UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 --------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended January 31, 1997 Commission File Number 0-19019 PRIMEDEX HEALTH SYSTEMS, INC. (Exact name of registrant as specified in its charter) New York 13-3326724 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1516 Cotner Avenue Los Angeles, California 90025 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area co(310) 478-7808 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities and 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 Number of shares outstanding of the issuer's common stock, as of July 31, 1997 was 38,607,260.
<TABLE> PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------ January 31, October 31, 1 9 9 7 1 9 9 6 [Unaudited] <S> <C> <C> Assets: Current Assets: Cash and Cash Equivalents $ 176,015 $ 151,870 Accounts Receivable - Net 18,373,172 19,751,419 Unbilled Receivables 799,577 532,138 Due from Related Party 101,340 100,333 Other 1,148,930 826,826 ------------ ------------ Total Current Assets 20,599,034 21,362,586 ------------ ------------ Property, Plant and Equipment - Net 39,006,661 38,737,846 ------------ ------------ Other Assets: Accounts Receivable - Net 5,717,847 6,104,012 Due from Related Parties 917,246 899,143 Goodwill - Net 28,597,056 31,821,606 Other 5,670,129 7,005,979 ------------ ------------ Total Other Assets 40,902,278 45,830,740 ------------ ------------ Total Assets $100,507,973 $105,931,172 ============ ============ See Notes to Consolidated Financial Statements. </TABLE> 1
<TABLE> PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------ January 31, October 31, 1 9 9 7 1 9 9 6 [Unaudited] <S> <C> <C> Liabilities and Stockholders' Deficit: Current Liabilities: Cash Overdraft $ 864,913 $ 250,792 Accounts Payable 7,468,036 5,743,410 Accrued Expenses - Current 7,284,276 7,619,634 Notes and Leases Payable - Current 27,727,168 28,200,547 Accrued Estimated Closing Costs - Current 144,080 157,092 Accrued Restructuring Costs 737,373 895,622 Due to Related Party 88,567 88,567 Other 1,049,719 1,033,571 ------------ ------------ Total Current Liabilities 45,364,132 43,989,235 ------------ ------------ Long-Term Liabilities: Subordinated Debentures Payable 25,658,951 25,829,000 Notes and Leases Payable 58,460,520 57,199,989 Accrued Expenses 1,653,194 2,435,283 ------------ ------------ Total Long-Term Liabilities 85,772,665 85,464,272 ------------ ------------ Commitments and Contingencies -- -- ------------ ------------ Minority Interest 1,253,345 1,338,979 ------------ ------------ Stockholders' Deficit: Common Stock - $.01 Par Value, 100,000,000 Shares Authorized, 40,232,260 Shares Issued and 38,932,260 Shares Outstanding at January 31, 1997 and October 31, 1996. 402,322 402,322 Paid-in Capital 99,411,150 99,411,150 Deferred Compensation - Net -- (788,025) Retained Earnings [Deficit] (131,213,914) (123,405,034) ------------ ------------ Totals (31,400,442) (24,379,587) Less: Treasury Stock - 1,300,000 Shares - At Cost (481,727) (481,727) ------------ ------------ Total Stockholders' Deficit (31,882,169) (24,861,314) ------------ ------------ Total Liabilities and Stockholders' Deficit $100,507,973 $105,931,172 ============ ============ See Notes to Consolidated Financial Statements. </TABLE> 2
<TABLE> PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED] - ------------------------------------------------------------------------------ Three months ended January 31, 1 9 9 7 1 9 9 6 ------- ------- <S> <C> <C> Revenue: Revenue $31,838,043 $25,759,120 Less: Allowances 14,200,921 11,919,669 ----------- ----------- Net Revenue 17,637,122 13,839,451 ----------- ----------- Operating Expenses: Operating Expenses 14,927,388 11,371,867 Depreciation and Amortization 2,377,779 1,169,931 Provision for Bad Debts 572,542 313,359 Impairment Loss of Long-Lived Assets 4,953,783 -- ----------- ----------- Total Operating Expenses 22,831,492 12,855,157 ----------- ----------- [Loss] Income from Operations (5,194,370) 984,294 ----------- ----------- Other [Expenses] and Revenue: Interest Expense (2,660,008) (1,649,166) Interest Income 53,056 109,750 Other Income [Expense] 134,933 278,594 ----------- ----------- Total Other [Expenses] (2,472,019) (1,260,822) ----------- ----------- [Loss] Before Income Taxes, Minority Interest in [Income] of Subsidiaries and Extraordinary Item (7,666,389) (276,528) Provision for Income Taxes -- -- Minority Interest in [Income] of Subsidiaries (142,491) (68,766) ----------- ----------- [Loss] Before Extraordinary Item (7,808,880) (345,294) Extraordinary Item - Gain from Extinguishment of Debt -- 181,350 ----------- ----------- Net [Loss] $(7,808,880) $ (163,944) =========== =========== [Loss] Per Share: Loss Before Extraordinary Item $ (.20) $ (.01) Extraordinary Item -- (.01) ----------- ----------- Net [Loss] Per Share $ (.20) $ -- =========== =========== Weighted Average Common Shares Outstanding 38,932,260 39,729,021 =========== =========== See Notes to Consolidated Financial Statements. 3 </TABLE>
<TABLE> PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------ Total Common Stock Retained Stockholders' Number of Par Value Treasury Paid-in Deferred Earnings Equity Shares Amount Stock Capital Compensation [Deficit] [Deficit] <S> <C> <C> <C> <C> <C> <C> <C> Balance - November 1, 1996 40,232,260 $402,322 $(481,727) 99,411,150 (788,025)$(123,405,034) (24,861,314) Amortization of Deferred Compensation -- -- -- -- 5,752 -- 5,752 Elimination of Deferred Compensation based on Discontinuance of Center -- -- -- -- 782,273 -- 782,273 Net [Loss] for the three months ended January 31, 1997 -- -- -- -- -- (7,808,880) (7,808,880) -------- -------- ------- --------- --------- ---------- ---------- Balance - January 31, 1997 [Unaudited] 40,232,260 $402,322 $(481,727) 99,411,150 -- $(131,213,914) (31,882,169) =========== ====== ========= ============= ==== ============= =========== See Notes to Consolidated Financial Statements. </TABLE> 4
<TABLE> PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED] - ------------------------------------------------------------------------------ Three months ended January 31, 1 9 9 7 1 9 9 6 ------- ------- <S> <C> <C> Cash Provided by [Used for] Continuing Operations $ 1,467,992 $(2,113,434) Cash [Used for] Discontinued Operations (13,011) (430,000) ----------- ----------- Net Cash - Operating Activities 1,454,981 (2,543,434) ----------- ----------- Investing Activities: Acquisitions - Net of Cash Acquired (66,936) -- Purchase of Property, Plant and Equipment (384,191) (85,513) Proceeds - Sale of Equipment -- 245,000 Sale of ImmunoTherapeutics -- 143,750 ----------- ----------- Net Cash - Investing Activities (451,127) 303,237 ----------- ----------- Financing Activities: Cash Overdraft 614,121 -- Principal Payments on Capital Leases and Notes Payable (1,816,317) (1,940,374) Proceeds from Short-Term Borrowings on Notes Payable 620,661 1,972,748 Joint Venture Distribution (228,125) (50,000) Purchase of Treasury Stock -- (337,723) Purchase of Treasury Bonds (170,049) -- ----------- ----------- Net Cash - Financing Activities (979,709) (355,349) ----------- ----------- Net Increase [Decrease] in Cash and Cash Equivalents 24,145 (2,595,546) Cash and Cash Equivalents - Beginning of Periods 151,870 3,928,832 ----------- ----------- Cash and Cash Equivalents - End of Periods $ 176,015 $ 1,333,286 =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the periods for: Interest $ 3,094,802 $ 1,360,997 Income Taxes $ -- $ -- </TABLE> Supplemental Schedule of Non-Cash Investing and Financing Activities: The Company entered into capital leases of approximately $1,694,251 and $575,000 for the three months ended January 31, 1997 and 1996, respectively. The Company acquired approximately $1,046,482 in net assets related to notes payable from DIS previously held in assets held for divestiture with a net book value of $0. During the three months ended January 31, 1997, the Company wrote-off $1,512,557 in net property and equipment, $2,875,293 in net goodwill and $782,273 in deferred compensation related to the future Parkside closure. During the three months ended January 31, 1996, the Company acquired all of the outstanding capital stock of Future Diagnostics, Inc. for $3,220,000 consisting of notes payable and assumed liabilities resulting in goodwill of approximately $3,220,000. See Notes to Consolidated Financial Statements. 5
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED] - ------------------------------------------------------------------------------ [1] Summary of Significant Accounting Policies Significant accounting policies of Primedex Health Systems, Inc. and affiliates are set forth in the Company's Form 10-K for the year ended October 31, 1996 as filed with the Securities and Exchange Commission. [2] Basis of Presentation The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and , therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles for complete financial statements; however, in the opinion of the management of the Company, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods ended January 31, 1997 and 1996 have been made. The results of operations for any interim period are not necessarily indicative of the results for the full year. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Registrant's annual report on Form 10-K for the fiscal year ended October 31, 1996. [3] Goodwill The Company's goodwill as of January 31, 1997 is shown net of accumulated amortization of $3,238,750. In December 1996, the Company recognized a loss on disposal of the Company's Parkside facility and approximately $2,875,000 of related net goodwill was written off. Amortization expense for the three months ended January 31, 1997 was $417,526 compared to $244,556 for the three months ended January 31, 1996. [4] Due to/from Related Party The Company owes Norman Hames, C.O.O., approximately $90,000, without interest, for prior loans made by him to the Company's DIS subsidiary. The amount will be repaid within the fiscal year. During fiscal 1996, the Company loaned $100,000 to a prior employee of the Company which will be repaid with 4% interest within two years. The Company has a $1,000,000 loan receivable due from its President and C.E.O. in February 1998 discounted at 8%. [5] Litigation The Company is a defendant in a class action pending in the United States District Court for the District of New Jersey entitled "In re Hibbard Brown & Company Securities Litigation" [No. 93 CV 1150]. The Company entered into a preliminary settlement with the plaintiff class in the lawsuit by the payment of $240,000 in April 1996. Although the settlement between the Company and the plaintiff class was granted preliminary court approval in April 1996, the settlement is subject to final approval by the class and to final court approval which has not yet been obtained. Management expects there will be no additional costs to settle the case beyond the $240,000. The lawsuit continues with respect to the other defendants. The Company remains convinced that it has not engaged in any inappropriate conduct in this matter. 6
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #2 - ------------------------------------------------------------------------------ [5] Litigation [Continued] On June 4, 1997, the Company was served with a complaint entitled Gerald E. Dalrymple, M.D. and Gerald E. Dalrymple, M.D., Inc., a California professional corp. v. Primedex Health Systems, Inc., Diagnostic Imaging Services, Inc. and Diagnostic Health Services, Inc. filed in the Los Angeles Superior Court. The complaint alleges that the Company failed to properly pay to the plaintiff fees for performing professional services to which he was entitled as well as damages for violation of the implied covenant of good faith and fair dealing, fraud, conversion, breach of fiduciary duty, interference with existing and prospective business advantage, negligent and intentional infliction of emotional distress and defamation and seeks damages for an unspecified amount in excess of $25,000. The complaint also alleges that by virtue of the investment by PHS in the Company and the sale of four of the Company's imaging centers and its ultrasound business to Diagnostic Health Services, Inc., that the Company has thereby effected either a reorganization, consolidation, merger or transfer of all or substantially all of its assets to another entity thereby permitting plaintiff to convert a warrant for 319,488 shares of the Company's Common Stock exercisable at $.01 per share which plaintiff received in connection with the Company's acquisition of its Santa Monica facility to either $1,000,000 cash or stock with a market value of $1,000,000 at the election of the Company. The Company denies each and every allegation and intends to vigorously defend against the legal action. [6] Discontinued Operations - Primedex Subsidiary As of January 31, 1997, the Company has approximately $144,000 on its books for estimated closing costs related to its discontinued Primedex subsidiary. [7] Acquisitions and Divestitures As a result of a continuing deteriorating business climate and other business reasons at DIS's Santa Monica ["Parkside"] facility, on June 25, 1997, the Company tentatively determined to close substantially all of its operations at the facility on or about August 29, 1997. While the Company is considering alternatives to closing the center it is likely none will be found. Due to this decision, the Company recognized a loss in December 1996 of approximately $4,950,000; approximately $3,425,000 was recognized by DIS and approximately $1,525,000 was recognized by PHS with the write-off of related acquisition goodwill, and the reclassification of net assets related to the center as held for divestiture. Net assets held for divestiture are presented at carrying value which approximates fair value less costs to sell. Effective January 1, 1997, the Company's DIS subsidiary opened its Scripps Chula Vista MRI L.P. ["SCV"] servicing patients in San Diego. SCV is a joint venture between the Company and Scripps Health. [8] Capital Transactions During the three months ended January 31, 1997, the Company purchased an additional 72,500 shares of DIS common stock for approximately $67,000. Subsequent to the quarter's end, as of July 31, 1997, the Company has purchased an additional 1,083,163 shares of DIS common stock for cash of approximately $1,400,000 increasing its total ownership to 7,885,970 shares, or approximately 69%. During the three months ended January 31, 1997, the Company purchased 323,000 of its subordinated bond debentures for cash of approximately $170,000. The bonds have not been retired but will be by year-end. Subsequent to the quarter's end, the Company has purchased an additional 136,000 of its subordinated bond debentures for cash of approximately $90,000. Subsequent to the quarter's end, the Company has purchased an additional 325,000 shares of its PHS common stock for cash of approximately $133,000. 7
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED], Sheet #3 - ------------------------------------------------------------------------------ [9] Subsequent Events Effective March 1, 1997, subsequent to quarter-end, DIS sold substantially all of the assets of its ultrasound division for approximately $9 million and sold substantially all of the assets of four of its hospital-based MRI facilities for approximately $16 million. The total proceeds of $25 million include a non-interest bearing receivable in the amount of $1.5 million to be received in three annual installments of $500,000 beginning in 1998 and approximately $2 million in ten-year covenants not-to-compete. Of the cash proceeds, $7.6 million was used to pay off existing DIS debt. The Company estimates its gain to be approximately $4.9 million on the sale. In March 1997, subsequent to quarter-end, Radnet acquired 100% of the outstanding shares of Woodward Park Imaging, Inc. in Fresno for $200,000 including assumed liabilities. In late April 1997, Radnet opened Oxnard Imaging, a start-up operation in Ventura County. . . . . . . . . . . . 8
Item 2: PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Background Primedex Health Systems, Inc. ["PHS"] was incorporated on October 21, 1985. On November 1, 1990, the Company acquired a 51% interest in Viromedics, Inc. ["VMI"] for $700,000. On February 18, 1992, Future Medical Products ["FMP"], the parent corporation of VMI, exercised its right to repurchase one-half of the VMI stock from PHS at a price of $700,000. The Company owns approximately 19% of VMI's outstanding capital stock as of January 31, 1997, which is accounted for using the cost method at $-0-. During fiscal 1992, the Company purchased approximately 90% of the common stock of ImmunoTherapeutic, Inc. ["ITI"]. The Company owned approximately 19% of ITI and accounted for this investment using the cost method which was $-0-. In November of 1995, the investment was sold for $143,750. As of January 31, 1992, the Company entered into an asset purchase agreement with Primedex Corporation ["PC"] for approximately $46,250,000. On July 29, 1993, the Company announced its plans to restructure its Primedex subsidiary and to wind down its involvement in the California workers' compensation industry. Accordingly, the operating results of this subsidiary were classified as a discontinued operation and the appropriate prior period amounts were restated. Effective August 1, 1995, substantially all of the assets of Primedex were sold to an unrelated party for approximately $9,448,000. The sale resulted in a loss of approximately $3,800,000. As of April 30, 1992, the Company entered into a purchase agreement with Radnet Management, Inc. and certain related companies ["Radnet"] for approximately $66,000,000. The statement of operations and cash flows for the three months ended January 31, 1997 and 1996 reflect the operations and cash transactions of Radnet. On December 31, 1993, the Company acquired Advantage Health Systems, Inc. ["AHS"], a newly organized corporation formed to provide medical and surgical utilization review for major providers of health insurance, for $6,000,000 in cash. On August 26, 1994, the Company announced a plan to spin-off its subsidiary, Care Advantage, Inc. ["CareAd"], which owns AHS. The operations of this subsidiary were classified as a discontinued line of business. Effective November 1, 1995, the Company acquired most of the assets of Future Diagnostics, Inc. by purchasing 100% of its outstanding stock for approximately $3.2 million consisting of notes and assumed liabilities. Founded in 1989, FDI is a leading radiology management services organization providing network development and management along with diagnostic imaging cost containment and utilization review services. The statement of operations and cash flows for the three months ended January 31, 1997 and 1996 reflect the operations and cash transactions of FDI. 9
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Background [Continued] On March 25, 1996, the Company purchased 3,478,261 shares, or approximately 31%, of Diagnostic Imaging Services, Inc. ["DIS"] for $4,000,000 and acquired a five-year warrant to purchase an additional 1,521,739 shares of DIS stock at $1.60 per share. The $4 million was borrowed by the Company from a primary lending source. In addition, the Company established a five-year $1 million revolving line with DIS. During the four month period ended July 31, 1996, the investment yielded a loss to the Company of $313,649. Effective August 1, 1996, the Company issued a five-year promissory note for $3,252,046 and five-year warrants to purchase approximately 4,000,000 shares of PHS common stock at $.60 per share, to acquire an additional 3,252,046 shares of DIS common stock. The purchase made PHS the majority shareholder in DIS with approximately 59% ownership. In December 1996, an additional 72,500 shares of DIS common stock were acquired. In connection with the acquisitions, goodwill of $7,260,156 was recorded of which approximately $1,555,000 was written-off with the pending closure of Parkside [see "Note 7"]. The statements of operations and cash flows for the three months ended January 31, 1997 reflect the operations and cash transactions with DIS. The following discussion relates to the continuing activities of Primedex Health Systems, Inc. Results of Operations The discussion of the results of continuing operations includes Radnet, PHS, Future Diagnostics, Inc. ["FDI"] and Diagnostic Imaging Services, Inc. ["DIS"] for the three months ended January 31, 1997. The discussion of the results of continuing operations includes Radnet, PHS and FDI for the three months ended January 31, 1996. For the three months ended January 31, 1997, the Company had an operating loss from operations of approximately $240,000. For the three months ended January 31, 1996, the Company had operating income of approximately $985,000. The Company realized net revenues of approximately $17,635,000 and $13,840,000 for the three months ended January 31, 1997 and 1996, respectively. During the three months ended January 31, 1997, Radnet realized net revenues of approximately $10,725,000, FDI realized net revenues of approximately $1,610,000 and DIS realized net revenues of approximately $5,300,000. For the three months ended January 31, 1996, Radnet realized net revenues of approximately $11,940,000 and FDI realized net revenues of approximately $1,900,000. The increases in net revenues were primarily attributable to the new DIS subsidiary. The Company incurred operating expenses of approximately $22,831,000 and $12,855,000 for the three months ended January 31, 1997 and 1996, respectively. During the three months ended January 31, 1997, Radnet had operating expenses of approximately $10,345,000, PHS had operating expenses of approximately $2,199,000, FDI had operating expenses of approximately $1,360,000 and DIS had operating expenses of approximately $8,927,000. During the three months ended January 31, 1996, Radnet had operating expenses of approximately $10,475,000, FDI had operating expenses of approximately $1,690,000 and PHS had operating expenses of approximately $690,000. For the three months ended January 31, 1997, the Company's total operating expenses consisted of approximately $6,785,000 in salaries and reading fees, $910,000 in radiology site costs, $1,540,000 in building and equipment rent, $2,375,000 in depreciation and amortization, $570,000 in provisions for bad debt, $5,695,000 of other general and administrative expenses and $4,950,000 attributable to the recognition of an impairment loss, pursuant to FASB 121, for the writedown of related property, plant and equipment, goodwill, deferred compensation and other intangible assets. For the three months ended January 31, 1996, the Company's total operating expenses consisted of approximately $5,130,000 in salaries and reading fees, $1,245,000 in radiology site costs, $1,045,000 in rent expenditures, $1,170,000 in depreciation and amortization, $310,000 in provisions for bad debt and $3,955,000 in other general and administrative expenses. The increases in 1997 operating expenses were primarily due to the new DIS subsidiary. 10
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Results of Operations [Continued] For the three months ended January 31, 1997 and 1996, interest income was approximately $53,000 and $110,000, respectively. For the three months ended January 31, 1997 and 1996, interest expense was approximately $2,660,000 and $1,650,000, respectively. Increases in interest expense were primarily attributable to the new DIS subsidiary, new notes and capital leases, and the increase in lines of credit balances from approximately $7,950,000 in January 1996 to approximately $14,650,000 in January 1997. DIS had approximately $3,910,000 outstanding under its line of credit as of January 31, 1997. For the three months ended January 31, 1997, the Company incurred a disposal loss related to its DIS subsidiary's Parkside facility of approximately $950,000. For the three months ended January 31, 1997 and 1996, other income was approximately $135,000 and $460,000, respectively. In the first quarter of 1996, PHS had a gain on the sale of ImmunoTherapeutics stock of approximately $144,000 an extraordinary gain on early extinguishment of debt of approximately $180,000. For the three months ended January 31, 1997 and 1996, the Company had net losses from continuing operations of $(7,808,880) and $(163,944), respectively. Liquidity and Capital Resources Cash increased for the three months ended January 31, 1997 by $24,145. Cash decreased for the three months ended January 31, 1996 by $2,595,546. Cash utilized for investing activities for the three months ended January 31, 1997 was $451,127. Cash generated from investing activities for the three months ended January 31, 1996 was $303,237. For the three months ended January 31, 1997 and 1996, the Company purchased property and equipment of approximately $385,000 and $85,000, respectively. For the three months ended January 31, 1996, the Company generated cash from the sale of equipment and the sale of ImmunoTherapeutics, Inc. of approximately $390,000. Cash utilized for financing activities for the three months ended January 31, 1997 and 1996 was $979,709 and $355,349, respectively. The 1997 increase was primarily due to decreases in borrowings from external lines of credit. For the three months ended January 31, 1997 and 1996, the Company had proceeds from short-term borrowings and cash overdrafts of approximately $1,235,000 and $1,975,000, respectively. At January 31, 1997, the Company had a net working capital deficit of $24,765,098 as compared to a working capital deficit of $22,626,649 at October 31, 1996, a decrease of $2,138,449. A primary reason for the decrease in working capital was the increase in accounts payable and cash overdrafts. Included in current liabilities as of January 31, 1997 are approximately $14,650,000 for the Company's three lines of credit. 11
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ Liquidity and Capital Resources [Continued] The Company's working capital needs are currently provided under three lines of credit. Under one agreement, due December 31, 1998, the Company may borrow the lesser of 75% to 80% of eligible accounts receivable, $10,000,000 or the prior 120-days' cash collections. Borrowings under this line are repayable together, with interest at an annual rate equal to the greater of (a) the bank's prime rate plus 3%, or (b) 10%. The lender hold a first lien on substantially all of Radnet's [Beverly Radiology's] and FDI's assets to secure repayment under this line of credit. The President and CEO of PHS has personally guaranteed $3,000,000 of the loans. In addition, the credit line is collateralized by a $5,000,000 life insurance policy on the president and CEO of PHS. At January 31, 1997, approximately $8,390,000 was outstanding under this line. Under a second line of credit due December 1997, the Company may borrow the lessor of 75% of the eligible accounts receivable, $4,000,000, or the prior 120-days' cash collections. Borrowing under this line are repayable with interest at an annual rate of the bank's prime rate plus 3- 1/2%. The credit line is collateralized by approximately 80% of the Tower division's [Radnet Sub, Inc.] accounts receivable. At January 31, 1997, approximately $2,350,000 was outstanding under this line. Under the third line of credit, the Company may borrow the lesser of $4,000,000 or approximately 53% of DIS's eligible accounts receivable. At January 31, 1997, approximately $3,910,000 was outstanding under this line. The line originally due June 1997 was extended on a month-to-month basis by DVI Business Credit as long as interest payments are made and collateral is sufficient. The Company's future payments for debt and equipment under capital lease for the next five years, assuming lines of credit are paid in the first year and not renewed, will be approximately $34,125,000, $18,195,000, $16,365,000, $17,645,000 and $14,130,000, respectively. The January 31, 1997 lines of credit balances were approximately $14,650,000. Interest expense [excluding line of credit interest] for the next five years, included in the above payments, will be approximately $6,395,000, $4,765,000, $3,560,000, $2,285,000 and $995,000, respectively. In addition, the Company has non-cancelable operating leases for use of its facilities and certain medical equipment which will average approximately $4,070,000 in annual payments over the next five years. The Company estimates interest payments on its bond debentures to be approximately $2,582,900 for fiscal 1997. The January, April and July payments were paid on time with the remaining quarterly payment due on October 1, 1997. As of January 31, 1997, approximately $737,000 remains on the Company's books for estimated legal and settlement costs related to leases for two closed centers. One center's outstanding obligation with its building lessor was settled in fiscal 1996 for $950,000 of which approximately $237,000 remains to be paid as of January 31, 1997. The other closed site's legal and settlement costs are estimated to be approximately $500,000. 12
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES - ------------------------------------------------------------------------------ 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. Primedex Health Systems, Inc. and Affiliates [Registrant] August 18, 1997 By: /s/Howard G. Berger, M.D. -------------------------- Howard G. Berger, M.D., President, Treasurer and Principal Financial Officer 13