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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 June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number 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 ( ) No ( X )
The number of shares outstanding of the registrant's common stock, par value
$.002 per share, at June 30, 1997, was 9,164,117 shares.
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RX MEDICAL SERVICES CORP.
FORM 10-Q
Six Months Ended June 30, 1997
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 10
PART II. OTHER INFORMATION 14
Item 6. a) Exhibits 14
b) Reports on Form 8-K 14
SIGNATURES 15
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Rx MEDICAL SERVICES CORP.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
---------- -------------- ----------- --------------
Revenues:
Hospitals and medical clinics $ 5,218 $ 6,366 $ 10,533 $ 7,793
Pharmaceutical products -- -- 339 --
-------- -------- -------- --------
5,218 6,366 10,872 7,793
-------- -------- -------- --------
Costs and expenses:
Compensation and benefits 2,928 3,325 5,879 4,316
Pharmaceutical products 2 -- 282 --
Supplies 512 663 984 832
Fees for services 741 966 1,452 1,137
Bad debts 354 837 907 1,038
Depreciation and amortization 39 39 78 61
Occupancy 170 482 334 624
Occupancy-related party 240 -- 481 --
Equipment rental and maintenance 139 214 256 233
Equipment leased-related party 46 -- 92 --
Other 591 441 1,219 716
-------- -------- -------- --------
5,762 6,967 11,964 8,957
-------- -------- -------- --------
Operating loss (544) (601) (1,092) (1,164)
Other income (expense):
Interest (22) (42) (26) (102)
Interest - related party (1,557) (1,052) (3,090) (1,766)
Loss on investment in partnership -- -- -- (124)
Gain (loss) on settlement of liabilities -- 23 (73) 23
Other income 43 61 65 73
-------- -------- -------- --------
(1,536) (1,010) (3,124) (1,896)
-------- -------- -------- --------
Loss from continuing operations (2,080) (1,611) (4,216) (3,060)
Gain from discontinued operations 23 -- 80 --
-------- -------- -------- --------
Net loss $ (2,057) $ (1,611) $ (4,136) $ (3,060)
======== ======== ======== ========
Net loss per common share:
Loss from continuing operations $ (0.23) $ (0.19) $ (0.46) $ (0.36)
Gain from discontinued operations 0.01 -- 0.01 --
-------- -------- -------- --------
Net loss per common share $ (0.22) $ (0.19) $ (0.45) $ (0.36)
======== ======== ======== ========
Weighted average common shares
outstanding 9,164 8,539 9,164 8,539
======== ======== ======== ========
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)
June 30, December 31,
1997 1996
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Assets: (Unaudited)
Current assets:
Cash $ 453 $ 685
Accounts receivable (less allowance for doubtful accounts
of $4,124 and $3,607 in 1997 and 1996, respectively) 4,696 4,106
Inventories 461 301
Other 90 167
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Total current assets 5,700 5,259
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Assets held for sale 750 750
Property and equipment, at cost
Land and buildings 713 --
Equipment 758 425
Furniture, fixtures and improvements 103 85
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1,574 510
Less: accumulated depreciation and amortization (200) (129)
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1,374 381
Other assets (less allowance for doubtful accounts of $671
in 1997 and 1996) 23 --
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Total assets $ 7,847 $ 6,390
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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)
June 30, December 31,
1997 1996
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Liabilities and shareholders' deficit: (Unaudited)
Current liabilities:
Notes payable - related party $ 36,018 $ 32,022
Accounts payable 2,341 1,753
Accrued liabilities 1,478 1,767
Accrued liabilities - related party 1,269 245
Accrued compensation, benefits and related taxes 959 851
Current portion of long-term debt 911 229
Current portion of long-term debt - related party 3,062 3,062
Current portion of capital lease obligations 42 41
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Total current liabilities 46,080 39,970
Long-term liabilities:
Long-term debt 214 592
Net liabilities of discontinued operations 100 100
Obligations under capital leases 105 124
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Total long-term liabilities 419 816
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Total liabilities 46,499 40,786
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Commitments and contingencies -- --
Shareholders' deficit:
Convertible preferred stock, $.001 par value, authorized shares
20,000,000, issued and outstanding 708,775 shares at 1997
and 1996; aggregate liquidation preference of $2,134 at 1997
and 1996 1 1
Convertible preferred stock, $5.00 par value, authorized shares
1,091,250, issued and outstanding 600,270 shares at 1997 and
1996; aggregate liquidation preference of $3,422 and $3,362 at
1997 and 1996, respectively 3,001 3,001
Common stock, $.002 par value, authorized
25,000,000 shares, issued and outstanding
9,164,117 shares at 1997 and 1996 18 18
Additional paid-in capital 37,353 37,473
Accumulated deficit (79,024) (74,888)
Treasury stock, 589,450 shares of common stock at par (1) (1)
-------- --------
Total shareholders' deficit (38,652) (34,396)
-------- --------
Total liabilities and shareholders' deficit $ 7,847 $ 6,390
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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
(Unaudited)
(Dollars in thousands)
Six Months Ended June 30,
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1997 1996
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Cash flows from operating activities:
Net loss $ (4,136) $ (3,060)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 70 61
Provision for bad debts 907 1,038
Loss on sale and disposal of property and equipment -- 38
Loss on settlement of liabilities 73 --
Loss on investment in partnership -- 124
Changes in operating assets and
liabilities, net of effects of acquisition:
Increase in accounts receivable (1,082) (2,508)
Increase in inventories (10) --
(Increase) decrease in other assets 49 (76)
Increase in accounts payable
and accrued liabilities 162 347
Increase in accrued liabilities - related party 1,042 --
Change in discontinued operations -- (1,190)
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Net cash used in operating activities (2,925) (5,226)
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Cash flows from investing activities:
Acquisition of property and equipment (86) (71)
Acquisition, net of cash acquired (1,166) --
Purchase of accounts receivable -- (3,131)
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Net cash used in investing activities (1,252) (3,202)
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Cash flows from financing activities:
Proceeds from notes payable - related party 3,996 9,082
Proceeds from long-term debt -- 26
Payments on long-term debt and obligations under
capital leases (51) (91)
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Net cash provided by financing activities 3,945 9,017
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Net increase (decrease) in cash (232) 589
Cash - beginning of period 685 --
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Cash - end of period $ 453 $ 589
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(Continued)
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Rx MEDICAL SERVICES CORP.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Six Months Ended June 30,
-------------------------------------
1997 1996
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The following is supplementary information relating to the
consolidated statement of cash flows:
Details of businesses acquired:
Fair value of assets acquired $ 1,542 $ --
Liabilities assumed $ 376
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Cash paid $ 1,166 $ --
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For the six months ended June 30, 1997 and 1996, interest paid, including interest on the capitalized leases
was $2,727, and $82 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, 1996 of Rx Medical
Services Corp. (the "Company"), as filed with the Securities and Exchange
Commission. The December 31, 1996 balance sheet was derived from audited
consolidated financial statements, but does not include all disclosures required
by generally accepted accounting principles.
The Company began operating its hospital management division in 1995 and
revenues include the results of operations from August 1, 1995. In 1996, the
Company began operating two additional hospitals - the Dickenson County Medical
Center located in Clintwood, Virginia ("DCMC") and the Whitwell Medical Center
located in Whitwell, Tennessee ("WMC"). Revenues include the results of
operations of DCMC from April 1, 1996 and WMC from April 1, 1996 to October 31,
1996. In 1997, the Company began operating the Podiatry Hospital of Pittsburgh
("PHP") located in Pittsburgh, Pennsylvania, and revenues include the results of
operations from that facility from January 1, 1997.
For the year ended December 31, 1996, 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 $40.4 million at June 30, 1997, 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 also dependent on the settlement of various lawsuits and the
continued funding of its operations from its primary lender, National Century
Financial Enterprises, Inc. (the "Financing Source") 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, the Company has
several plans in progress to improve profitability, as well as cash flow,
including the continued development of its hospital management and
pharmaceutical products distribution businesses, while also seeking the
acquisition of ancillary related businesses. This expansion will focus on
increased revenues, market share and positive cash flow. Also, expense
reductions are expected to be achieved through the continuing implementation of
aggressive cost cutting and reorganization strategies.
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Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
NOTE 2 - Earnings Per Share
Net loss per common share was computed by dividing net loss by the weighted
average number of shares outstanding. Common share equivalents resulting from
options and warrants have not been included since their effect would be
antidilutive.
NOTE 3 - Notes Payable - Related Party
At June 30, 1997, notes payable included approximately $36.0 million due to the
Financing Source, through which the Company has obtained financing
collateralized by certain accounts receivable.
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ITEM 2. MANAGEMENT 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 June 30,
1997 were $5.2 million compared to $6.4 million for the three months ended June
30, 1996. The decrease in revenues from hospitals and medical clinics is
primarily the result of (a) an increase in patient services provided at DCMC
which resulted in an increase of revenues of approximately $0.6 million; (b) the
Company ceased operating WMC on October 31, 1996, therefore no revenues were
generated during the three months ended June 30, 1997, which resulted in a
decrease of approximately $2.4 million; (c) the acquisition of PHP effective
January 1, 1997 which generated revenues of approximately $0.7 million for the
three months ended June 30, 1997; and (d) a cumulative decrease at other Company
hospital and medical clinics of approximately $0.1 million.
The pharmaceutical products distribution division generated no revenues during
the three months ended June 30, 1997 due to litigation commenced as a result of
a dispute between the Company and its joint venture partner. Notwithstanding
this litigation the pharmaceutical products distribution division is moving
forward and anticipates generating revenues in the first quarter of 1998. The
Company began this division in 1996 but it did not generate revenues until the
fourth quarter of 1996 and thus the reason why no revenues are reflected for the
three months ended June 30, 1996.
Costs and expenses decreased 21% to $5.8 million for the three months ended June
30, 1997 from $7.0 million for the three months ended June 30, 1996. Of these
1997 expenses, hospital management operations accounted for $5.3 million,
pharmaceutical distribution accounted for $0.1 million, and the corporate
expenses of the Company were $0.4 million. The decrease in costs and expenses is
primarily the result of (a) an increase in patient services provided at DCMC
resulting in an increase of costs and expenses of approximately $0.6 million;
(b) the Company ceased operating WMC on October 31, 1996, therefore no costs and
expenses were incurred during the three months ended June 30, 1997, which
resulted in a decrease of approximately $2.2 million; (c) the acquisition of PHP
effective January 1, 1997 which generated costs and expenses of approximately
$1.0 million for the three months ended June 30, 1997; (d) costs and expenses
associated with the pharmaceutical products distribution division, which first
incurred costs in the fourth quarter of 1996, of approximately $0.1 million; and
(e) a cumulative decrease at other Company hospital and medical clinics and the
Company's corporate headquarters of approximately $0.7 million.
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Interest expense increased 45% to $1.6 million for the three months ended June
30, 1997 from $1.1 million for the three months ended June 30, 1996. This
increase is due to a higher level of borrowings from the Financing Source. (see
"Financial Condition, Liquidity, and Capital Resources" below).
No provision for income taxes has been provided on the gain from discontinued
operations since existing net operating loss carryforwards from continuing
operations may be substantially limited.
SIX MONTHS:
Revenues from hospitals and medical clinics for the six months ended June 30,
1997 were $10.5 million compared to $7.8 million for the six months ended June
30, 1996. The increase in revenues from hospitals and medical clinics is
primarily the result of (a) the six months ended June 30, 1997 includes six
months of operations from DCMC while the six months ended June 30, 1996 only
includes three months of operations resulting in an increase of revenues of
approximately $4.7 million; (b) the Company ceased operating WMC on October 31,
1996, therefore no revenues were generated during the six months ended June 30,
1997, which resulted in a decrease of approximately $2.4 million; (c) the
acquisition of PHP on January 1, 1997 which generated revenues of approximately
$1.2 million for the six months ended June 30, 1997; and (d) a cumulative
decrease at other Company hospital and medical clinics of approximately $0.8
million.
Revenues from the pharmaceutical products distribution division for the six
months ended June 30, 1997 were $0.3 million. The Company began this division in
1996 but it did not generate revenues until the fourth quarter of 1996 and thus
the reason why no revenues are reflected for the six months ended June 30, 1996.
Costs and expenses increased 34% to $11.9 million for the six months ended June
30, 1997 from $8.9 million for the six months ended June 30, 1996. Of these 1997
expenses, hospital management operations accounted for $10.8 million,
pharmaceutical distribution accounted for $0.5 million, and the corporate
expenses of the Company were $0.6 million. The increase in costs and expenses is
primarily the result of (a) the six months ended June 30, 1997 includes six
months of operations from DCMC while the six months ended June 30, 1996 only
includes three months of operations which resulted in an increase of costs and
expenses of approximately $4.4 million; (b) the Company ceased operating WMC on
October 31, 1996, therefore no costs and expense were incurred during the six
months ended June 30, 1997, which resulted in a decrease of approximately $2.2
million; (c) the acquisition of PHP on January 1, 1997 which generated costs and
expenses of approximately $1.9 million for the six months end June 30, 1997; (d)
costs and expenses associated with the pharmaceutical products distribution
division, which first incurred costs in the fourth quarter of 1996, of
approximately $0.5 million; and (e) a cumulative decrease at other Company
hospital and medical clinics and the Company's corporate headquarters of
approximately $1.6 million.
Interest expense increased 63% from $1.9 million for the six months ended June
30, 1996 to $3.1 million for the six months ended June 30, 1997. This increase
is due primarily to a higher level of
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borrowings from the Financing Source. (see "Financial Condition, Liquidity, and
Capital Resources" below).
No provision for income taxes has been provided on the gain from discontinued
operations since existing net operating loss carryforwards from continuing
operations may be substantially limited.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
During the six months ended June 30, 1997, the Company's working capital deficit
increased by approximately $5.7 million to $40.4 million. This increase in the
working capital deficit was primarily due to a $4.0 million increase in the
level of funding from the Financing Source as well as operating losses. In
addition, the Company is a defendant in various lawsuits. Through June 30, 1997,
the Company's ability to continue as a going concern is dependent on successful
resolution of the lawsuits and the continued funding of its operations by the
Financing Source. Without this funding, the Company's ability to operate its
business would be adversely impacted. As a result of the elimination by the
Company of a portion of its unprofitable operations, the continued dependence on
the Financing Source has been lessened. 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, or other alternative
sources of funding, to the extent available. To the extent fundings from the
Financing Source 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 continuing operations (i.e. hospital management ("CHC") and
pharmaceutical products distribution ("BHC")) are presently being funded through
financing agreements with the Financing Source and the Company's various
operating facilities. Agreements to finance eligible accounts receivable exist
with Smith County Hospital, DCMC, PHP, and the retail pharmacy used by BHC in
Florida to facilitate the delivery of biological products to patients. At June
30, 1997, approximately $15.1 million had been funded (net) by the Financing
Source and its related affiliates under these current agreements. Of this
amount, approximately $3.5 million had been funded under agreement with WMC,
which the Company ceased operating on October 31, 1996.
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 has divested its loss operations and will continue to
pursue additional sources of revenues by expanding its hospital operations and
other specialty medical services.
GOING CONCERN
The reports of the independent auditors of the Company on its 1996, 1995 and
1994 consolidated financial statements express substantial doubt about the
Company's ability to continue as a going
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concern. Factors contributing to this substantial doubt include recurring
operating losses, a working capital deficiency and delinquencies, 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's subsidiary that
operated the medical services business segment ("Manatee") 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 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 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 6. Exhibits and Reports on Form 8-K
Sequentially
Numbered Page
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a) Exhibit 11: Computation of primary earnings per share. 16
Exhibit 27: Financial Data Schedule (for SEC use only)
b) Reports on Forms 8-K were filed as follows:
On April 15, 1997, the Company filed a current report on Form 8-K (Date of
Report-April 3, 1997) indicating that Consolidated Health Corp. of Pittsburgh,
Inc. ("CHC/P"), a Pennsylvania corporation 100% owned by Consolidated Health
Corporation of Mississippi, Inc., Registrant's wholly-owned hospital management
subsidiary, acquired the operating assets of the Podiatry Hospital, an acute
care foot and ankle hospital with 13 licensed beds located in Pittsburgh,
Pennsylvania (the "Hospital"), from the Podiatry Hospital of Pittsburgh, a
non-for-profit Pennsylvania corporation (the "Seller"). The acquisition was
effective retroactive to January 1, 1997, when CHC/P assumed operational
responsibility for the Hospital from the Seller.
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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/ RANDOLPH H. SPEER
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Randolph H. Speer
President and
Principal Accounting Officer
Date: December 1, 1997
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