
August 1, 1995. In 1996, the Company began operating two additional hospitals -
DCMC and WMC. Revenues include the results of operations of DCMC for the nine
month period from
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April 1, 1996 to December 31, 1996 and WMC for the seven month period from April
1, 1996 to October 31, 1996.
Revenues from biological product distribution for 1996 were $0.1 million
compared to $0 revenues in 1995. The Company began operating this business in
1996 and revenues include the results of operations from July 1, 1996.
Costs and expenses increased 320% from $5.3 million in 1995 to $22.2 million in
1996. Of these 1996 expenses, hospital management operations accounted for $20.4
million, biological product distribution accounted for $0.3 million, and the
corporate expenses of the Company were $1.5 million. This decrease of 40% in
corporate expenses is the result of management's efforts to aggressively control
costs.
Interest expense increased 230% from $1.4 million in 1995 to $4.7 million in
1996. This increase was due primarily to a higher level of borrowings from the
Financing Source ("Related Party"). (See "Financial Condition, Liquidity, and
Capital Resources").
No provision for income taxes is required on the gain from discontinued
operations.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
At December 31, 1998 and 1997, the Company's working capital deficit was $51.6
million and $44.9 million, respectively. This increase in the working capital
deficit was primarily due to a $6.9 million increase in the level of funding
from the Financing Source ("Related Party"), the settlement of the Manatee
Medical Laboratories, Inc. lawsuit which reduced the current portion of
long-term debt and related accrued interest by $3.8 million and operating
losses. Through December 31, 1998, the Company's ability to continue as a going
concern is dependent on the continued funding of its operations by the Financing
Source ("Related Party"). Without this funding, the Company's ability to operate
its business would be adversely impacted. However, until the Company's revenues
increase so as to exceed the Company's operating expenses, the Company will
continue to utilize funding from the Financing Source ("Related Party"), or
other alternative sources of funding, to the extent available. To the extent
fundings from the Financing Source ("Related Party") are insufficient to pay the
Company's operating expenses, the Company will require alternative sources of
funding. There can be no assurance that any alternative sources of financing
will be available to the Company at such point in time, or if obtainable, on
terms that are commercially feasible.
The Company's current operations (i.e. hospital management and biological
product distribution) are presently being funded through financing agreements
with the Financing Source ("Related Party") and the Company's various operating
facilities. Financing agreements exist between the Financing Source ("Related
Party"), the Company and five of the Company's operating subsidiaries.
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29
While the Company has not yet reached profitability operationally, it has
several plans of action in progress designed to improve profitability, as well
as, cash flow. The Company intends to reorganize the hospital ownership and
management business and attempt to sustain the biological product distribution
business.
YEAR 2000 ISSUE
The "Year 2000 Issue" exists because many computer systems and applications,
building infrastructure components, computer aided medical equipment and other
operations related equipment that have date sensitive systems, which currently
use two-digit fields to designate a year, may recognize the year 2000 as 1900,
or not at all. This could result in system and/or equipment failures or
miscalculations causing disruption of operations. The Company has performed an
assessment of the impact of the "Year 2000 Issue" and based on this assessment,
the Company believes that its accounting systems and operations may
substantially avoid the "Year 2000 Issue", thereby enabling it to properly
process critical financial and operational information. The costs associated
with addressing the "Year 2000 Issue" were not material. There can be no
assurance, however, that the systems of other entities on which the Company's
systems and operations rely were properly converted to address the "Year 2000
Issue", or that a conversion by another entity, or a conversion that is
incompatible with the Company's systems, will not have a material adverse effect
on the Company's financial position and results of operations.
GOING CONCERN
The report of the independent auditors of the Company on its 1998, 1997 and 1996
consolidated financial statements express substantial doubt about the Company's
ability to continue as a going concern. Factors contributing to this substantial
doubt include recurring operating losses, a working capital deficiency,
delinquencies and defaults on its accounts payable and other outstanding
liabilities, litigation, as well as, to the uncertainty of the Company's
compliance with certain Medicare and state statutes and regulations. As of
January 1, 1995, the Company was unable to comply with certain provisions of the
OBRA 1993 amendments to the Stark Act, as well as, certain similar state
statutes. Although the Company has not been the subject of, and is not currently
the subject of, any administrative proceedings concerning violations of federal
or state self-referral statutes or regulations, in the event that the Company is
found to have violated such statutes and regulations, it could be subject to
cumulative fines and penalties and could also be required to make refunds, which
may aggregate up to approximately $50.0 million. The Company believes, however,
that due to the filing of the Chapter 7 bankruptcy petition for Manatee, the
likelihood of such enforcement actions occurring is remote.
As mentioned in the Financial Condition section, the Company is dependent on the
continued funding currently being received from the Financing Source ("Related
Party")
29
30
to continue operations. The discontinuance of such funding, and the
unavailability of financing to replace such funding, could result in the Company
ceasing its operations.
OUTLOOK
The Company views its decisions to discontinue the operation of its medical
diagnostic services business segment, to reorganize its interests in the
hospital ownership and management business and to sustain the biological product
distribution business as positive from a strategic standpoint. In the hospital
operation and management business, the Company anticipates entering into
individual agreements to sell or closing each of the hospitals it currently
operates while looking to expand its presence, through joint ventures and/or
acquisitions, into new markets with perceived potential. In the biological
product distribution business, the Company has scaled back its emphasis in the
retail area but will continue as a wholesale distributor. The Company will,
however, continue to seek retail patients in certain geographic markets where
business objectives can be met. (See Part I Item 1. "Business"). There can be no
assurance, however, that the Company will achieve its strategic objectives.
30
31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange, interest rates and a decline in
the stock market. The Company does not enter into derivatives or other financial
instruments for trading or speculative purposes. The Company is not exposed to
market risk as it relates to changes in foreign currency exchange rates though
the Company is exposed to immaterial levels of market risk as it relates to
changes in interest rates. The Company's objectives in managing its exposure to
stock market fluctuations is to minimize the impact of stock market declines to
the Company's earnings and cash flows. Beyond the control of the Company,
however, continued market volatility, as well as mergers and acquisitions, have
the potential to have material non-cash impact on the operating results of the
Company in future periods.
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32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Refer to the index of financial statements and schedules as presented on page
43. Information on selected quarterly financial data is not required for the
Registrant pursuant to the rules of the Commission.
32
33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
34
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
DIRECTORS
The Company's by-laws provide that the number of directors shall be not less
than three nor more than ten. The actual number of directors is determined by
resolution of the Board from time to time. The Company's by-laws also provide
that directors are elected at the annual meeting of shareholders for a term of
office of one year or until their successors are elected and qualify. The last
annual meeting of shareholders was held on November 20, 1997. All of the current
directors were elected at that meeting. The Company anticipates that the next
annual meeting of shareholders will be held in the year 2000. The number of
directors is currently set at nine. Only three persons, however, are currently
serving as directors. Following is information concerning each of the current
directors of the Company:
MICHAEL L. GOLDBERG, 49 (a director since 1990). Mr. Goldberg was an Assistant
District Attorney in the Philadelphia District Attorney's office from 1974 to
1977 before entering private practice with a specialty in complex commercial
litigation. Mr. Goldberg joined the Company in May 1990. He was Chairman,
President and Chief Executive Officer of the Company from November 1991 to June
1994 at which time he relinquished the position of President.
PHILLIP E. PEARCE, 70 (a director since 1992). Mr. Pearce has been in the
investment banking and securities business since receiving his Graduate Degree
from the Wharton School in 1954. From 1969 to 1983, he served as Senior Vice
President and a Director of E.F. Hutton of New York City, served on the Board of
Governors of the New York Stock Exchange and was Chairman of the Board of
Governors of the National Association of Securities Dealers, Inc. From 1983 to
1988, Mr. Pearce served as President of Phillip E. Pearce & Co., and since 1988
has been a partner in Pearce-Henry Capital Corp. of Charlotte, North Carolina,
an investment banking firm. Mr. Pearce was also a contributing author and editor
of the Dow Jones publication of the Stock Market Handbook, and sat on the
advisory council to the Securities and Exchange Commission on THE INSTITUTIONAL
STUDY OF THE STOCK MARKETS.
MICHAEL J. PICKERING, M.D., 68 (a director since 1990). Dr. Pickering has
practiced as a medical doctor specializing in nephrology since receiving his
medical degree from the University of Florida in 1961. He has certifications
from the American Board of Internal Medicine and the American Board of Internal
Medicine in the Subspecialty of Nephrology and is a member of the American and
Florida Medical Associations, is a Fellow, American College of Physicians, and
is a member of the American Society of Artificial Internal Organs, American
Society of Internal Medicine, the American Society of Nephrology, the Florida
Society of Internal Medicine, the Florida Society of Nephrology, the
Hillsborough County Medical Association, the International Society of
34
35
Nephrology, the National Kidney Foundation, the Southeastern Dialysis and
Transplantation Association, the South-Eastern Organ Procurement Foundation, the
Royal Society of Health and the American Board of Quality Assurance &
Utilization Review Physicians. Dr. Pickering currently practices medicine,
serves as an Associate Professor of Medicine at the University of Florida and is
a frequent speaker and lecturer on his area of specialty throughout the country.
He also has had articles and abstracts published in more than one hundred
medical journals and medical conferences.
EXECUTIVE OFFICERS
Information concerning the executive officers of the Company is contained in
Part I, on page 17 of this annual report.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Ownership of and transactions in the Company's securities by executive officers
and directors of the Company and owners of ten percent or more of the Company's
Common Stock are required to be reported to the Securities and Exchange
Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act").
The Company does not have knowledge of any failure to file a required form to
report such ownership and transactions.
35
36
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides a summary of cash and non-cash compensation for
each of the fiscal years ended December 31, 1998, 1997 and 1996 with respect to
the Company's Chief Executive Officer and the only other executive officers
whose compensation exceeded $100,000 in the fiscal year ended December 31, 1998
(the "Named Officers").
Long Term
Compensation
Annual Compensation Awards
------------------------------------------- ----------------------
Name and Other Annual Securities Underlying
Principal Position Year Salary($) Bonus($) Compensation ($) Option/SARs(#)
------------------ ---- --------- -------- ---------------- ----------------------
Michael L. Goldberg 1998 165,000 -0- 8,000 -0-
Chief Executive 1997 165,000 -0- 8,000 -0-
Officer 1996 165,000 -0- 8,000 -0-
Randolph H. Speer 1998 200,000 -0- -0- -0-
President and Chief 1997 200,000 -0- -0- -0-
Operating Officer 1996 200,000 -0- -0- -0-
STOCK OPTIONS
There were no grants of stock options by the Company to the Named Officers
during 1998.
36
37
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
The following table sets forth the information with respect to the Named
Officers concerning the exercise of options during 1998 and unexercised options
held as of December 31, 1998:
(a) (b) (c) (d) (e)
------------------------------------------------------------------------------ -----------------------------------
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at FY-End (#) Options at FY-End ($)
Shares --------------------------------- ---------------------------------
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ---------- ------------ ----------- ------------- ----------- -------------
Michael L.
Goldberg -0- -0- 241,250 -0- -0- -0-
Randolph
H. Speer -0- -0- 100,000 -0- -0- -0-
COMPENSATION OF DIRECTORS
It has been the policy of the Company not to compensate its directors for their
services as directors; however, in July 1993, the Company granted options to
purchase 12,500 shares of the Company's Common Stock to each director as
compensation for their respective services as directors. It is the policy of the
Company not to pay its directors for attending Board or committee meetings, but
the Company reimburses directors for travel expenses incurred in attending such
meetings.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Board of Directors of Rx Medical Services Corp. does not have a Compensation
Committee and, as a result, the Board of Directors makes determinations as to
executive officer compensation. The Board of Directors has not changed the
compensation of its executive officers since 1995. As of December 31, 1998, the
Company had three executive officers.
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38
PERFORMANCE GRAPH
COMPARISON OF 5 YEAR CUMULATIVE TOTAL
RETURN*
AMONG RX MEDICAL SERVICES CORP.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE S & P HEALTH CARE (HOSPITAL
MANAGEMENT) INDEX
Cumulative Total Return
----------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
----- ----- ----- ----- ----- -----
RX MEDIAL SERVICES CORP. 100 31 13 1 3 1
NASDAQ STOCK MARKET (U.S.) 100 98 138 170 208 294
S & P HEALTH CARE (HOSPITAL MANAGEMENT) 100 106 148 174 152 125
* 100 INVESTED ON 12/31/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS,
FISCAL YEAR ENDING DECEMBER 31.
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39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Each share of Preferred Stock of the Company contains voting rights equivalent
to one share of RXM Common Stock. The Company currently has one series of
preferred stock outstanding, designated Series G. For a description of the
relative rights and preferences of this series, see Note 6(a) to the Notes to
Consolidated Financial Statements. On all matters submitted for vote by the
stockholders of the Company, including the election of directors, the shares of
Preferred Stock and RXM Common Stock vote together as a single class except as
may otherwise be required by law.
The following table sets forth information as of December 31, 2000, with respect
to all stockholders known by the Company to be the direct or indirect beneficial
owners of 5% or more of the Company's voting securities and by the executive
officers and directors of the Company as a group. Each percentage is calculated
by assuming that the named stockholder converted or exercised all of such
stockholder's securities convertible within the next 60 days into, or
exercisable for, shares of RXM Common Stock at a time when no other stockholder
did so, irrespective of the conversion or exercise price thereof. Except as
otherwise noted, all persons and entities have sole voting and investment power
with respect to their shares.
Amount and Nature
Name and Address of Title of of Beneficial Percentage
Beneficial Owner Class Ownership (1) of Class
------------------- -------- ----------------- -----------
Michael L. Goldberg Common 4,951,194(2) 20.85%
(also a director)
888 East Las Olas Blvd.,
Suite 210
Fort Lauderdale, FL 33301
Morris Behar Common 1,232,245(3) 5.19%
209 State Street
Oldsmar, FL 34677
Intercontinental Investment Common 11,028,717(4) 46.43%
Associates, Ltd. Preferred 800,000(5) 100.00%
6125 Memorial Drive
Dublin, OH 43017
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40
Amount and Nature
Name and Address of Title of of Beneficial Percentage
Beneficial Owner Class Ownership (1) of Class
------------------- -------- ----------------- -----------
Directors: (address for all at)
888 East Las Olas Blvd.,
Suite 210
Fort Lauderdale, FL 33301
Michael J. Pickering, M.D. Common 23,750(6) .10%
All Executive Officers, Directors
and Nominees as a Group Common 4,974,944(7) 20.95%
1) As of December 31, 2000, there were 23,751,920 shares of RXM Common
Stock and 800,000 shares of Preferred Stock issued and outstanding.
2) Includes 72,500 shares representing stock options exercisable within 60
days and 4,605,311 shares of RXM Common Stock that were obtained by
conversion of the Series C Preferred Stock on December 31, 1999.
3) Represents 1,232,245 shares of RxM Common Stock registered in the name
of Gulf Coast Medical, Inc., a company controlled by Mr. Behar.
4) In July 1996, an entity distributed, in equal amounts, 750,000 shares
to Lance K. Poulsen, Donald H. Ayers, Rebecca S. Parrett and Barbara C.
Larson. These individuals are officers, directors and the majority
shareholders of the Financing Source ("Related Party") and IIA and may
be deemed to be the beneficial owners of the shares of RXM Common Stock
owned by the Financing Source ("Related Party") and IIA.
5) Represents 800,000 shares of RXM Common Stock that may be obtained by
the conversion of Series G Preferred Stock.
6) Includes 3,182 shares representing stock options exercisable within 60
days.
7) Includes 75,692 shares representing stock options exercisable within 60
days and 4,605,311 shares of RXM Common Stock that were obtained by
conversion of the Series C Preferred Stock on December 31, 1999.
40
41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In consideration of the funding of $1.0 million by the Financing Source
("Related Party") to facilitate the acquisition by the Company of CHC (see Item
1. "Business"), the Company pledged to the Financing Source ("Related Party")
all of the issued and outstanding common and preferred stock of CHC as
collateral for the repayment of the loan.
On June 1, 1998, the Company issued 1,560,702 shares of the Company's Common
Stock for payment of $600,270 of dividends in arrears on the Company's Series F
Preferred Stock. The Company's Series F Preferred Stock is held in the name of
Intercontinental Investment Associates, Ltd., a Nevada limited liability company
("IIA"), which is an affiliate of the Financing Source ("Related Party").
Effective July 1, 1998, the 600,270 issued and outstanding shares of the
Company's Series F Preferred Stock, held in the name of IIA, were converted into
600,270 shares of the Company's Common Stock.
On July 14, 1998, the Board of Directors of the Company authorized the creation
of the Series G Preferred Stock. The number of shares of Series G Preferred
Stock, par value of $.001, that the Company is authorized to issue is 1,500,000
shares.
On July 14, 1998, the Board of Directors of the Company authorized the issuance
to IIA of 800,000 shares of Series G Preferred Stock in consideration for a cash
funding to the Company by the Financing Source ("Related Party") of
approximately $800,000 which was utilized by the Company to finance litigation
settlements. No registration was required for the issuance of these 800,000
shares under the Securities Act of 1933, as amended, based on the exemption
contained in Section 4(2) thereof as a transaction not involving a public
offering.
On July 14, 1998, the Company authorized the issuance of 5,000,000 shares of its
Common Stock, par value $.002 per share, to IIA. These shares were issued in
consideration of the cancellation by the Financing Source ("Related Party") of
$800,000 of indebtedness owed by the Company to an affiliate of the Financing
Source ("Related Party") and was based on the market value of the Company's
Common Stock of $.16 per share on July 14, 1998, the date the indebtedness was
canceled.
On July 23, 1998, a holder of Series C Preferred Stock exchanged 341,893 shares
of Series C Preferred Stock for 1,000,000 shares of the Company's Common Stock.
On October 16, 1998, the Company issued 628,950 shares of the Company's Common
Stock for payment of $120,054 of dividends in arrears on the Company's Series F
Preferred Stock, which were held in the name of IIA.
41
42
Based on the number of shares of the Company's Common Stock issued to IIA and
the four individual owners of IIA, a change in the control of the Company has
occurred. IIA owns directly or indirectly 9,864,922 shares of the 17,982,814
shares of the Company's $.002 par value Common Stock issued and outstanding as
of December 31, 1998. This ownership represents 54.9% of the issued and
outstanding shares of the Company's $.002 par value Common Stock as of December
31, 1998. The ownership percentage does not take into account following:
a) the issuance to IIA of 800,000 shares of Series G Preferred Stock,
which are convertible into the Company's Common Stock,
b) dividends in arrears of $55,643 on the Series G Preferred Stock as of
December 31, 1998, which were paid by the issuance of 650,960 shares of
the Company's Common Stock subsequent to December 31, 1998, or
c) shares of the Company's Common Stock issued and held in street name.
42
43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Rx Medical Services Corp. and
Report of Independent Accountants are filed as a part of this annual report:
Page
-------
Report of Independent Certified Public Accountants 47
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 48
Consolidated Balance Sheets at December 31, 1998 and 1997 49-50
Consolidated Statements of Shareholders' Deficit for the years ended
December 31, 1998, 1997 and 1996 51
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 52-53
Notes to Consolidated Financial Statements 54-79
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule (numbered in accordance
with Regulation S-X) of Rx Medical Services Corp. for the years ended December
31, 1998, 1997 and 1996 are included in this Report:
Page
-------
Reports of Independent Certified Public Accountants on Schedule
II - Valuation and Qualifying Accounts 80
Schedule II - Valuation and Qualifying Accounts 81
Schedules other than those listed above are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
(a)(3) LIST OF EXHIBITS: (numbered in accordance with Item 601 of Regulation
S-K)
Incorporation by
Exhibit Number Description of Document Reference
- -------------- ----------------------- ----------------
3(a) Certificate of Incorporation 3(a)*
3(b) By-Laws 3(b)*
43
44
3(c) Certificate of Decrease in Number of Authorized and Outstanding Shares 3(c)**
of Stock, filed with Nevada Secretary of State (December 1991)
3(d) Certificate of Decrease in Number of Authorized and Outstanding ***
Shares, filed with Nevada Secretary of State (December 1993)
4(a) Certificate of Resolution with respect to Series B Preferred Stock of 4(a)****
Registrant
4(b) Certificate of Designation, Series C Preferred Stock 4(b)x
4(c) Certificate of Designation, Series D Preferred Stock 4(c)x
4(d) Certificate of Designation, Series E Preferred Stock 4(d)x
4(e) Certificate of Designation, Series F Preferred Stock 4(e)x
10(a) Sale and Subservicing Agreement dated as of October 7, 1993, by and 10(kk)+
among Manatee Medical Laboratories, Inc., NPFII-W, Inc. and National
Premier Financial Services, Inc.
10(b) Agreement of Merger, dated April 20, 1994, together with supplementary 10(a)++
letter from Kachina, Inc., dated April 20, 1994
10(c) Purchase Commitment, dated April 20, 1994, from NCFE 10(b)++
10(d) Promissory Note, Security Agreement and Pledge Agreement, dated 10(c)+++
September 19, 1994, from Rx Medical Services Corp. to NCFE
10(e) Plan and Agreement of Merger, dated July 7, 1995, by and among Rx 10(a)++++
Medical Services Corp., CHC Acquisition Corp. and
Consolidated Health Corporation of Mississippi, Inc.
10(f) Asset Purchase Agreement, dated as of August 11, 1995, by and among 10(e)++++
Meris Laboratories, Inc., Rx Medical Services Corp. and
Manatee Medical Laboratories, Inc. [for northern California]
10(g) Asset Purchase Agreement, dated as of August 11, 1995, by and among 10(f)++++
Meris Laboratories, Inc., Rx Medical Services Corp. and
Manatee Medical Laboratories, Inc. [for southern California]
10(h) Laboratory Services Agreement, made as of August 12, 1995, between 10(g)++++
Meris Laboratories, Inc. and Rx Medical Services Corp.
10(i) Amendment to Asset Purchase Agreement, dated as of August 17, 1995 by 10(h)++++
and among Meris Laboratories, Inc., Rx Medical Services Corp.
and Manatee Medical Laboratories, Inc. [for southern
California]
44
45
10(j) Pledge Agreement, dated as of July 13, 1995, from Rx Medical Services 10(j)x
Corp. to NCFE
10(k) Hospital Lease Agreement, dated as of November 1, 1995, between Smith 10(k)x
County, MS and CHC Management, Inc.
10(l) Articles of Merger (CHC) filed November 14, 1995 with MS Secretary of 10(l)x
State
10(m) Operating Agreement, dated as of March 30, 1996, between NPF-X, Inc 10(m)x
and CHC Whitwell, Inc.
10(n) Operating Agreement, dated as of March 30, 1996, between NPF-X, Inc 10(n)x
and CHC Clintwood, Inc.
10(o) Option to Purchase Agreement, effective as of March 29, 1996, between 10(o)x
NPF-X, Inc. and CHC
10(p) First Amendment to CHC Merger Agreement 10(p)x
10(q) Option Agreement on Whitwell Medical Center, Whitwell, TN 10(q)x
10(r) Note Extension 10(r)x
10(s) Asset Purchase Agreement, dated August 28, 1996, between The Podiatry 2(a)xx
Hospital of Pittsburgh and CHC
10(t) Amendment to Asset Purchase Agreement, undated 2(b)xx
10(u) Stipulation of Dismissal and Order 10(u)xxx
11 Computation of Primary Earnings Per Share
21 Subsidiaries of Registrant 21 x
27 Financial Data Schedule for year ended December 31, 1998 (for SEC use only)
Explanation of Incorporation by Reference:
* Form 10 of Registrant, dated October 10, 1990, as amended by
Form 8, dated March 15, 1991
** Amendment No. 2 to Form S-1 of Registrant, dated January 31,
1994
*** Current Report of Registrant on Form 8-K, dated January 7,
1994
**** Current Report of Registrant on Form 8-K, dated December 23,
1991, as amended on December 29 and 31, 1991, and January 14
and March 14, 1992
+ Amendment No. 1 to Form S-1 of Registrant, dated October 28,
1993
++ Current Report of Registrant on Form 8-K, dated April 20,
1994
+++ Current Report of Registrant on Form 8-K, dated September 20,
1994
++++ Current Report of Registrant on Form 8-K, dated August 10,
1995
x Annual Report of Registrant on Form 10-K for fiscal year
ended December 31, 1995
xx Current Report of Registrant on Form 8-K, dated April 3, 1997
xxx Current Report of Registrant on Form 8-K, dated January 29,
1998
45
46
(b) REPORTS ON FORM 8-K
None.
46
47
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Rx Medical Services Corp.
We have audited the accompanying consolidated balance sheets of Rx Medical
Services Corp. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Rx
Medical Services Corp. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that Rx
Medical Services Corp. will continue as a going concern. However, as more fully
described in Note 1, the Company has incurred recurring operating losses, has a
working capital deficiency, is delinquent in payments due to debt holders,
taxing authorities and others, is in default of certain loan covenants and is
dependent on the settlement of various lawsuits, the SEC investigation and on
continued funding by the senior lender. In addition, as described in Note 11,
there are uncertainties concerning the Company's compliance with various federal
and state statutes and certain provisions of the Omnibus Budget Reconciliation
Act of 1993, as well as, certain similar state statutes. The forgoing matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Notes 1 and 11. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ GRANT THORNTON LLP
- ------------------------
Grant Thornton LLP
Weston, Florida
February 8, 2000
47
48
Rx MEDICAL SERVICES CORP.
Consolidated Statements of Operations
(Dollars in thousands except per share amounts)
Years Ended December 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
Revenues:
Hospitals and medical clinics $ 15,486 $ 19,627 $ 16,926
Biological products 1,012 345 54
-------- -------- --------
16,498 19,972 16,980
-------- -------- --------
Costs and expenses:
Compensation and benefits 9,716 11,232 10,546
Biological products 633 288 45
Supplies 1,820 1,822 1,889
Fees for services 2,489 2,933 2,927
Bad debts 1,389 1,705 2,313
Depreciation and amortization 243 176 160
Occupancy 698 695 784
Occupancy-related party 962 962 805
Equipment rental and maintenance 422 549 472
Equipment rental-related party 183 183 244
Other 1,857 2,302 1,978
-------- -------- --------
20,412 22,847 22,163
-------- -------- --------
Operating loss (3,914) (2,875) (5,183)
Other income (expense):
Interest (257) (31) (132)
Interest - related party (7,393) (6,354) (4,540)
Provision for legal judgment (1,130) -- --
Loss due to impairment of assets held for sale -- -- (53)
Loss on investment in partnership -- -- (108)
Other income 173 113 28
-------- -------- --------
(8,607) (6,272) (4,805)
-------- -------- --------
Loss from continuing operations (12,521) (9,147) (9,988)
Gain from discontinued operations 136 181 229
Extraordinary items:
Gain (loss) on settlement of liabilities (50) (27) 1,511
Gain on purchase of accounts receivable -- -- 579
Gain on settlement of indebtedness 3,195 -- --
-------- -------- --------
Net loss $ (9,240) $ (8,993) $ (7,669)
======== ======== ========
Basic and diluted net loss per common share:
Loss from continuing operations $ (0.95) $ (1.03) $ (1.20)
Gain from discontinued operations 0.01 0.02 0.03
Gain (loss) from extraordinary items 0.24 -- 0.24
-------- -------- --------
Basic and diluted net loss per common share $ (0.70) $ (1.01) $ (0.93)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
48
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Rx MEDICAL SERVICES CORP.
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
-----------------------
1998 1997
------- -------
Assets:
Current assets:
Cash $ 22 $ 110
Accounts receivable (less allowance for doubtful accounts of
$3,488 and $3,730 at 1998 and 1997, respectively) 2,994 4,074
Inventories 379 533
Other 194 85
------- -------
Total current assets 3,589 4,802
------- -------
Property and equipment, at cost
Land and buildings 713 713
Equipment 1,255 930
Furniture, fixtures and improvements 183 192
------- -------
2,151 1,835
Less: accumulated depreciation and amortization (534) (298)
------- -------
1,617 1,537
Other assets (less allowance for doubtful accounts of $263 and $671
at 1998 and 1997, respectively) 134 134
------- -------
Total assets $ 5,340 $ 6,473
======= =======
The accompanying notes are an integral part of these financial statements.
49
50
Rx MEDICAL SERVICES CORP.
Consolidated Balance Sheets (continued)
(Dollars in thousands)
December 31,
-------------------------
1998 1997
-------- --------
Liabilities and shareholders' deficit:
Current liabilities:
Notes payable $ 20 $ 20
Notes payable - related party 47,169 40,232
Accounts payable 5,772 2,793
Accrued liabilities 885 2,052
Accrued liabilities - related party 105 640
Accrued compensation, benefits and related taxes 1,040 849
Current portion of long-term debt 25 3,087
Current portion of long-term debt-related party 87 --
Current portion of capital lease obligations 75 41
Current portion of capital lease obligations-related party 55 --
-------- --------
Total current liabilities 55,233 49,714
Long-term liabilities:
Long-term debt 177 202
Long-term debt-related party 461 --
Net liabilities of discontinued operations -- 100
Obligations under capital leases 42 86
Obligations under capital leases-related party 151 --
-------- --------
Total long-term liabilities 831 388
-------- --------
Total liabilities 56,064 50,102
-------- --------
Commitments and contingencies -- --
Shareholders' deficit:
Convertible preferred stock, $.001 par value, authorized shares
20,000,000, issued and outstanding 63,836 and 422,488 shares
at 1998 and 1997; aggregate liquidation preference of $322 and
$2,134 at 1998 and 1997, respectively 1 1
Convertible preferred stock, $5.00 par value, authorized shares
1,091,250, issued and outstanding 600,270 shares at 1997;
aggregate liquidation preference of $3,602 at 1997 -- 3,001
Convertible preferred stock, $.001 par value, authorized shares
1,500,000, issued and outstanding 800,000 shares at 1998;
aggregate liquidation preference of $56 at 1998 1 --
Common stock, $.002 par value, authorized 25,000,000 shares,
issued and outstanding 17,982,814 and 9,164,117 shares at 1998
and 1997, respectively 35 18
Additional paid-in capital 42,361 37,233
Accumulated deficit (93,121) (83,881)
Treasury stock, 605,554 shares of common stock, at par value,
at 1998 and 1997, respectively (1) (1)
-------- --------
Total shareholders' deficit (50,724) (43,629)
-------- --------
Total liabilities and shareholders' deficit $ 5,340 $ 6,473
======== ========
The accompanying notes are an integral part of these financial statements.
50
51
Rx MEDICAL SERVICES CORP.
Consolidated Statements of Shareholders' Deficit
(Dollars and shares in thousands)
Convertible Addi-
Preferred Stock Common Stock tional Accumu- Treasury Stock Total
------------------- ------------------ Paid-In lated ------------------ Shareholders'
Shares Amount Shares Amount Capital Deficit Shares Amount Deficit
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance January 1, 1996 2,559 $ 3,003 8,539 $ 15 $ 37,840 $(67,219) -- $ -- $(26,361)
Conversion (1,250) (1) 625 1 -- -- -- -- --
Reacquisition of common stock -- -- -- -- -- -- 589 (1) (1)
Adjustments -- -- -- 2 (2) -- -- -- --
Dividends on preferred stock -- -- -- -- (365) -- -- -- (365)
Net loss -- -- -- -- -- (7,669) -- -- (7,669)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance December 31, 1996 1,309 3,002 9,164 18 37,473 (74,888) 589 (1) (34,396)
Reacquisition of common stock -- -- -- -- -- -- 17 -- --
Reacquisition and retirement
of preferred stock (286) -- -- -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- (240) -- -- -- (240)
Net loss -- -- -- -- -- (8,993) -- -- (8,993)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance December 31, 1997 1,023 3,002 9,164 18 37,233 (83,881) 606 (1) (43,629)
Issuance of preferred stock 800 1 -- -- 800 -- -- -- 801
Issuance of common stock -- -- 5,000 10 790 -- -- -- 800
Issuance of common stock for
conversion of preferred stock (600) (3,001) 600 1 3,000 -- -- -- --
Issuance of common stock in
exchange for preferred stock (359) -- 1,029 2 (2) -- -- -- --
Issuance of common stock for
dividends in arrears -- -- 2,190 4 716 -- -- -- 720
Dividends on preferred stock -- -- -- -- (176) -- -- -- (176)
Net loss -- -- -- -- -- (9,240) -- -- (9,240)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance December 31, 1998 864 $ 2 17,983 $ 35 $ 42,361 $(93,121) 606 $ (1) $(50,724)
======== ======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
51
52
Rx MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years Ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
Cash flows from operating activities:
Net loss $ (9,240) $ (8,993) $ (7,669)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 243 176 160
Provision for bad debts 1,389 1,705 2,313
Provision for legal judgment 1,130 -- --
Loss on sale and disposal of property and equipment 15 13 86
(Gain) loss on settlement of liabilities (150) 27 (1,511)
Loss on investment of partnership -- -- 124
Loss due to impairment of assets held for sale -- -- 53
Loss on settlement of management fees receivable -- -- 115
Gain on purchase of accounts receivable -- -- (579)
Gain on settlement of indebtedness (3,195) -- --
Changes in operating assets and liabilities, net of effects of acquisition:
(Increase) in accounts receivable (304) (1,398) (5,145)
(Increase) decrease in inventories 155 (82) (314)
(Increase) in other assets (110) (57) (69)
Increase in accounts payable and accrued liabilities 2,276 1,016 168
Increase (decrease) in accrued liabilities - related party (534) 395 245
Change in discontinued operations (100) -- (1,213)
-------- -------- --------
Net cash used in operating activities (8,425) (7,198) (13,236)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 737 13
Acquisition of property and equipment (75) (348) (282)
Purchase of accounts receivable -- -- (4,348)
Payments received on purcahsed accounts receivable -- -- 4,816
Acquisition, net of cash acquired -- (1,166) --
-------- -------- --------
Net cash used in investing activities (75) (777) 199
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt -- 28 21
Proceeds from notes payable and long-term debt - related party 8,308 8,210 13,876
Payments on notes payable, long-term debt and obligations under capital leases (632) (838) (175)
Payments on notes payable, long-term debt and obligations under capital leases
- related party (64) -- --
Proceeds from the sale of preferred stock 800 -- --
-------- -------- --------
Net cash provided by financing activities 8,412 7,400 13,722
-------- -------- --------
Net increase (decrease) in cash (88) (575) 685
Cash - beginning of period 110 685 --
-------- -------- --------
Cash - end of period $ 22 $ 110 $ 685
======== ======== ========
(Continued)
52
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Rx MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Years Ended December 31,
------------------------------------------
1998 1997 1996
------- ------- --------
The following is supplementary information relating to the consolidated
statement of cash flows:
Noncash investing and financing activities:
Accounts receivable utilized to retire long-term debt $ -- $ 140 $ --
====== ======= =======
Equipment purchased under capital leases $ 263 $ -- $ 287
====== ======= =======
Common stock issued for payment of dividends in arrears $ 720 $ -- $ --
====== ======= =======
Common stock issued to reduce notes payable - related party $ 800 $ -- $ --
====== ======= =======
Details of businesses acquired:
Fair value of assets acquired $ -- $ 1,543 $ --
Liabilities assumed -- (377) --
------ ------- -------
Cash paid -- 1,166 --
Less cash acquired -- -- --
------ ------- -------
Net cash paid $ -- $ 1,166 $ --
====== ======= =======
On July 1, 1998, the 600,270 issued and outstanding shares of the Company's
Series F Preferred Stock, were converted into 600,270 shares of the
Company's Common Stock.
For the years ended December 31, 1998, 1997 and 1996, interest paid, including
interest on obligations under capitalized leases was $8,552, $5,695 and
$3,471, respectively. No income taxes were paid during these periods.
The accompanying notes are an integral part of these financial statements.
53
54
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Rx Medical Services Corp. ("RXM")
include the accounts of Rx Medical Services Corp. and its subsidiaries (the
"Company"). The subsidiaries are four wholly-owned operating companies,
Consolidated Health Corporation of Mississippi, Inc., Rx Medical Management,
Inc., Rx Medical Imaging Corp. and CHC Medical Services Corp. All significant
intercompany transactions have been eliminated.
Rx Medical Imaging Corp. is a minority partner in a related business. The
Company reports this investment, as well as its share of earnings or losses, by
application of the equity method.
b. BASIS OF PRESENTATION
For all years presented, the medical diagnostic services business segment has
been reflected as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30 which provides for the reporting of operating
results of discontinued operations separately from the continuing operations
(see Note 3).
The Company has experienced significant losses in each of the past three years,
reflects a working capital deficit of $51.6 million at December 31, 1998, is in
default with respect to certain indebtedness and there are uncertainties
regarding the Company's compliance with federal and state self-referral
regulations while operating its medical diagnostic services business segment
(see Note 11c). However, the accompanying financial statements have been
prepared on the basis that the Company will continue as a going concern because
management believes it has an attainable plan to overcome these matters and
provide sufficient capital to operate for the coming year. The Company's ability
to continue as a going concern is dependent on the continued funding of its
operations from its primary financing source, National Century Financial
Enterprises, Inc. and its affiliates (the "Financing Source") (see Note 8) or an
alternative source, without which funding the Company's ability to continue as a
going concern would be adversely impacted.
While the Company has not yet reached operational profitability, it has several
plans of action in progress designed to improve profitability, as well as, cash
flow. The Company intends to reorganize the hospital ownership and management
business and attempt to sustain the biological product distribution business.
As mentioned above, the Company intends to reorganize the hospital ownership and
management line of business. This line of business has and currently is
incurring
54
55
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
significant operating losses due to a reduction in patient services eligible for
reimbursement and reimbursement rates from third party payors, such as Medicare
and Medicaid. The Company anticipates entering into individual agreements to
sell or to close each of the hospitals it currently operates while looking to
expand its presence, through joint ventures and/or acquisitions, into new
markets with perceived potential. There can be no assurance that suitable
candidates can be found to acquire the Company's hospitals or that the sales can
be negotiated on terms acceptable or economically feasible to the Company. If
the Company can not find suitable candidates to acquire its hospitals, the
Company may have to or could be forced to close the remaining hospitals it
operates. The Company anticipates limiting its joint ventures and/or
acquisitions to those that meet certain criteria and are expected to generate
positive cash flow.
c. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers cash
deposited with financial institutions and marketable securities with a maturity
of three months or less at the date of acquisition to be cash and cash
equivalents.
d. INVENTORY
Inventory, which consists primarily of patient supplies, is stated at the lower
of cost or market; cost is determined using the first-in, first-out (FIFO)
method.
e. PROPERTY AND EQUIPMENT
Depreciation on buildings is computed on the straight-line method over 30 years.
Depreciation on equipment, furniture, fixtures and improvements is computed
principally on the straight-line method over the estimated useful lives of these
assets, which range from three to eight years.
f. REVENUES
Revenue from hospitals and medical clinics is recognized upon completion of
patient services and is recorded net of contractual allowances and amounts
estimated to be received under reimbursement arrangements with certain third
party payers. Approximately 54%, 50% and 48% of the Company's revenues for the
years ended December 31, 1998, 1997 and 1996, respectively, were reimbursements
provided by Medicare and Medicaid.
Contractual allowances represent the difference between the Company's basic fee
schedule and the estimated amount of available reimbursement from third party
payers, such as Medicare, Medicaid and certain clients. Contractual allowances
are deducted directly from gross revenues and accounts receivable at the time
the service is performed and recorded in the Company's financial statements at
the estimated net
55
56
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
amount to be received. These revenues are subject to audit and retroactive
adjustment by the respective third party fiscal intermediaries. In the opinion
of management, retroactive adjustments, if any, would not be material to the
financial statements of the Company. An allowance for doubtful accounts is
established based on management's estimates of the net amounts to be collected
from third party payors and individuals considering past collection history and
the current status of such related receivable. Accordingly, the allowance for
doubtful accounts does not contain any amounts relative to contractual
allowances.
g. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of estimated fair values of
financial instruments. These estimated fair values are to be disclosed whether
or not they are recognized in the balance sheet, provided it is practical to
estimate such values. Such information, which pertains to the Company's
financial instruments, is based on the requirements set forth in that Statement
and does not purport to represent the aggregate net fair value of the Company.
The Company estimates that the carrying amount approximates the fair value of
its financial instruments at December 31, 1998 due to the maturities of these
financial instruments.
h. ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets and certain intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate the that carrying amount of an asset may not be recoverable.
At December 31, 1996 the Company determined that the net carrying amount of
assets held for sale at one of its medical clinics was in excess of fair market
value. The Company sold these assets in July 1997, for $0.75 million and,
accordingly reduced the carrying amount by $0.1 million. This impairment was
recognized in the year ended December 31, 1996.
i. STOCK OPTIONS
Options granted under the Company's Stock Option Plans are accounted for under
APB 25, "Accounting for Stock Issued to Employees," and related interpretations.
In November 1995, the Financial Accounting Standards Board issued Statement 123,
"Accounting for Stock-Based Compensation," which requires additional proforma
disclosures for companies that will continue to account for employee stock
options under the intrinsic value method specified in APB 25. The Company plans
to continue to apply APB 25 and the only effect of this statement on the
Company's financial statements are the new disclosure requirements.
56
57
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
j. NET LOSS PER COMMON SHARE
Statement Of Financial Accounting Standards No. 128, "Earnings Per Share,"
requires public companies to present basic earnings (net loss) per share and, if
applicable, diluted earnings (net loss) per share for all periods that
statements of operations are presented. This statement is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of earnings (net loss) per share for all prior periods
presented.
The Company has only presented basic net loss per share (see Note 6f) since (a)
the potential common shares of the Company would be anti-dilutive and (b) the
Company has reflected net losses from continuing operations for all periods
presented and thus the diluted net loss per share would be the same as basic net
loss per share.
k. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," requires entities presenting a complete set of financial statements to
include details of comprehensive income that arises in the reporting period in a
financial statement that is displayed with the same prominence as other
financial statements. The statement does not affect the measurement of the
components of comprehensive income or introduce new categories of comprehensive
income. The statement does not apply to entities that have no items of
comprehensive income in any period presented. This statement is effective for
periods beginning after December 31, 1997. The only effects of this statement on
the Company's financial statements are the new disclosure requirements.
l. SEGMENT INFORMATION
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information," requires disclosure of net profit or
loss, certain specific revenue and expense items and certain asset items by
reportable segments and how reportable segments are determined. The statement
defines a reportable segment as a component of an entity about which separate
financial information is produced internally, that is evaluated by the chief
operating decision-maker to assess performance and allocate resources. This
statement is effective for periods beginning after December 31, 1997. The only
effects of this statement on the Company's financial statements are the new
disclosure requirements.
m. USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the
57
58
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
n. CONCENTRATION OF CREDIT RISK
In connection with the Company's hospital and clinic operations, the Company
extends credit to individuals, government agencies and third party payors.
The Company does not have director and officer liability insurance. The Company
has agreed to indemnify all of its directors and officers from any potential
liability they may have as a result of their actions in fulfilling their
responsibilities as directors and officers.
o. RECLASSIFICATIONS
Certain amounts in the prior years have been reclassified to conform with the
1998 consolidated financial statement presentation.
2. BUSINESS COMBINATION
On April 3, 1997, the Company acquired the operating assets of an acute care
foot and ankle hospital with 13 licensed beds located in Pittsburgh,
Pennsylvania from the Podiatry Hospital of Pittsburgh, Pennsylvania, a
not-for-profit Pennsylvania corporation. The acquisition was effective
retroactive to January 1, 1997, when the Company assumed operational
responsibility for the hospital. This business combination was accounted for
using the purchase method of accounting.
The purchase price for the assets of the hospital, which consist of accounts
receivable, land, buildings, inventory and equipment, was $1.5 million, of which
$1.1 million was cash, $0.3 million was in the form of a purchase money second
mortgage taken back by the seller, and $0.1 million represents the assumption of
certain liabilities. The cash portion of the purchase price was funded by the
Financing Source.
The consolidated financial statements include the results of operations of this
acquisition from January 1, 1997.
58
59
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
The following unaudited proforma information combines the consolidated results
of operations of the Company and the hospital as if the acquisition had occurred
on January 1, 1996 (in thousands, except per share amounts):
Year Ended
December 31, 1996
------------------
Net revenues $21,455
Net loss $(8,677)
Net loss per common share $ (1.00)
The proforma results do not necessarily represent results which would have
occurred if the acquisition had taken place at the beginning of the period, nor
are they indicative of the results of future consolidated operations.
3. DISCONTINUED OPERATIONS
In April 1996, due to continuing losses from the Company's medical diagnostic
services business and intense pressure from creditors, Manatee Medical
Laboratories, Inc. ("Manatee"), a wholly-owned subsidiary of the Company which
operated the medical diagnostic services business segment filed a voluntary
petition under Chapter 7 of the U.S. Bankruptcy Code. This resulted in the
closing of the Company's remaining medical diagnostic facilities and imaging
center.
Assets and liabilities at December 31, 1998 and 1997, and the results from
operations of discontinued operations for the years ended December 31, 1998,
1997 and 1996, are reflected below (in thousands):
1998 1997 1996
----- ----- -----
Assets and liabilities:
Reserve for future costs $ -- $(100) $(100)
----- ----- -----
Net liabilities of discontinued operations $ -- $(100) $(100)
===== ===== =====
Results from operations:
Other income $ 136 $ 181 $ 229
----- ----- -----
Gain from discontinued operations $ 136 $ 181 $ 229
===== ===== =====
4. NOTES PAYABLE
a. NOTES PAYABLE
Notes payable consists of an unsecured promissory note due in monthly principal
and
59
60
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
interest installments of $2,873, which bears interest at 8.00% per annum. This
note matured on July 1, 1998. The holder of this note sought and obtained, on
March 19, 1999, a judgement against the Company for the principal and accrued
interest on the note plus other costs aggregating $25,055. The Company has not
satisfied this judgement as of the date of these financial statements.
b. NOTES PAYABLE - RELATED PARTY
At December 31, 1998 and 1997, notes payable-related party included amounts due
to the Financing Source, through which the Company has obtained financing
collateralized by certain accounts receivable and real estate.
Certain financing agreements with the Financing Source provide that the Company
will periodically sell certain eligible accounts receivable to the Financing
Source. However, the terms of the agreements specify certain items of limited
recourse, including the ability to resell receivables which have aged beyond 150
days back to the Company. While the Company believes that legally a sale of its
receivables has occurred, due to the existence of the terms of limited recourse,
this transaction does not qualify for treatment as a sale for accounting
purposes and, accordingly, such activity has been recorded as notes payable at
December 31, 1998 and 1997.
The notes payable due to the Financing Source at December 31, 1998 and 1997
consisted of the following (in thousands):
1998 1997
------- --------
Notes payable, interest at 14%, maturing at various dates in June 2002,
collateralized by accounts receivable (subject to sale and subservicing
agreements) $46,166 $39,479
Note payable, interest at 17%, matures October 1, 2002, collateralized by
real estate 565 378
Note payable, interest at 11.5%, matures October 1, 2002,
collateralized by real estate 322 319
Unsecured note payable, interest at 12%, due on demand 56 56
Unsecured note payable, interest at 12%, matures on December 31, 2000 60 --
------- -------
$47,169 $40,232
======= =======
60
61
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
5. LONG-TERM DEBT
a. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consisted of the following (in
thousands):
1998 1997
-------- --------
Unsecured promissory note payable to a trust (related party until November
1997), interest at 9%, principal and interest payable due quarterly through
April 1997 (in default at 1997) $ -- $ 3,062
Mortgage note payable, interest at PNC Bank prime, payable in monthly
installments of principal and interest through February 2007, collateralized by
real estate 202 227
------- -------
202 3,289
Less: Scheduled current maturities and indebtedness in default (25) (3,087)
------- -------
$ 177 $ 202
======= =======
Scheduled principal maturities for each of the five years subsequent to December
31, 1998, and thereafter are estimated as follows (in thousands): 1999 - $25;
2000 - $25; 2001 - $25; 2002 - $25; 2003 - $25; and thereafter $52.
b. LONG-TERM DEBT - RELATED PARTY
Long-term debt - related party consists of an unsecured promissory note,
interest at 14%, due in monthly installments of principal and interest of
$13,232, and matures on September 1, 2003. Scheduled principal maturities for
each of the five years subsequent to December 31, 1998, and thereafter are
estimated as follows (in thousands): 1999 - $87; 2000 - $101; 2001 - $116; 2002
- - $132; and 2003 - $112.
6. SHAREHOLDERS' EQUITY
a. PREFERRED STOCK
At December 31, 1998 the Company had authorized, issued and outstanding two
series of preferred stock as follows:
Series C Preferred Stock, par value of $.001, conversion price of $5.05 per
share, with voting rights equivalent to the Company's Common Stock. This series
of Preferred
61
62
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
Stock is convertible into shares of the Company's Common Stock quarterly, with
the quarterly conversion being limited to 1% of the Company's issued and
outstanding shares of Common Stock at the end of each quarter. On December 31,
1999, any remaining unconverted shares will automatically be converted into the
Company's Common Stock. This series of Preferred Stock does not pay dividends.
The Company has reserved sufficient shares of authorized and unissued Common
Stock to effect the conversion of Series C Preferred Stock. At December 31,
1998, 63,836 issued and outstanding shares of Series C Preferred Stock remain
unconverted.
Series G Preferred Stock, par value of $.001, conversion price is the market
value of the Company's Common Stock, with voting rights equivalent to the
Company's Common Stock. This series of Preferred Stock is convertible into
shares of the Company's Common Stock annually, with the annual conversion being
limited to twenty-five percent (25%) of the original shares issued to each
shareholder. On July 1, 2002, any remaining unconverted shares automatically
convert into the Company's Common Stock. This series of Preferred Stock pays
annual dividends of $.15 in arrears, payable at the Company's discretion in cash
or the Company's Common Stock. At December 31, 1998 dividends in arrears on this
series of Preferred Stock aggregated approximately $55,643. The Company has
reserved sufficient shares of authorized and unissued Common Stock to effect the
conversion of Series G Preferred Stock. At December 31, 1998, 800,000 issued and
outstanding shares of Series G Preferred Stock remain unconverted.
b. REGISTRATION RIGHTS
Pursuant to several separate agreements, the Company is obligated on a best
efforts basis to register shares of issued, but restricted, Common Stock, Common
Stock issuable upon exercise of stock warrants, and Common Stock issuable upon
conversion of Preferred Stock. Certain of the agreements provide the holders of
the common stock with piggyback registration rights, and certain of the
agreements provide for demand registration rights. In either case, the Company
is obligated to pay all of the expenses associated with such registration
statements.
c. STOCK ISSUANCES
On June 1, 1998, the Company issued 1,560,702 shares of the Company's Common
Stock for payment of $600,270 of dividends in arrears on the Company's Series F
Preferred Stock. The Company's Series F Preferred Stock is held in the name of
Intercontinental Investment Associates, Ltd., a Nevada limited liability company
("IIA"), which is an affiliate of the Financing Source ("Related Party").
Effective July 1, 1998, the 600,270 issued and outstanding shares of the
Company's Series F Preferred Stock, held in the name of IIA, were converted into
600,270 shares of the Company's Common Stock.
62
63
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
On July 1, 1998, a holder of Series C Preferred Stock exchanged 16,759 shares of
Series C Preferred Stock for 28,775 shares of the Company's Common Stock.
On July 14, 1998, the Board of Directors of the Company authorized the creation
of the Series G Preferred Stock. The number of shares of Series G Preferred
Stock, par value of $.001, that the Company is authorized to issue is 1,500,000
shares.
On July 14, 1998, the Board of Directors of the Company authorized the issuance
to IIA of 800,000 shares of Series G Preferred Stock in consideration for a cash
funding to the Company by the Financing Source of approximately $800,000 which
was utilized by the Company to finance litigation settlements. No registration
was required for the issuance of these 800,000 shares under the Securities Act
of 1933, as amended, based on the exemption contained in Section 4(2) thereof as
a transaction not involving a public offering.
On July 14, 1998, the Company authorized the issuance of 5,000,000 shares of its
Common Stock, par value $.002 per share, to IIA. These shares were issued in
consideration of the cancellation by the Financing Source of $800,000 of
indebtedness owed by the Company to an affiliate of the Financing Source and was
based on the market value of the Company's Common Stock of $.16 per share on
July 14, 1998, the date the indebtedness was canceled.
On July 23, 1998, a holder of Series C Preferred Stock exchanged 341,893 shares
of Series C Preferred Stock for 1,000,000 shares of the Company's Common Stock.
On October 16, 1998, the Company issued 628,950 shares of the Company's Common
Stock for payment of $120,054 of dividends in arrears on the Company's Series F
Preferred Stock, which were held in the name of IIA.
Based on the number of shares of the Company's Common Stock issued to IIA and
the four individual owners of IIA, a change in the control of the Company has
occurred. IIA owns directly or indirectly 9,864,922 shares of the 17,982,814
shares of the Company's $.002 par value Common Stock issued and outstanding as
of December 31, 1998. This ownership represents 54.9% of the issued and
outstanding shares of the Company's $.002 par value Common Stock as of December
31, 1998. The ownership percentage does not take into account following:
a) the issuance to IIA of 800,000 shares of Series G Preferred Stock,
which are convertible into the Company's Common Stock,
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
b) dividends in arrears of $55,643 on the Series G Preferred Stock as of
December 31, 1998, which are to be paid by the issuance of 650,960
shares of the Company's Common Stock, or
c) shares of the Company's Common Stock issued and held in street name.
d. Warrants
The Company issued warrants in conjunction with private placements of debt and
the Company's Common Stock and as consideration for other expenses. Certain of
these warrants were re-priced based on the market price of the Company's Common
Stock at the time they were re-priced. The following table summarizes the
warrant transactions for the years ended December 31, 1996, 1997, and 1998:
Shares Grant Date Exercise Price
------- ---------- --------------
Outstanding at January 1, 1996 100,000
Expired (37,500) 11/93 $8.00
-------
Outstanding at December 31, 1996 62,500
Expired (12,500) 4/94 $2.63
-------
Outstanding at December 31, 1997 50,000
No activity --
-------
Outstanding at December 31, 1998 50,000
=======
e. STOCK OPTIONS
The Company's 1992 Long-Term Incentive Stock Option Plan provides for granting
of options of not more than 1,000,000 shares of Common Stock. Options granted
under the plans are exercisable in one-third installments annually from the date
of grant and have a term of four to ten years.
The Company has also granted stock options which are classified as
non-qualified, and which are not included in the 1992 Employees' Incentive Stock
Option Plan. Prior to December 31, 1995, the Company accounted for such options
under APB Opinion 25 and related Interpretations. Commencing January 1, 1996,
the Company accounts for non-qualified options issued to non-employees, under
SFAS 123, Accounting for Stock Based Compensation.
Had compensation cost for the Employees' Incentive Stock Option Plans and
non-qualified options issued to employees been determined based on the fair
value of the
64
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
options at the grant dates consistent with the method of SFAS 123, the Company's
net loss and net loss per common share would have been changed to the pro forma
amounts indicated below.
1998 1997 1996
---------- ---------- ----------
Net loss
As reported $ (9,240) $ (9,233) $ (8,034)
Pro forma $ (9,240) $ (9,233) $ (8,034)
Net loss per common share
As reported $ (0.70) $ (1.01) $ (0.93)
Pro forma $ (0.70) $ (1.01) $ (0.93)
The above pro forma disclosures may not be representative of the effects on
reported net income for future years as options vest over several years and the
Company may continue to grant options to employees.
The fair value of each option grant is estimated on the date of grant utilizing
the binomial option-pricing model with weighted-average assumptions. There were
no options granted in 1998, 1997 and 1996; therefore no proforma adjustments are
required.
A summary of the status of the Company's fixed stock options as of December 31,
1998, 1997 and 1996, and changes during the years ending on those dates is as
follows:
1998 1997 1996
--------------------- ---------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- ------- -------- ------- --------
Outstanding at beginning
of the year 849,868 $ 2.49 934,868 $ 2.79 967,228 $ 2.62
Granted -- -- --
Exercised -- -- --
Expired (42,500) $ 8.00 (85,000) $ 1.95 (32,360) $ 7.81
------- ------- -------
Outstanding at end of the
year 807,368 $ 2.20 849,868 $ 2.49 934,868 $ 2.79
======= ======= =======
Options exercisable at
end of year 807,368 849,868 934,868
======= ======= =======
Weighted-average fair
value of options granted
during the year $ -- $ -- $ --
======= ======= =======
65
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
The following information applies to options outstanding at December 31, 1998:
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------
Weighted -
Average Weighted - Weighted -
Range of Remaining Average Average
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
--------------- -------- ----------------- -------------- ------- ---------------
$0.010 55,641 0.25 $ .01 55,641 $ .01
$0.040 6,100 0.25 $ .04 6,100 $ .04
$0.0875-$1.000 125,000 2.20 $ .90 125,000 $ .90
$1.938-$2.625 603,932 1.11 $ 2.54 603,932 $ 2.54
$4.000 7,375 3.66 $ 4.00 7,375 $ 4.00
$11.000 9,320 3.61 $11.00 9,320 $11.00
-------- -------
807,368 807,368
======== =======
f. BASIC AND DILUTED NET LOSS PER COMMON SHARE
The following table reflects the computation of the basic and diluted net loss
per common share:
Years Ended December 31,
--------------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
Per- Per- Per-
Share Share Share
Amount Amount Amount Amount Amount Amount
-------- --------- -------- --------- -------- ---------
Loss from continuing
operations $(12,521) $ (0.94) $ (9,147) $ (1.00) $ (9,988) $ (1.16)
Dividends on preferred
stock (176) (0.01) (240) (0.03) (365) (0.04)
-------- --------- -------- --------- -------- ---------
Loss available to common
shareholders' (12,697) (0.95) (9,387) (1.03) (10,353) (1.20)
Gain from discontinued
operations 136 0.01 181 0.02 229 0.03
Extraordinary items -
gain (loss) 3,145 0.24 (27) (0.00) 2,090 0.24
-------- --------- -------- --------- -------- ---------
Net loss $ (9,416) $ (0.70) $ (9,233) $ (1.01) $ (8,034) $ (0.93)
======== ========= ======== ========= ======== =========
Weighted average
common shares
outstanding 13,310 9,164 8,644
======== ======== ========
66
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
The Company has issued potential common share securities (see Notes 6a, 6d and
6e) that could potentially dilute basic earnings per share in the future. These
securities were not included in the computations of net loss per common share
presented in the financial statements because they were anti-dilutive.
No transactions occurred during the period January 1, 1999 to the date of the
financial statements that would have resulted in a material change in the number
of common shares or potential common shares outstanding had the transaction
occurred on or before December 31, 1998.
7. INCOME TAXES
Income tax expense differs from the amounts computed by applying the statutory
federal tax rate to income before income taxes. The difference is reconciled as
follows (in thousands):
1998 1997 1996
------- ------- -------
Tax benefit computed at federal statutory rate $(3,511) $(3,417) $(2,608)
Financial statement losses that are not deductible for income
tax purposes 26 21 33
Financial statement losses and tax credits with no tax benefit
as a result of net operating loss carryforwards 3,485 3,396 2,575
------- ------- -------
$ -- $ -- $ --
======= ======= =======
At December 31, 1998, the Company has a federal net operating loss carryforward
of approximately $68.1 million. In addition, the Company has various state net
operating loss carryforwards.
As a result of certain cumulative changes in the Company's stock ownership over
the last few years, the use of the Company's federal net operating loss
carryforward may be substantially limited. The tax net operating loss
carryforward begins to expire in 2005.
Differences between pre-tax income for financial reporting purposes and taxable
income for income tax purposes relate primarily to allowances for doubtful
accounts, valuation reserves, accrued compensation and financial statement
expenses recorded for certain stock option transactions.
67
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
Deferred tax assets and liabilities at December 31, 1998, and 1997, arose from
the following items (in thousands):
1998 1997
------- -------
Deferred tax assets:
Allowance for doubtful accounts receivable $ 1,326 $ 1,417
Accrued compensation 151 129
Loss reserve from discontinued operations -- 38
Outstanding stock options issued for services 228 228
Net operating loss carryforward 28,231 24,639
Reserve for impairment on assets held for sale -- --
------- -------
29,936 26,451
Valuation allowance 29,936 26,451
------- -------
Net deferred amount $ -- $ --
======= =======
No provision for income taxes is required on the gains from discontinued
operations (see Note 3).
8. RELATED PARTY TRANSACTIONS
The Financing Source is being categorized as a related party due to the
Financing Source's stock ownership in the Company. At December 31, 1998, the
Company is indebted to the Financing Source in the amount of $47.1 million. At
December 31, 1998, the Financing Source owns 9,864,922 shares of the Company's
Common Stock.
9. EXTRAORDINARY ITEMS
During 1996, the Company recorded a gain on the settlement of $2.2 million of
outstanding liabilities with ten creditors by paying the aggregate sum of $0.7
million.
During February and March 1996, the Company purchased accounts receivable from
the Financing Source at a discounted cost of $4.3 million. During the year,
collections of these receivables resulted in a gain.
On July 23, 1998, the pending lawsuit against the Company and Manatee Medical
Laboratories, Inc. by Eduardo R. Latour, as Trustee for Physicians Reference Lab
Short Term Trust filed in the Circuit Court for Pinellas County, Florida (Case
No. 96-00683-CI-15) was settled. A stipulation of settlement was entered into by
the parties pursuant to which a voluntary dismissal with prejudice was filed
with the Clerk of the Court.
68
69
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
Pursuant to the settlement $3.1 million of long-term debt and $0.7 million of
accrued interest was retired for $0.6 million in cash. The Company, due to the
settlement of this lawsuit, recognized a gain on settlement of indebtedness of
$3.2 million.
These items have been accounted for as extraordinary items in accordance with
Accounting Principals Board Opinion No. 30, which provides for the reporting of
such material, non-recurring events separately from the continuing operations.
10. RETIREMENT PLAN
The Company has a Combined Profit Sharing/Money Purchase Plan with a Cash or
Deferred Arrangement Option (the "Plan") to which both the Company and eligible
employees contribute. The Plan segregates the Company's employees into two
distinct participant groups (a) non-union participants and (b) union
participants.
The Company, pursuant to a union contract at one of the Company's hospitals,
contributes up to $550 per Plan year for eligible union participants. Company
contributions are discretionary per Plan year for eligible non-union
participants.
Employees are eligible to participate in the Plan based on the number of hours
worked in the Plan year and the attainment of a certain age. Company and
employee contributions vest 100% in the first year.
Company contributions to the Plan for the year ended December 31, 1998
aggregated approximately $60,040.
11. COMMITMENTS AND CONTINGENCIES
a. LEASES
The Company leases its operating and other facilities, as well as certain
equipment, under noncancelable leases with initial lease terms of one to ten
years; also, the Company leases one of its facilities from an affiliate of the
Financing Source, a related party, with an initial lease term of twenty years.
Certain of the facilities leases provide for optional renewal periods. Scheduled
future minimum commitments under operating leases with remaining terms
subsequent to December 31, 1998 are as follows (in thousands):
69
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
Related-
Years Ending All Party
December 31, Leases Leases
------------ -------- --------
1999 $ 1,543 $ 1,146
2000 1,426 1,146
2001 1,311 1,146
2002 1,199 1,145
2003 1,159 1,145
Thereafter 14,057 14,033
------- --------
$20,695 $ 19,761
======= ========
Scheduled future minimum commitments under capital lease obligations with
remaining terms subsequent to December 31, 1998 are as follows (in thousands):
Related-
Years Ending All Party
December 31, Leases Leases
------------ -------- --------
1999 $ 138 $ 71
2000 110 76
2001 101 74
2002 20 17
2003 -- --
Thereafter -- --
----- ----
369 238
Less amounts
representing interest (46) (32)
----- ----
Present value of remaining
minimum capital lease
payments 323 206
Less:
Scheduled current portion (112) (55)
Non-current obligations
reclassified to current (18) --
----- ----
Long-term obligations
under capital leases 193 151
===== ====
70
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
Rent expense was approximately (in thousands) $1,643, $1,752, and $1,646, for
the years ended December 31, 1998, 1997 and 1996, respectively.
B. CONTRACTS
The Company has entered into contracts with various individuals and entities to
provide patient services at certain of the Company's hospitals. Scheduled future
minimum commitments under these contracts with remaining terms subsequent to
December 31, 1998 are as follows (in thousands):
Years Ending
December 31,
------------
1999 $ 655
2000 276
2001 20
2002 --
2003 --
Thereafter --
-----
$ 951
=====
c. GOVERNMENT REGULATION
The Company's operations are subject to extensive government regulation.
Industry compliance with such regulations is under constant scrutiny by
regulatory authorities and legislative bodies and regulations are subject to
change at any time. Certain proposed changes in regulations, if enacted, could
have an adverse effect on the Company's operations and such effects could be
material.
Federal and certain state regulations restrict the nature and types of financial
relationships that medical service providers receiving reimbursement under the
Medicare and Medicaid program may have with referring physicians (the
self-referral regulations). A financial relationship is defined by the federal
regulations as an ownership or investment interest through equity or debt or
certain compensation arrangements. The Company believes that there may have been
violations of certain applicable statutes and regulations with respect to the
operation of certain of its clinical laboratories in Florida.
The Omnibus Budget Reconciliation Act of 1989, often referred to as the "Stark
Act", included restrictions on physician financial relationships with
laboratories to which they refer patients but provided an exemption for publicly
traded entities that have total assets in excess of $100 million. The Omnibus
Budget Reconciliation Act of 1993 ("OBRA 1993") expanded these restrictions to
apply beyond physician financial relationships with
71
72
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
laboratories to physician relationships with entities that provide "Designated
Health Services" (including clinical laboratory services, radiology and other
diagnostic services). However, the Act deleted the previous exemption and
substituted a requirement that the entity have $75 million in stockholders'
equity at the end of its most recent fiscal year or on average during its prior
three fiscal years. The OBRA 1993 amendments became effective on January 1,
1995.
For the period prior to January 1, 1995, should it be determined that the
Company did not comply with the federal regulations the Company may be subjected
to refunding a portion of Medicare and Medicaid revenues collected, in addition
to paying substantial penalties. As of January 1, 1995, the Company did not meet
the OBRA 1993 amendments to the Stark Act requiring $75 million in stockholders'
equity. Physician/shareholder referrals since January 1, 1995 could cause
penalties to be imposed of up to $15,000 for each item or service claimed, plus
twice the amount billed. The Company believes, however, that due to the filing
of the Chapter 7 bankruptcy petition for Manatee, the likelihood of such
enforcement actions occurring is remote.
In April 1992, the Florida Legislature enacted the Patient Self-Referral Act of
1992 (the "Florida Act") which prohibits referrals for certain designated health
services (including clinical laboratory testing and diagnostic imaging) by a
physician to a facility in which such physician has an investment. The effective
date of this prohibition was October 1, 1994 for investment interests acquired
prior to May 1, 1992; otherwise, the effective date of the Florida Act was July
1, 1992. The Company's financial relationships with referring physicians in
respect of its clinical laboratories in Florida since October 1, 1994 and its
imaging center in Fort. Lauderdale, Florida since July 1993 did not comply with
the Act and may require the Company to refund substantial revenues. The Company
believes, however, that due to the filing of the Chapter 7 bankruptcy petition
for Manatee, the likelihood of such enforcement actions occurring is remote.
In October 1993, the California legislature enacted legislation relating to
health care referrals which has a public company exception similar in scope to
the Stark Act as it existed prior to the OBRA 1993 amendments. The major
difference with the California self-referral legislation, effective January 1,
1995, is that it applies to both clinical laboratory and diagnostic imaging
services subsequent to January 1, 1995. The Company could be assessed
substantial fines and penalties. The Company believes, however, that due to the
filing of the Chapter 7 bankruptcy petition for Manatee, the likelihood of such
enforcement actions occurring is remote. Legislatures in other states are
considering or have considered similar legislation which, if enacted, may have
an adverse impact on the Company to the extent that the Company acquires
facilities in those states.
72
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
The Company's inability to meet the OBRA 1993 amendment to the Stark Act
requiring $75 million in stockholders' equity, and provisions of the Florida Act
and the California self-referral legislation, could result in the imposition of
penalties and the return of revenues collected for certain services provided,
which may aggregate up to approximately $50.0 million. The Company believes,
however, that due to the filing of the Chapter 7 bankruptcy petition for
Manatee, the likelihood of such enforcement actions occurring is remote.
As of April 1996, the Company no longer operates clinical laboratories and
imaging centers, thereby eliminating additional potential fines, penalties and
refunds that could be imposed under the Stark Act (as amended) and the State
Acts.
The Company may be liable for certain delinquency penalties associated with
untimely payment of reoccurring assessments at its Florida medical diagnostic
operations. The Company believes that in the event that such penalties are
levied, they will not have a material financial impact on the Company.
d. LEGAL PROCEEDINGS
On July 22, 1994, two individuals who hold an aggregate of 1,125 shares of RXM
Common Stock filed a stockholders' lawsuit against the Company and the Company's
Chief Executive Officer (who is also a director of the Company), in the United
States District Court for the Southern District of Florida under the title
ABRAHAM KRELOFF AND SHEILA RICH V. Rx MEDICAL SERVICES CORP. AND MICHAEL L.
GOLDBERG (Case No. 94-6671-Civ-Zloch). The Company was served with the summons
and complaint on August 3, 1994. The two plaintiffs in this action sought to
represent a class composed of all persons who purchased or otherwise acquired
shares of RXM Common Stock in the period from June 3, 1992 through April 22,
1994. The complaint alleged the dissemination of materially false and misleading
statements in connection with certain press releases and filings by the Company
with the Securities and Exchange Commission between 1991 and 1994 allegedly
causing an artificial inflation of the market price of RXM Common Stock. The
complaint sought damages in an unspecified amount. The Company retained
securities litigation counsel to represent it and Michael L. Goldberg in this
matter. The Company and Mr. Goldberg filed an answer denying the allegations
contained in the complaint and raising several affirmative defenses. In February
1996, the parties entered into a stipulation in which settlement of the class
action lawsuit was reached. The Stipulation of Class Settlement was filed but
never acted upon by the Court. On January 29, 1998, the lawsuit was voluntarily
dismissed. An order Approving Stipulation of Dismissal and Dismissing Action
Without Prejudice was entered by the presiding Judge and filed with the Clerk of
the Court. In consideration for the voluntary dismissal without prejudice, the
Company agreed to pay plaintiffs' counsel their out-of-pocket costs incurred in
the lawsuit, amounting to
73
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
approximately $16,000. No release of any claims was given to the defendants by
virtue of this stipulation of dismissal.
The Company, in March 1995, received from the U.S. Securities and Exchange
Commission (the "Commission") a Formal Order Directing Private Investigation And
Designating Officers To Take Testimony In The Matter of Rx Medical Services
Corp., dated March 8, 1995. The Company has been advised by the Commission that
the investigation is confidential and should not be construed as an indication
by the Commission or its staff that any violation of law has occurred. No
proceedings in furtherance of this investigation have occurred in over four
years; however, no assurance can be given that this investigation will not be
activated in the future.
On July 21, 1995, an action was commenced against the Company and three of its
directors in the United States District Court, Eastern District of California
(Fresno), under the title SHARI RAINWATER AND GREG RAINWATER V. Rx MEDICAL
SERVICE CORP., ET. AL. (Case No. CV-F-95-5596 REC/DIR). The complaint alleged
fraud and misrepresentation and breach of a written employment agreement and
sought damages of not less than $600,000, declaratory relief and injunctive
relief. The suit relates to the acquisition by the Company, through a merger
transaction, of Quail Diagnostic Laboratories, Inc. in October 1992 and the
subsequent employment of Shari Rainwater as the officer in charge of the
Company's California clinical laboratory operations. Due to the filing of the
Chapter 7 petition in bankruptcy by Manatee, most of the claims made by the
plaintiffs can no longer be prosecuted. The only cause of action that remained
to be litigated was one of fraud and rescission against the Company as a result
of the merger. In March 1998, a settlement was reached between the parties,
pursuant to which the plaintiffs agreed to accept the sum of $200,000 in
complete satisfaction of their claims against the defendants. In July 1998, the
sum of $200,000 was paid to the plaintiffs and the plaintiffs subsequently filed
a dismissal of the action with prejudice and general releases were exchanged.
In February 1996, an action was commenced against the Company and Manatee by
Eduardo R. Latour, as Trustee for Physicians Reference Lab Short Term Trust (the
"Trust") in the Circuit Court for Pinellas County, Florida (Case No.
96-00683-CI-15). The beneficiary of the Trust is Deborah H. Behar, the wife of
Morris Behar. Mr. Behar was a director of the Company until November 1997 and
was formerly an executive vice president and a director of Manatee, and was
previously the trustee of the Trust. The complaint filed in this action alleged
a default under a promissory note from Manatee, which note had been guaranteed
by the Company, and sought damages in the amount of $3,060,000 against Manatee
and the Company. In addition, the complaint sought to foreclose a security
interest in certain assets of Manatee that had been pledged to the Trust by
Manatee. The promissory note and pledge had been
74
75
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
delivered to the Trust in connection with the Trust's sale, in December 1991, to
Manatee of the Physician's Reference Laboratory Services group of clinical
laboratories located in Florida. Due to the Manatee bankruptcy, the Company
remained as the sole defendant in the action. In March 1998, an agreement was
reached, prior to the date set for trial, to settle this lawsuit for a total of
$577,500 payable in one lump sum. In July 1998, the sum of $577,500 was paid to
the plaintiffs and the plaintiffs filed a voluntary dismissal of the action with
prejudice.
On April 4, 1996, Manatee filed a voluntary petition under Section 301 of
Chapter 7 of Title 11 of the United States Code, 11 U.S.C. Sections 101 et. seq.
in the Bankruptcy Court for the Southern District of Florida (Case No. 96-21552
BKC-RBR). On April 10, 1996, John P. Barbee of Fort Lauderdale, Florida was
appointed trustee of the bankrupt estate. The bankruptcy proceeding is pending.
On April 8, 1997, the Company commenced an action against Biologic Health
Resources (Florida) LLC ("BHR LLC") and five individuals, in the Circuit Court
for Dade County, Florida, under the title BIOLOGIC HEALTH CARE - FLORIDA, INC.
V. BIOLOGIC HEALTH RESOURCES (FLORIDA) LLC, ET. AL. (Case No. 97-07747 CA 25).
The complaint alleges that the principals of BHR conspired to violate the BHC
agreements by entering into direct competition with the BSC operation, and seeks
injunctive relief and damages against two former BHC employees for violations of
restrictive covenants contained in their employment agreements, and damages
against BHR LLC and its principals for tortious interference with the business
of BSC. A motion by the Company for a temporary injunction against one of the
former BSC employees was granted in August 1997. In May 1999, this action, along
with the California action described below was settled.
On June 10, 1997, the Company commenced an action against BHR in the Superior
Court of California, County of Santa Clara, under the title Rx MEDICAL IMAGING
CORP V. BIOLOGIC HEALTH RESOURCES, ET. AL. (Case No. CV-766768). The complaint
alleges that the defendants violated the partnership agreement of BHC in a
number of respects, including misappropriation of partnership assets and
diverting partnership customers, and seeks a dissolution of BHC, an accounting
of BHC's affairs, and damages. On August 7, 1997, the defendants filed a
cross-complaint in the pending action against the Company, RxMIC, the Financing
Source, the Company's president and general counsel, and Bay Cities
Pharmaceutical Services and its two principals, seeking a dissolution of the
partnership and an accounting, and damages for breach of contract, breach of
fiduciary duty, fraud, recission, conversion, constructive trust, and conspiracy
to defraud. The action was dismissed in connection with a global settlement
reached between the parties, effective May 1999.
75
76
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
On January 29, 1998, an action was commenced by Morton Medical Center, Inc.
("MMC") in the Chancery Court of Scott County, Mississippi against CHC, Ameris
and Scott County (Civil Action Case Number 98-085). The suit relates to an
option originally held by MMC to purchase Scott Regional Hospital (the
"Hospital") from Scott County. In 1993, Scott County had leased the Hospital to
MMC and the lease contained the option to purchase, which MMC thereafter
assigned to CHC as partial consideration for CHC's agreement to manage the
Hospital for MMC. In 1996, CHC assigned the option to Ameris. The complaint
seeks a declaratory judgment that the option to purchase the Hospital is void on
public policy grounds and that CHC's assignment to Ameris lacked the required
approval of MMC and was, therefore, invalid. After the action was commenced, CHC
formally exercised the option to purchase, for itself or on behalf of Ameris,
should Ameris decide to purchase the Hospital. Pursuant to the grant of option,
the purchase price for the Hospital is $500,000, payable $100,000 at closing and
the balance over four years in equal annual installments. In July 1999, the
Company decided to no longer defend this case and thus will allow MMC to be
successful in this action.
In July 1998, an action was commenced against the Company in the Superior Court
of California, County of Contra Costa, under the title NORTH BAY MRI ASSOCIATES
V. Rx MEDICAL SERVICES CORP. (Case No. C 98-02610). The complaint stated many
issues though the primary issue was that Rx Medical Services Corp. guaranteed
the performance of a lease agreement entered into by a partnership of which a
subsidiary of Manatee was a general partner. This subsidiary was included in
voluntary bankruptcy petition of Manatee filed on April 4, 1996. The Company
chose not to defend against this action and on October 20, 1998 a judgment by
default was entered against the Company in the amount of $1,432,900. The Company
currently is negotiating with the attorneys for the plaintiffs to settle this
judgment for an amount that is substantially less than the amount stated in the
default judgment. The Company nevertheless has established a liability account
for the full amount of the judgment.
In November 1998, an action was commenced against Biologic Health Care, which
the Company's wholly owned subsidiary RxMIC was a 25% general partner, in the
Superior Court of California, County of Santa Clara, under the title of CENTEON
LLC V. BIOLOGIC HEALTH (Case No. CV775830). The complaint stated that BHC owed
Centeon LLC for biological and other medical products purchased but not paid
for. The partnership was subsequently dissolved and Centeon LLC on January 8,
1999, entered and was granted a default judgment against RxMIC, who was the 25%
general partner in BHC, and Biologic Health Resources, who was the 75% general
partner in BHC, in the amount of $437,343. This default judgment as of May 22,
2000, had increased to $472,245. The Company has not established a liability
account for this judgment as the only asset of RxMIC was the investment in the
BHC partnership, which was written off
76
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
in a previous year, and the Company did not guarantee the performance of BHC or
RxMIC. Therefore, Centeon LLC, in the Company's opinion, has no viable way to
collect on the default judgment granted to them.
In addition to the foregoing, the Company is involved in routine litigation
arising in the ordinary course of its business which the Company believes would
not have a material adverse effect on its financial position.
e. UNION CONTRACT
One of the Company's hospitals has entered into an agreement with the United
Mine Workers of America and its District 28 and its Local Union 7528 (the
"Union") whereby the Union acts as the sole and exclusive bargaining
representative in respect to wages, hours, other working conditions for all
employees affiliated with the Union. This agreement can be renegotiated
annually, by either party giving the other party written notice of its desire to
modify or terminate the agreement, 90 days before the agreements' anniversary
date of September 20.
f. YEAR 2000 ISSUE
The "Year 2000 Issue" exists because many computer systems and applications,
building infrastructure components, computer aided medical equipment and other
operations related equipment that have date sensitive systems, which currently
use two-digit fields to designate a year, may recognize the year 2000 as 1900,
or not at all. This could result in system and/or equipment failures or
miscalculations causing disruption of operations. The Company has performed an
assessment of the impact of the "Year 2000 Issue" and based on this assessment,
the Company believes that its accounting systems and operations may
substantially avoid the "Year 2000 Issue", thereby enabling it to properly
process critical financial and operational information. The costs associated
with addressing the "Year 2000 Issue" was not material. There can be no
assurance, however, that the systems of other entities on which the Company's
systems and operations rely were properly converted to address the "Year 2000
Issue", or that a conversion by another entity, or a conversion that is
incompatible with the Company's systems, will not have a material adverse effect
on the Company's financial position and results of operations.
12. SUBSEQUENT EVENTS
On March 31, 1999, stock options to acquire 465,241 shares of the Company's
Common Stock expired unexercised.
On August 31, 1999, the Company ceased operating the Smith County General
Hospital in Raleigh, Mississippi due to continued lack of financial performance.
77
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Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
On September 30, 1999, stock options to acquire 100,000 shares of the Company's
Common Stock expired unexercised.
In December 1999, all the remaining warrants outstanding to acquire 50,000
shares of the Company's Common Stock expired unexercised.
On December 31, 1999, the 63,836 shares of the Company's Series C Preferred
Stock automatically converted into approximately 4,605,311 shares of the
Company's Common Stock.
On January 3, 2000, stock options to acquire 78,500 shares of the Company's
Common Stock expired unexercised.
In February 2000 but effective January 1, 2000, the Company sold the Pittsburgh
Specialty Hospital (formerly known as the Podiatry Hospital of Pittsburgh) to
ACCI/AllCare of Pennsylvania, Inc. The Company will realize a loss on the sale
of this hospital of approximately $0.2 million and this loss will be recognized
in the fourth quarter of 1999.
13. SEGMENT INFORMATION
The Company operates in two business segments: the operation of hospitals and
medical clinics, and the distribution of biological products. During 1995, the
Company discontinued its medical diagnostic services business segment which has
been reported as net liabilities of discontinued operations in the consolidated
financial statements. The following presents information on the two business
segments (in thousands):
Hospitals
and
Years ended Medical Biological
December 31 Clinics Products Corporate Total
----------- -------- ---------- --------- --------
Revenues 1998 $ 15,486 $ 1,012 $ -- $ 16,498
1997 $ 19,627 $ 345 $ -- $ 19,972
1996 $ 16,926 $ 54 $ -- $ 16,980
---- -------- -------- -------- --------
Operating profit (loss) 1998 $ (2,857) $ 163 $ (1,220) $ (3,914)
1997 $ (1,236) $ (317) $ (1,322) $ (2,875)
1996 $ (3,429) $ (201) $ (1,553) $ (5,183)
---- -------- -------- -------- --------
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79
Rx MEDICAL SERVICES CORP.
Notes to Consolidated Financial Statements
Hospitals
and
Years ended Medical Biological
December 31 Clinics Products Corporate Total
----------- -------- ---------- --------- --------
Capital expenditures
(including capital
leases) 1998 $ 316 $ -- $ -- $ 316
1997 $ 235 $ 9 $ 104 $ 348
1996 $ 547 $ -- $ 22 $ 569
---- -------- -------- -------- --------
Depreciation and
amortization expense 1998 $ 213 $ 4 $ 26 $ 243
1997 $ 140 $ 1 $ 35 $ 176
1996 $ 131 $ -- $ 29 $ 160
---- -------- -------- -------- --------
Identifiable assets at
year end 1998 $ 5,286 $ 16 $ 38 $ 5,340
1997 $ 6,165 $ 40 $ 268 $ 6,473
1996 $ 6,032 $ 56 $ 302 $ 6,390
---- -------- -------- -------- --------
14. FOURTH QUARTER ADJUSTMENTS
The Company recorded significant fourth quarter adjustments which effected the
net losses for the following years. Following is a summary of such adjustments
(unaudited, in thousands):
1998 1997 1996
------ ------ -------
Provision for legal judgment $1,130 $ -- $ --
Related party interest expense
adjustments -- -- (575)
Gain on purchase of accounts receivable -- -- 579
Asset valuation adjustments -- -- (847)
------ ------ ------
$ -- $ -- $ (843)
====== ====== ======
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE II
Board Of Directors
Rx Medical Services Corp.
In connection with our audit of the consolidated financial statements of Rx
Medical Services Corp. referred to in our report dated February 8, 2001, which
is included in the Company Annual Report on Form 10-K, we have also audited
Schedule II for the years ended December 31, 1998, 1997 and 1996. In our
opinion, the schedule presents fairly, in all material respects, the information
required to be set forth therein. Our report on the financial statements
referred to above includes an explanatory paragraph which discusses
uncertainties and other matters concerning the Company's compliance with various
federal and state regulations and conditions which raise substantial doubt about
the Company's ability to continue as a going concern.
/s/ GRANT THORNTON LLP
- --------------------------
Grant Thornton LLP
Weston, FLorida
February 8, 2000
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Rx MEDICAL SERVICES CORP.
Schedule II
Valuation and Qualifying Accounts
(Dollars in thousands)
Additions
Balance at charged to Balance at
beginning costs and end of
of period expenses Deductions Adjustments period
--------- ---------- ---------- ----------- ----------
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful
accounts receivable $ 3,730 $ 1,389 $ 1,631 $ -- $ 3,488
======= ======= ======= ======= =======
Allowance for uncollectible notes
and other receivables $ 671 $ -- $ 408 $ -- $ 263
======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful
accounts receivable $ 3,607 $ 1,705 $ 798 $ (784) $ 3,730
======= ======= ======= ======= =======
Allowance for uncollectible notes
and other receivables $ 671 $ -- $ -- $ -- $ 671
======= ======= ======= ======= =======
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful
accounts receivable $ 380 $ 3,227(a) $ -- $ -- $ 3,607
======= ======= ======= ======= =======
Allowance for uncollectible notes
and other receivables $ 627 $ 89 $ 45 $ -- $ 671
======= ======= ======= ======= =======
(a) Includes $1,003 charged to gain on purchase of accounts receivable in
the Statement of Operations.
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SIGNATURES
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.
Rx MEDICAL SERVICES CORP.
By: /s/ Michael L. Goldberg
------------------------------
Michael L. Goldberg
Chief Executive Officer
Dated: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ Michael L. Goldberg Director, Chairman and Dated: March 30, 2001
- ------------------------------ Chief Executive Officer
Michael L. Goldberg
/s/ Phillip E. Pearce Director Dated: March 30, 2001
- ------------------------------
Phillip E. Pearce
/s/ Michael J. Pickering, M.D. Director Dated: March 30, 2001
- ------------------------------
Michael J. Pickering, M. D.
/s/ Dennis A. Dolnick Chief Financial Officer Dated: March 30, 2001
- ------------------------------
Dennis A. Dolnick
82