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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 September 30, 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
Nine Months Ended September 30, 1999
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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PART I. FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS.
RX MEDICAL SERVICES CORP.
Consolidated Statements of Operations
(Dollars in thousands except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------------- --------------------------------------
1999 1998 1999 1998
------------------ ----------------- ----------------- ----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Hospitals and medical clinics $ 2,722 $ 3,776 $ 8,623 $ 12,232
Biological products 196 424 664 892
-------- -------- -------- --------
2,918 4,200 9,287 13,124
-------- -------- -------- --------
Costs and expenses:
Compensation and benefits 2,130 2,331 6,585 7,183
Biological products 142 224 415 572
Supplies 258 513 880 1,411
Fees for services 320 580 915 1,964
Bad debts 525 507 1,275 984
Depreciation and amortization 61 63 187 179
Occupancy 141 187 454 543
Occupancy-related party 241 241 722 722
Equipment rental and maintenance 97 90 314 304
Equipment rental-related party 46 46 137 137
Other 292 456 1,022 1,462
-------- -------- -------- --------
4,253 5,238 12,906 15,461
-------- -------- -------- --------
Operating loss (1,335) (1,038) (3,619) (2,337)
Other income (expense):
Interest (29) (43) (78) (230)
Interest - related party (2,243) (1,942) (6,287) (5,415)
Loss on sale or abandonment of assets (145) -- (145) --
Gain (loss) on settlement of liabilities -- (200) (184) (50)
Other income 18 36 86 139
-------- -------- -------- --------
(2,399) (2,149) (6,608) (5,556)
-------- -------- -------- --------
Loss from continuing operations (3,734) (3,187) (10,227) (7,893)
Gain from discontinued operations -- 31 -- 105
Extraordinary item:
Gain on settlement of indebtedness -- 3,195 -- 3,195
-------- -------- -------- --------
Net loss $ (3,734) $ 39 $(10,227) $ (4,593)
======== ======== ======== ========
Basic and diluted net loss per common share:
Loss from continuing operations $ (0.20) $ (0.20) $ (0.56) $ (0.68)
Gain from discontinued operations -- 0.01 -- 0.01
Gain on settlement of indebtedness -- 0.19 -- 0.27
-------- -------- -------- --------
Basic and diluted net loss per common share $ (0.20) $ -- $ (0.56) $ (0.40)
======== ======== ======== ========
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)
September 30, December 31,
1999 1998
------------------ ------------------
(Unaudited)
Assets:
Current assets:
Cash $ 82 $ 22
Accounts receivable (less allowance for doubtful accounts of
$3,147 and $3,488 at 1999 and 1998, respectively) 2,335 2,994
Inventories 401 379
Other 68 194
------- -------
Total current assets 2,886 3,589
------- -------
Property and equipment, at cost
Land and buildings 713 713
Equipment 1,175 1,255
Furniture, fixtures and improvements 99 183
------- -------
1,987 2,151
Less: accumulated depreciation and amortization (604) (534)
------- -------
1,383 1,617
Other assets (less allowance for doubtful accounts of $263 at 1998) 42 134
------- -------
Total assets $ 4,311 $ 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)
September 30, December 31,
1999 1998
------------------ -----------------
(Unaudited)
Liabilities and shareholders' deficit:
Current liabilities:
Notes payable $ 35 $ 20
Notes payable - related party 54,949 47,169
Accounts payable 6,169 5,772
Accrued liabilities 946 885
Accrued liabilities - related party 131 105
Accrued compensation, benefits and related taxes 1,255 1,040
Current portion of long-term debt 25 25
Current portion of long-term debt - related party 156 87
Current portion of capital lease obligations 59 75
Current portion of capital lease obligations-related party 59 55
--------- ---------
Total current liabilities 63,784 55,233
Long-term liabilities:
Long-term debt 158 177
Long-term debt - related party 1,216 461
Obligations under capital leases 35 42
Obligations under capital leases-related party 102 151
--------- ---------
Total long-term liabilities 1,511 831
--------- ---------
Total liabilities 65,295 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 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 $90 and $56 at 1999
and 1998, respectively 1 1
Common stock, $.002 par value, authorized 25,000,000 shares,
issued and outstanding 18,633,774 and 17,982,814 shares at 1999
and 1998, respectively 37 35
Additional paid-in capital 42,326 42,361
Accumulated deficit (103,348) (93,121)
Treasury stock, 605,554 shares of common stock, at par value,
at 1999 and 1998 (1) (1)
--------- ---------
Total shareholders' deficit (60,984) (50,724)
--------- ---------
Total liabilities and shareholders' deficit $ 4,311 $ 5,340
========= =========
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)
Nine Months Ended September 30,
-------------------------------------
1999 1998
------------------ ------------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(10,227) $ (4,593)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 187 179
Provision for bad debts 1,275 984
Loss on sales and abandonment of property and equipment 157 --
(Gain) loss on settlement of liabilities 184 (150)
Gain on setlement of indebtedness -- (3,195)
Changes in operating assets and liabilities, net of effects of
acquisition:
(Increase) decrease in accounts receivable (615) (26)
Increase in inventories (38) 92
Increase in other assets (16) (200)
Increase in accounts payable and accrued liabilities 640 1,556
Increase (decrease) in accrued liabilities - related party 26 (556)
Change in discontinued operations -- (75)
-------- --------
Net cash used in operating activities (8,427) (5,984)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment (35) (70)
-------- --------
Net cash used in investing activities (35) (70)
-------- --------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt - related party 8,667 6,004
Payments on notes payable, long-term debt and obligations under
capital leases (36) (633)
Payments on notes payable, long-term debt and obligations under
capital leases - related party (109) (24)
Proceeds from the sale of preferred stock -- 800
-------- --------
Net cash provided by financing activities 8,522 6,147
-------- --------
Net decrease in cash 60 93
Cash - beginning of period 22 110
-------- --------
Cash - end of period $ 82 $ 203
======== ========
(Continued)
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RX MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
Nine Months Ended September 30,
----------------------------------------
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 $ -- $263
===== ====
Common stock issued for payment of dividends in arrears $ 56 $600
===== ====
Common stock issued to reduce note payable -related party $ -- $800
===== ====
For the nine months ended September 30, 1999 and 1998, interest paid, including
interest on obligations under capitalized leases was $6,352 and $6,566,
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 $60.9 million at September 30, 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
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
entering into individual agreements to sell each of the hospitals it operates
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
net common share:
Three Months Ended September 30,
----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Per-Share Per-Share
Amount Amount Amount Amount
---------------- ---------------- --------------- -----------------
Loss from continuing operations $ (3,734) $(0.19) $ (3,187) $(0.27)
Dividends on preferred stock (30) (0.01) (25) (0.01)
-------- ----- -------- -----
Loss available to common
shareholders' (3,764) (0.20) (3,212) (0.28)
Gain from discontinued operations -- -- 31 0.01
Gain on settlement of indebtedness -- -- 3,195 0.19
-------- ----- -------- -----
Net loss $ (3,764) $(0.20) $ 14 $(0.00)
======== ===== ======== =====
Weighted average common
shares outstanding 18,634 16,408
======== ========
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Nine Months Ended September 30,
----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
Per-Share Per-Share
Amount Amount Amount Amount
---------------- ---------------- --------------- -----------------
Loss from continuing operations $(10,227) $(0.55) $ (7,893) $(0.67)
Dividends on preferred stock (90) (0.01) (145) (0.01)
-------- ----- -------- -----
Loss available to common
shareholders' (10,317) (0.56) (8,038) (0.68)
Gain from discontinued operations -- -- 105 0.01
Gain on settlement of indebtedness -- -- 3,195 0.27
-------- ----- -------- -----
Net loss $(10,317) $(0.56) $ (4,738) $(0.40)
======== ===== ======== =====
Weighted average common
shares outstanding 18,283 11,777
======== ========
Note 3 - Notes Payable - Related Party
At September 30, 1999, notes payable included approximately $54.9 million due to
the Financing Source ("Related Party"), through which the Company has obtained
financing collateralized by certain accounts receivable, real estate and
equipment.
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
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
The following table presents information on the Company's two business segments
for the nine months ended September 30, 1999 (in thousands):
Hospitals and
Medical Biological
Clinics Products Corporate Total
------------------ ------------------- ------------------ ------------------
Revenues $ 8,623 $ 664 $ -- $ 9,287
Operating profit (loss) $(2,916) $ 91 $ (794) $(3,619)
Capital expenditures
(including capital leases) $ 15 $ -- $ -- $ 15
Depreciation and
amortization expense $ 174 $ 4 $ 9 $ 187
Identifiable assets at
end of period $ 4,142 $ 126 $ 43 $ 4,311
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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 nine months ended September 30, 1998 (in thousands):
Hospitals and
Medical Biological
Clinics Products Corporate Total
------------------ ------------------- ------------------ ------------------
Revenues $ 12,232 $ 892 $ -- $ 13,124
Operating profit (loss) $ (1,513) $ 158 $ (982) $ (2,337)
Capital expenditures
(including capital leases) $ 333 $ -- $ -- $ 333
Depreciation and
amortization expense $ 155 $ 3 $ 21 $ 179
Identifiable assets at
end of period $ 5,664 $ 27 $ 183 $ 5.874
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE MONTHS:
Revenues from hospitals and medical clinics for the three months ended September
30, 1999 were $2.7 million compared to $3.8 million for the three months ended
September 30, 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 $0.7 million, (b) a decrease in patient services
provided at the Pittsburgh Specialty Hospital ("PHP") which resulted in a
decrease of revenues of approximately $0.2 million and (b) a cumulative decrease
at other Company hospital and medical clinics of approximately $0.2 million.
Revenues from the distribution of biological products for the three months ended
September 30, 1999 were $0.2 million compared to $0.4 million for the three
months ended September 30, 1998. This decrease in revenues is primarily due to a
temporary shortage of biological product being shipped by the Company's most
significant supplier.
Costs and expenses decreased 21% to $4.3 million for the three months ended
September 30, 1999 from $5.2 million for the three months ended September 30,
1998. Of these 1999 expenses, hospital management operations accounted for $3.8
million, biological product distribution accounted for $0.2 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 $0.4
million; (b) a decrease in patient services at PHP resulting in a decrease of
costs and expenses of approximately $0.2 million, and (c) a cumulative decrease
at other Company hospital and medical clinics and the Company's corporate
headquarters of approximately $0.3 million.
Interest expense increased 16% to $2.2 million for the three months ended
September 30, 1999 from $1.9 million for the three months ended September 30,
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).
NINE MONTHS:
Revenues from hospitals and medical clinics for the nine months ended September
30, 1999 were $8.6 million compared to $12.2 million for the nine months ended
September 30, 1998. The decrease in revenues from hospitals and medical clinics
is primarily the result of (a) a decrease in patient services provided at DCMC
which resulted in a decrease of revenues of approximately $2.4 million; (b) a
decrease in patient services provided at PHP which resulted in a decrease of
revenues of approximately $0.5 million and (c) a cumulative decrease at other
Company hospital and medical clinics of approximately $0.7 million.
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Revenues from the distribution of biological products for the nine months ended
September 30, 1999 were $0.7 million compared to $0.9 million for the nine
months ended September 30, 1998. This decrease in revenues is primarily due to a
temporary shortage of biological product being shipped by the Company's most
significant supplier.
Costs and expenses decreased 20% to $12.9 million for the nine months ended
September 30, 1999 from $15.5 million for the nine months ended September 30,
1998. Of these 1999 expenses, hospital management operations accounted for $11.5
million, biological product distribution accounted for $0.6 million, and the
corporate expenses of the Company were $0.8 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 $1.3
million; (b) a decrease in patient services at PHP resulting in a decrease of
costs and expenses of approximately $0.5 million, and (c) a cumulative decrease
at other Company hospital and medical clinics and the Company's corporate
headquarters of approximately $0.8 million.
Interest expense increased 14% to $6.4 million for the nine months ended
September 30, 1999 from $5.6 million for the nine months ended September 30,
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 nine months ended September 30, 1999, the Company's working capital
deficit increased by approximately $9.3 million to $60.9 million. This increase
in the working capital deficit was primarily due to a $7.8 million increase in
the level of funding from the Financing Source ("Related Party"), as well as,
operating losses. Through September 30, 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
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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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 the 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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