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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number 1-10963
RX MEDICAL SERVICES CORP.
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(Exact name of registrant as specified in its charter)
NEVADA 87-0436782
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
888 EAST LAS OLAS BOULEVARD, SUITE 210, FORT LAUDERDALE, FLORIDA 33301
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(Address of principal executive offices) (Zip code)
(954) 462-1711
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(Registrant's telephone number including area code)
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. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock, par value
$.002 per share, at March 31, 2001 was 23,751,920 shares.
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RX MEDICAL SERVICES CORP.
FORM 10-Q
Three Months Ended March 31, 1999
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RX MEDICAL SERVICES CORP.
Consolidated Statements of Operations
(Dollars in thousands except per share amounts)
Three Months Ended March 31,
-------------------------------------------
1999 1998
------------------- -------------------
(Unaudited) (Unaudited)
Revenues:
Hospitals and medical clinics $ 3,159 $ 4,615
Biological products 173 52
------- -------
3,332 4,667
------- -------
Costs and expenses:
Compensation and benefits 2,243 2,460
Biological products 88 41
Supplies 342 519
Fees for services 311 690
Bad debts 366 45
Depreciation and amortization 63 54
Occupancy 160 180
Occupancy-related party 241 241
Equipment rental and maintenance 98 123
Equipment rental - related party 46 46
Other 341 536
------- -------
4,299 4,935
------- -------
Operating loss (967) (268)
Other income (expense):
Interest (22) (94)
Interest - related party (1,926) (1,575)
Gain (loss) on settlement of liabilities (249) 150
Other income 46 19
------- -------
(2,151) (1,500)
------- -------
Loss from continuing operations (3,118) (1,768)
Gain from discontinued operations -- 43
------- -------
Net loss $(3,118) $(1,725)
======= =======
Basic and diluted net loss per common share:
Loss from continuing operations $ (0.18) $ (0.20)
Gain from discontinued operations -- 0.01
------- -------
Basic and diluted net loss per common share $ (0.18) $ (0.19)
======= =======
The accompanying notes are an integral part of these financial statements.
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RX MEDICAL SERVICES CORP.
Consolidated Balance Sheets
(Dollars in thousands)
March 31, December 31,
1999 1998
------------------ -------------------
(Unaudited)
Assets:
Current assets:
Cash $ 43 $ 22
Accounts receivable (less allowance for doubtful accounts
of $3,151 and $3,488 at 1999 and 1998, respectively) 2,926 2,994
Inventories 423 379
Other 135 194
------- -------
Total current assets 3,527 3,589
------- -------
Property and equipment, at cost
Land and buildings 713 713
Equipment 1,238 1,255
Furniture, fixtures and improvements 168 183
------- -------
2,119 2,151
Less: accumulated depreciation and amortization (557) (534)
------- -------
1,562 1,617
Other assets (less allowance for doubtful accounts of $263
at 1998) 107 134
------- -------
Total assets $ 5,196 $ 5,340
======= =======
The accompanying notes are an integral part of these financial statements.
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RX MEDICAL SERVICES CORP.
Consolidated Balance Sheets (continued)
(Dollars in thousands)
March 31, December 31,
1999 1998
--------------- ------------------
(Unaudited)
Liabilities and shareholders' deficit:
Current liabilities:
Notes payable $ 100 $ 20
Notes payable - related party 49,616 47,169
Accounts payable 6,115 5,772
Accrued liabilities 925 885
Accrued liabilities - related party 89 105
Accrued compensation, benefits and related taxes 1,197 1,040
Current portion of long-term debt 25 25
Current portion of long-term debt - related party 91 87
Current portion of capital lease obligations 62 75
Current portion of capital lease obligations - related party 56 55
-------- --------
Total current liabilities 58,276 55,233
Long-term liabilities:
Long-term debt 171 177
Long-term debt - related party 437 461
Obligations under capital leases 49 42
Obligations under capital leases - related party 135 151
-------- --------
Total long-term liabilities 792 831
-------- --------
Total liabilities 59,068 56,064
-------- --------
Commitments and contingencies -- --
Shareholders' deficit:
Convertible preferred stock, $.001 par value, authorized shares 20,000,000,
issued and outstanding 63,836 shares at 1999 and 1998; aggregate
liquidation preference of $322 at 1999
and 1998, respectively 1 1
Convertible preferred stock, $.001 par value, authorized shares
1,500,000, issued and outstanding 800,000 shares at 1999 and
1998; aggregate liquidation preference of $87 and $56 at
1999 and 1998, respectively 1 1
Common stock, $.002 par value, authorized 25,000,000 shares,
issued and outstanding 17,982,814 shares at 1999 and 1998,
respectively 35 35
Additional paid-in capital 42,331 42,361
Accumulated deficit (96,239) (93,121)
Treasury stock, 605,554 shares of common stock, at par value,
at 1999 and 1998, respectively (1) (1)
-------- --------
Total shareholders' deficit (53,872) (50,724)
-------- --------
Total liabilities and shareholders' deficit $ 5,196 $ 5,340
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The accompanying notes are an integral part of these financial statements.
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RX MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Three Months Ended March 31,
----------------------------------------
1999 1998
------------------ ------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(3,118) $(1,725)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 63 54
Provision for bad debts 366 45
(Gain) loss on settlement of liabilities 249 (150)
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable (298) 185
Increase in inventories (44) (53)
Increase in other assets (83) (368)
Increase in accounts payable
and accrued liabilities 511 1,012
Decrease in accrued liabilities - related party (16) (138)
Change in discontinued operations -- (25)
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Net cash used in operating activities (2,370) (1,163)
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Cash flows from investing activities:
Acquisition of property and equipment (8) (29)
------- -------
Net cash used in investing activities (8) (29)
------- -------
Cash flows from financing activities:
Proceeds from notes payable - related party 2,447 1,141
Payments on notes payable, long-term debt and
obligations under capital leases (13) (19)
Payments on notes payable, long-term debt and
obligations under capital leases - related party (35) --
------- -------
Net cash provided by financing activities 2,399 1,122
------- -------
Net increase (decrease) in cash 21 (70)
Cash - beginning of period 22 110
------- -------
Cash - end of period $ 43 $ 40
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(Continued)
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RX MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Three Months Ended March 31,
------------------------------------------
1999 1998
----------------- -----------------
(Unaudited) (Unaudited)
The following is supplementary information relating to the consolidated
statement of cash flows:
Noncash investing and financing activities:
Equipment purchased under capital leases $-- $19
=== ===
For the three months ended March 31, 1999 and 1998, interest paid, including
interest on obligations under capitalized leases was $1,963 and $2,032,
respectively. No income taxes were paid during these periods.
The accompanying notes are an integral part of these financial statements.
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the audited annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto, together with management's discussion and
analysis of financial condition and results of operations, contained in the
Annual Report on Form 10-K for the year ended December 31, 1998 of Rx Medical
Services Corp. (the "Company"), as filed with the Securities and Exchange
Commission. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial position
and results of operations. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the full year. The
December 31, 1998 balance sheet was derived from audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
For the year ended December 31, 1998, 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.
The Company has experienced significant losses in each of the past three years,
had a working capital deficit of $54.7 million at March 31, 1999, 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. 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") ("Related Party") 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 incurred and is
anticipated to continue to incur 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 each of the hospitals it operates
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
but there can be no assurance that suitable candidates can be found 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 sell its hospitals
to, the Company may have to or could be forced to close the remaining hospitals
it operates.
The Company is looking to expand its presence, through joint ventures and/or
acquisitions, into new markets in related health care businesses with perceived
growth potential. The Company anticipates limiting its joint ventures and/or
acquisitions to those that meet certain criteria and are expected to generate
positive cash flow.
Note 2 - Basic and Diluted 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. The statement is effective for all
financial statements issued for periods ending after December 15, 1997 and
requires restatement of earnings (net loss) per share for all periods presented.
Basic and diluted net loss per common share are the same 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.
The following table reflects the computation of the basic and diluted net loss
per common share:
Three Months Ended March 31,
----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Per-Share Per-Share
Amount Amount Amount Amount
---------------- ---------------- --------------- -----------------
Loss from continuing operations $ (3,118) $(0.17) $ (1,768) $(0.19)
Dividends on preferred stock (30) (0.01) (60) (0.01)
-------- ----- -------- -----
Loss available to common
shareholders' (3,148) (0.18) (1,828) (0.20)
Gain from discontinued operations -- -- 43 0.01
-------- ----- -------- -----
Net loss $ (3,148) $(0.18) $ (1,785) $(0.19)
======== ===== ======== =====
Weighted average common
shares outstanding 17,983 9,164
======== ========
Note 3 - Notes Payable - Related Party
At March 31, 1999, notes payable included approximately $49.6 million due to the
Financing Source ("Related Party"), through which the Company has obtained
financing collateralized by certain accounts receivable, real estate and
equipment.
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4 - Commitments and Contingencies
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
initial assessment of the impact of the "Year 2000 Issue" and based on this
initial 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 and that the
cost associated with addressing the "Year 2000 Issue" is not expected to be
material. There can be no assurance, however, that the systems of other entities
on which the Company's systems and operations rely will be timely converted to
address the "Year 2000 Issue", or that a failure to convert by another entity,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company's financial position and results of
operations.
Note 5 - 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 does not apply to
the Company's financial statements as there are no items of comprehensive income
in any of the periods being presented.
Note 6 - 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.
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.
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents information on the Company's two business segments
for the three months ended March 31, 1999 (in thousands):
Hospitals and
Medical Biological
Clinics Products Corporate Total
------------------ ------------------- ------------------ ------------------
Revenues $ 3,159 $ 173 $ -- $ 3,332
Operating profit (loss) $ (725) $ 33 $ (275) $ (967)
Capital expenditures
(including capital leases) $ 8 $ -- $ -- $ 8
Depreciation and
amortization expense $ 58 $ 1 $ 4 $ 63
Identifiable assets at
end of period $ 5,063 $ 81 $ 52 $ 5,196
The following table presents information on the Company's two business segments
for the three months ended March 31, 1998 (in thousands):
Hospitals and
Medical Biological
Clinics Products Corporate Total
------------------ ------------------- ------------------ ------------------
Revenues $ 4,615 $ 52 $ -- $ 4,667
Operating profit (loss) $ 137 $ (41) $ (364) $ (268)
Capital expenditures
(including capital leases) $ 28 $ -- $ 20 $ 48
Depreciation and
Amortization expense $ 42 $ -- $ 8 $ 54
Identifiable assets at
end of period $ 6,338 $ 61 $ 189 $ 6,588
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Revenues from hospitals and medical clinics for the three months ended March 31,
1999 were $3.2 million compared to $4.6 million for the three months ended March
31, 1998. 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 ("DCMC") which resulted in a decrease of
revenues of approximately $0.9 million, and (b) a cumulative decrease at other
Company hospital and medical clinics of approximately $0.5 million.
Revenues from the distribution of biological products for the three months ended
March 31, 1999 were $0.2 million compared to $0.1 million for the three months
ended March 31, 1998. This increase in revenues is primarily due to the current
biological product mix being in high demand.
Costs and expenses decreased 15% to $4.3 million for the three months ended
March 31, 1999 from $4.9 million for the three months ended March 31, 1998. Of
these 1999 expenses, hospital management operations accounted for $3.9 million,
biological product distribution accounted for $0.1 million, and the corporate
expenses of the Company were $0.3 million. The decrease in costs and expenses is
primarily the result of (a) a decrease in patient services provided at DCMC
resulting in a decrease of costs and expenses of approximately $0.5 million; (b)
a decrease in patient services at the Pittsburgh Specialty Hospital ("PHP")
resulting in a decrease of costs and expenses of approximately $0.2 million, and
(c) a cumulative increase at other Company hospital and medical clinics and the
Company's corporate headquarters of approximately $0.1 million.
Interest expense increased 15% to $1.9 million for the three months ended March
31, 1999 from $1.7 million for the three months ended March 31, 1998. This
increase is due to a higher level of borrowings from the Financing Source
("Related Party"). (see "Financial Condition, Liquidity, and Capital Resources"
below).
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
During the three months ended March 31, 1999, the Company's working capital
deficit increased by approximately $3.1 million to $54.7 million. This increase
in the working capital deficit was primarily due to a $2.4 million increase in
the level of funding from the Financing Source ("Related Party"), as well as,
operating losses. Through March 31, 1999, 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
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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.
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 operation and
management business and attempt to sustain the biological product distribution
business. The Company is also looking to expand its presence, through joint
ventures and/or acquisitions, into new markets in related health care businesses
with perceived growth potential. There can be no assurance, however, that the
Company will achieve these strategic objectives.
YEAR 2000 COMPLIANCE
See Note 4 - Commitments and Contingencies in Item 1 Financial Statements.
GOING CONCERN
The reports 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
Company's subsidiary that operated the medical diagnostic services business
segment, in April 1996, 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") 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Rx MEDICAL SERVICES CORP.
By: /s/ MICHAEL L. GOLDBERG
------------------------------
Michael L. Goldberg
Chief Executive Officer
Date: June 12, 2001
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