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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, 2003 Commission File Number 0-19019
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PRIMEDEX HEALTH SYSTEMS, INC.
-----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
New York 13-3326724
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1510 Cotner Avenue
Los Angeles, California 90025
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (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 [X] No [ ]
Number of shares outstanding of the issuer's common stock as of March 14, 2003
was 41,100,734 [excluding treasury shares].
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED BALANCE SHEETS
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JANUARY 31, OCTOBER 31,
2003 2002
-------------- --------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 50,000 $ 36,000
Accounts receivable, net 28,319,000 29,453,000
Unbilled receivables and other receivables 1,384,000 1,451,000
Deferred income taxes 1,100,000 2,100,000
Other 1,744,000 1,518,000
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Total current assets 32,597,000 34,558,000
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PROPERTY AND EQUIPMENT, NET 91,912,000 87,875,000
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OTHER ASSETS:
Accounts receivable, net 2,340,000 2,366,000
Goodwill, net 23,064,000 23,064,000
Deferred income taxes 4,135,000 3,135,000
Other 590,000 641,000
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Total other assets 30,129,000 29,206,000
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$ 154,638,000 $ 151,639,000
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash disbursements in transit $ 4,891,000 $ 4,613,000
Accounts payable and accrued expenses 21,295,000 20,871,000
Subordinated debentures payable 16,291,000 16,291,000
Notes payable to related party 1,143,000 1,173,000
Current portion of notes and leases payable 41,468,000 36,278,000
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Total current liabilities 85,088,000 79,226,000
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LONG-TERM LIABILITIES:
Notes payable to related party 105,000 105,000
Notes and leases payable, net of current portion 120,329,000 121,031,000
Accrued expenses 653,000 694,000
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Total long-term liabilities 121,087,000 121,830,000
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MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 1,351,000 1,504,000
-------------- --------------
STOCKHOLDERS' DEFICIT (52,888,000) (50,921,000)
-------------- --------------
$ 154,638,000 $ 151,639,000
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
1
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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THREE MONTHS ENDED
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JANUARY 31,
-----------
2003 2002
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REVENUE
Revenue $ 100,769,000 $ 84,120,000
Less: Allowances 65,023,000 51,679,000
-------------- --------------
Net revenue 35,746,000 32,441,000
-------------- --------------
OPERATING EXPENSES
Operating expenses 26,867,000 23,571,000
Depreciation and amortization 4,253,000 3,333,000
Provision for bad debts 1,949,000 1,200,000
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Total operating expenses 33,069,000 28,104,000
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Income from operations 2,677,000 4,337,000
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OTHER INCOME (EXPENSE)
Interest expense, net (4,620,000) (3,798,000)
Gain on sale of equipment -- 10,000
Other income, net 94,000 319,000
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Total other expense (4,526,000) (3,469,000)
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(LOSS) INCOME BEFORE
MINORITY INTEREST (1,849,000) 868,000
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MINORITY INTEREST IN
EARNINGS OF SUBSIDIARY (147,000) 49,000
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NET (LOSS) INCOME $ (1,996,000) $ 917,000
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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THREE MONTHS ENDED
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JANUARY 31,
-----------
2003 2002
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BASIC NET (LOSS) INCOME
PER SHARE: $ (.05) $ .02
============== ==============
DILUTED NET (LOSS) INCOME
PER SHARE: $ (.05) $ .02
============== ==============
WEIGHTED AVERAGE SHARES
OUTSTANDING:
BASIC 41,053,234 40,732,640
============== ==============
DILUTED 41,053,234 41,435,041
============== ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
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Common Stock $.01 par value
---------------------------
100,000,000 shares authorized Treasury Stock, at cost Stock
----------------------------- Paid-in ------------------------- Accumulated Stockholders'
Shares Amount Capital Shares Amount Deficit Deficit
----------- --------- ------------- ----------- ---------- -------------- -------------
BALANCE - OCTOBER 31, 2002 42,830,734 $429,000 $100,328,000 (1,825,000) $(695,000) $(150,983,000) $(50,921,000)
Issuance of Common Stock 95,000 1,000 28,000 -- -- -- 29,000
Net loss -- -- -- -- -- (1,996,000) (1,996,000)
----------- --------- ------------- ----------- ---------- -------------- -------------
BALANCE - JANUARY 31, 2003
(UNAUDITED) 41,100,734 $430,000 $100,356,000 (1,825,000) $(695,000) $(152,979,000) $(52,888,000)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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THREE MONTHS ENDED
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JANUARY 31,
-----------
2003 2002
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NET CASH FROM OPERATING ACTIVITIES $ 4,202,000 $ 5,460,000
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,684,000) (2,269,000)
Loan fees (5,000) (5,000)
Payments from related parties -- 53,000
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Net cash used by investing activities (1,689,000) (2,221,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash disbursements in transit 278,000 (1,190,000)
Principal payments on notes and leases payable (6,516,000) (4,577,000)
Proceeds from short-term and long-term borrowings 4,040,000 2,766,000
Proceeds from issuance of common stock 29,000 --
Payments to related parties (30,000) (75,000)
Joint venture distribution (300,000) (200,000)
------------ ------------
Net cash used by financing activities (2,499,000) (3,276,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH 14,000 (37,000)
CASH, beginning of period 36,000 40,000
------------ ------------
CASH, end of period $ 50,000 $ 3,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,232,000 $ 3,500,000
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Income taxes $ -- $ --
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES - The
Company entered into capital leases or financed equipment through notes payable
for $6,543,000 and $10,461,000 for the three months ended January 31, 2003 and
2002, respectively.
In November 2001, the Company issued 132,850 shares of common stock as a
bonus to 274 employees under the long-term incentive stock option plan ($.60 per
share public closing price on the authorization date). As part of the
transaction, approximately $80,000 was recorded as operating expenses.
The Company recorded interest expense related to deferred note payments,
step payments and capitalized restructuring charges of approximately $402,000
and $294,000 for the three months ended January 31, 2003 and 2002, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1 - BASIS OF PRESENATATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with 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, 2003 and 2002 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 related notes thereto contained in the Company's Annual Report on
Form 10-K for the year ended October 31, 2002.
The consolidated financial statements include the accounts of Primedex
Health Systems, Inc., and its subsidiaries outlined as follows:
o Radnet Management, Inc. ["Radnet"] Subsidiaries
o Radnet Sub, Inc. ["Tower"],
o Radnet Heartcheck Management, Inc.,
o Radnet Managed Imaging Services, Inc. ["RMIS"],
o SoCal MR Site Management, Inc.,
o Radnet Management I, Inc.,
o Radnet Management II, Inc. ["Modesto"],
o Westchester Imaging Group (a 50% joint venture),
o Burbank Advanced Imaging Center, LLC (75%),
o Rancho Bernardo Advanced Imaging Center, LLC (75%)
o Diagnostic Imaging Services, Inc. ["DIS"]
Both Radnet and DIS are combined with Beverly Radiology Medical Group
III ["BRMG"]
Operating activities of subsidiary entities are included in the
accompanying financial statements from the date of acquisition. All intercompany
transactions and balances have been eliminated in consolidation and
combinations. Westchester Imaging Group is consolidated with the Company based
upon the criteria of both SFAS 94 and EITF 97-2.
Medical services and supervision at most of the Company's imaging centers
are provided through BRMG and through other independent physicians and physician
groups. BRMG is consolidated with Pronet Imaging Medical Group, Inc. and Beverly
Radiology Medical Group, both of which are 99% owned by a shareholder and
president of Primedex Health Systems, Inc.. Radnet and DIS provide non-medical
and administrative services to BRMG for which they receive a management fee.
NOTE 2 - NATURE OF BUSINESS
Primedex Health Systems, Inc., incorporated on October 21, 1985, provides
diagnostic imaging services through its 58 facilities. The Company arranges for
the non-medical aspects of medical imaging offering MRI, CT, PET, ultrasound,
mammography, nuclear medicine and general diagnostic radiology to the public.
7
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 147 ("Acquisitions of
Certain Financial Institutions--an amendment of FASB Statements No. 72 and 144
and FASB Interpretation No. 9"), No. 146 ("Accounting for Costs Associated with
Exit or Disposal Activities") and No. 145, ("Rescission of FAS Nos. 4, 44, and
64, Amendment of FAS 13, and Technical Corrections as of April 2002"). SFAS No.
147 is effective for acquisitions after October 1, 2002. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002.
SFAS No. 145 is effective for financial statements issued after May 15, 2002.
The adoption of SFAS 145, SFAS 146, and SFAS 147 did not have a material impact
on the financial statements.
In December 2002, the FASB issued SFAS No. 148 ("Accounting for Stock-Based
Compensation--Transition and Disclosure--an amendment of FASB Statement No.
123"), which amends SFAS No. 123. SFAS No. 148, for which certain provisions are
effective for fiscal years ending after December 15, 2002, provides alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock based employee compensation and amends certain disclosure
provisions of SFAS No. 123. The adoption of SFAS No. 148 did not have a material
effect on the Company's financial statements.
NOTE 4 - ACQUISITIONS, SALES AND DIVESTITURES
Center openings:
Effective December 1, 2002, the Company opened Rancho Bernardo Advanced
Imaging Center, LLC, near San Diego, which provides MRI, CT, ultrasound and
x-ray services. Prior to the opening, the Company invested approximately
$1,050,000 primarily for leasehold improvements and the LLC partners invested
$250,000 cash. The Company used its existing lines of credit for the payment of
leasehold improvements. The equipment was financed by General Electric.
There were no sales and divestitures during the period.
NOTE 5 - GOODWILL AND INTANGIBLE ASSETS
Goodwill is recorded at cost of $29,330,000, less accumulated amortization
of $6,266,000 as of January 31, 2003 and October 31, 2002. Other intangible
assets consist of offering costs and loan fees which are expected to be fully
amortized by June 2003 and December 2003, respectively.
The Company implemented Statement of Financial Accounting Standards No.
141, Business Combinations and No. 142, Goodwill and Other Intangible Assets,
effective November 1, 2001. Under the new rules, goodwill [and intangible assets
deemed to have indefinite lives] are no longer amortized but are subject to
annual impairment tests in accordance with the Statements. Other intangible
assets will continue to be amortized over their useful lives. Application of the
nonamortization provisions of the Statement resulted in an increase in income of
approximately $375,000 ($0.01 per share) for each of the quarters ended January
31, 2003 and 2002.
NOTE 6 - CAPITAL TRANSACTIONS
In November 2001, the Company issued 132,800 shares of common stock as a
bonus to 274 employees under the long-term incentive stock option plan ($.60 per
share public closing price on the authorization date). As part of the
transaction, approximately $80,000 was recorded as operating expenses.
Effective November 4, 2002, in connection with BRMG's hiring of a
physician, the Company issued 100,000 additional warrant shares at $.75 per
share expiring on November 4, 2007.
Effective December 16, 2002, an officer of the Company exercised his
options to purchase 95,000 shares of common stock at $.30 per share. The officer
paid the Company $28,500 cash.
8
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 7 - RELATED PARTY TRANSACTIONS
The amount due to related parties at October 31, 2002 consisted of
$1,173,000 of short-term notes payable due to an officer of the Company, and
$105,000 of long-term notes payable due to an employee of the Company. Both
notes payable were for the purchase of DIS common stock in 1996. The notes bear
interest at 6.58%. The short-term notes payable interest is paid monthly, and
the long-term note payable interest is paid annually. During the three months
ended January 31, 2003, the Company repaid principal of $30,000 for the
short-term note payable.
NOTE 8 - LIQUIDITY
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business. At January 31,
2003, the Company has a deficiency in equity of $52,888,000 compared to
$50,921,000 as of October 31, 2002, and a working capital deficiency of
$52,491,000 as of January 31, 2003 compared to a deficiency of $44,668,000 as of
October 31, 2002. Over the past several years, management has been addressing
the issues that have lead to these deficiencies, and the results of management's
plans and efforts have been positive in two of the last three years. However,
the results of the last three quarters show that continued effort is necessary
in the future to allow the Company to operate profitably. Such actions and plans
include:
o Increase revenue by selectively opening imaging centers in areas
currently not served by the Company. In December 2002, the Company
opened a new center in Rancho Bernardo. The Company has no current
plans to open any new facilities in the near future.
o Increase revenue by expanding existing facilities or opening new
locations close to existing sites. In order to obtain certain new
large contracts, the Company has opened nearby x-ray or satellite
offices to meet the increase in patient volume for a certain region.
In January 2002, the Company opened two x-ray offices near its
Temecula facility which allowed the Company to obtain a new capitation
contract for approximately 62,000 lives. In addition, to meet demand
and generate economies of scale, the Company has consolidated its
mammography and ultrasound services at a few of its largest facilities
into separate womens' centers. In September 2002, the Company opened a
women's center adjacent to its Orange Imaging facility.
o Increase net revenue and decrease operating losses by eliminating poor
performing capitation and managed care contracts where reimbursements
fall short of the Company's costs. The Company will renegotiate
several of its existing capitation contracts with the goal of
increasing net reimbursement for the current fiscal year.
o Continue to evaluate all facilities' operations and trim excess
operating costs as well as general and administrative costs where it
is feasible to do so including consolidating underperforming
facilities to reduce operating cost duplication and improve operating
income. Due to a shortage of qualified radiologists in the
marketplace, the Company continues to solidify its physician staff
while reducing the outside engagement of independent contractors and
locum tenens (part-time fill-in physicians) to interpret patient
films. In addition, the Company is reviewing its entire staff for
potential reductions in non core personnel.
9
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 8 - LIQUIDITY (CONTINUED)
o Continue to selectively acquire new medical equipment and replace old
and obsolete equipment in order to increase service volume and
throughput at many facilities. Upgrades and new equipment would be
acquired only when anticipated increases in patient volume support the
increased debt service.
o Continue to work with lessors and lenders to extend terms of leases
and financing to accommodate cash flow requirements for ongoing
agreements and upon the expiration of leases and notes. The Company
has demonstrated past success in renegotiation of many of its existing
notes payable and capital lease obligations by extending payment
terms, reducing interest rates, reducing or eliminating monthly
payments and creating long-term balloon payments. Subsequent to the
quarter-end, the Company is currently renegotiating several notes
payable with DVI and GE to reduce monthly payments and extend terms.
On February 10, 2003, the Company was advised that the Federal Deposit
Insurance Corporation ("FDIC") had elected to close Coast Business
Credit ("Coast") and liquidate its accounts. While the FDIC has agreed
that the Company's credit facility shall continue through its December
2003 term, it has reduced the amount available from $22 million to $15
million. The Company is currently seeking an alternative lending
source.
o Continue its attempt to settle historical notes payable, subordinated
bond debentures and other debt at a discount. The Company plans to
offer the debenture holders the right to extend the debenture for
three (3) years, in which event the conversion price would be reduced
from $10 to $4. Any remaining debentures would be redeemed on their
due date of June 30, 2003.
o Depending on price, market circumstances and strategic buyers, the
Company may look to sell non core assets.
The Company's convertible subordinated debentures mature in June 2003. The
aggregate balance due at the time will be $16,698,275 (including quarterly
interest). The Company intends to offer each debenture holder the right to
extend the term by three or more years together with a reduction in the
conversion rate from $10 per share to $4 per share. The Company believes it will
have sufficient funds under its available financing resources to purchase the
majority of the debentures, if necessary, but such action will severely affect
the Company's liquidity.
The Company operates in a capital intensive, high fixed-cost industry that
requires significant amounts of capital to fund operations, particularly the
initial start-up and development expense of new diagnostic imaging centers and
the acquisition of additional centers and new diagnostic imaging equipment. To
the extent the Company is unable to generate sufficient cash from operations, or
the Company is unable to structure or obtain operating leases, it may be unable
to meet its capital expenditure requirements. Furthermore, the Company may not
be able to raise any necessary additional funds through bank financing or the
issuance of equity or debt securities on terms acceptable to it, if at all.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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GENERAL
Primedex Health Systems, Inc., through its wholly-owned subsidiary, Radnet
Management, Inc. and its 91% owned subsidiary, Diagnostic Imaging Services,
Inc., is a leading California provider of diagnostic imaging services through
its ownership and operation of 58 outpatient diagnostic imaging centers. The
Company utilizes sophisticated technology and technical expertise to perform a
broad range of imaging procedures, such as magnetic resonance imaging (or MRI),
computed tomography (or CT), position emission tomography (or PET), nuclear
medicine, ultrasound, mammography, general radiography (or x-ray) and
fluoroscopy. The Company's revenues are derived from the ownership, management
and operation of its radiology and imaging center network. Professional medical
services and supervision are provided through Beverly Radiology Medical Group
("BRMG") and through other independent physicians and physician groups with
which the Company contracts. Inasmuch as BRMG is 99% owned by the majority
stockholder and president of the Company its revenues and expenses are
consolidated with that of the Company.
The Company focuses on providing quality patient care and service to ensure
patient and referring physician satisfaction. The Company's concentration in
California permits it to invest in technologically advanced imaging equipment,
including MRI, open MRI, spiral CT and PET and organize the Company's imaging
centers into coordinated networks to improve response time, increase overall
patient accessibility, and permits the Company to standardize certain customer
relations procedures and permit the Company to develop "best practices" for its
diagnostic imaging centers. The Company's coordinated programs allow it to
provide administrative, management and information services to develop best
practices and to improve productivity and the quality of services. By focusing
on its communication systems the Company believes it can increase patient and
referring physician satisfaction, which should lead to increased referrals and
increased utilization of its diagnostic imaging centers.
The Company contracts with radiology practices including BRMG to provide
professional services, including the supervision and interpretation of
diagnostic imaging procedures performed in its diagnostic imaging centers. In
this regard, BRMG has begun assembling a group of physicians located at the
Company's corporate offices who utilize adjusted communication equipment for the
purposes of relieving radiologists located at the Company's centers who fall
behind in interpreting medical imaging as well as providing a group of well
recognized radiologists specializing in particular areas to provide backup for
referring physicians requiring specialized review. The Company believes that it
does not engage in the practice of medicine nor does it employ physicians. The
radiology practices maintain full control over the provision of professional
radiological services.
Payment for diagnostic imaging services comes primarily from private payors (22%
including Blue Cross, Blue Shield and Commercial insurance), managed care
contract arrangements (21% including fee for service, hmo and ppo insurance),
capitation arrangements (20%), and governmental payors (15% including Medicare
and Medicaid).
As of January 2002, Medicare decreased reimbursement rates for physician and
outpatient services, including diagnostic imaging services. Effective April 1,
2003, the Senate approved a change to the physician update formula that will
result in a 1.6% increase in the conversion factor. The net impact will be an
increase in the technical component payments of around 6% or more, bringing
medicare payments for most of these services back to pre-2002 levels or higher.
The Company's centers are principally dependent on its ability to attract
referrals from primary care physicians, specialists and other healthcare
providers. The referral often depends on the existence of a contractual
arrangement with the referred patient's health benefit plan.
11
The Company's revenue is dependent upon the operating results of the diagnostic
imaging centers. Service fees due under the service agreements for the
contracted radiology practices are derived from two distinct revenue streams:
(1) a negotiated percentage (typically 70% to 85%) of the center revenues as
defined in the service agreements; and (2) 100% of the technical revenues as
defined in the service agreements.
The Company's operations are comprised of the ownership and operation of
diagnostic imaging centers and the provision of administrative, management and
information services to the contracted radiology practices that provide
professional interpretation and supervision services in connection with the
diagnostic imaging centers.
The following information consists of issues you should consider in reviewing
the financial information provided. In this regard, Westchester Imaging Group is
a 50% owned Company partnership and both Burbank Advanced Imaging Center and
Rancho Bernardo Advanced Imaging Center are 75% owned with the minority
interests owned by the radiologists providing professional services in the
respective facilities.
The consolidated financial statements include the accounts of Primedex Health
Systems, Inc., and its subsidiaries outlined as follows:
o Radnet Management, Inc. ["Radnet"] Subsidiaries
o Radnet Sub, Inc. ["Tower"],
o Radnet Heartcheck Management, Inc.,
o Radnet Managed Imaging Services, Inc. ["RMIS"],
o SoCal MR Site Management, Inc.,
o Radnet Management I, Inc.,
o Radnet Management II, Inc.,
o Westchester Imaging Group (a 50% joint venture),
o Burbank Advanced Imaging Center, LLC (75%),
o Rancho Bernardo Advanced Imaging Center, LLC (75%)
o Diagnostic Imaging Services, Inc.
Both Radnet and DIS are combined with Beverly Radiology Medical Group
III ["BRMG"]
Operating activities of subsidiary entities are included in the accompanying
financial statements from the date of acquisition. All intercompany transactions
and balances have been eliminated in consolidation and combinations. Westchester
Imaging Group is consolidated with the Company based upon the criteria of both
SFAS 94 and EITF 97-2.
HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT
The administrative provisions of the Health Insurance Portability and
Accountability Act of 1996 ("HIPPA") direct the federal government to adopt
national electronic standards for automated transfer of certain health care data
between health care payors, plans and providers. HIPAA is designed to enable the
entire health care industry to communicate electronic data using a single set of
standards, thus eliminating all nonstandard formats currently in use. The
Company's contracted radiology practices and diagnostic imaging centers are
"covered entities" under HIPAA, and as such, must comply with the HIPAA
electronic data interchange mandates. The Company is required to be compliant by
October 16, 2003. The Company is in the process of determining the readiness
status of its software vendors, payors and claim clearinghouses to assess
exposure with regard to this legislation. The Company is at risk for both its
own HIPAA compliance and the compliance of those with whom it does business,
particularly third party payors. There can be no assurance that HIPAA compliance
issues will not have an adverse effect on the Company's business, results of
operations or financial condition.
12
FORWARD-LOOKING STATEMENTS
Throughout this report the Company makes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements include words such as "may," "will," "would," "could," "likely,"
"estimate," "intend," "plan," "continue," "believe," "expect" or "anticipate"
and other similar words and include all discussions about the Company's
acquisition and development plans. The Company does not guarantee that the
transactions and events described in this report will happen as described or
that any positive trends noted in this report will continue. The forward-looking
statements contained in this report are generally located in the material set
forth under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations," but may be found in other locations as
well. These forward-looking statements generally relate to Company plans,
objectives and expectations for future operations and are based upon
management's reasonable estimates of future results or trends. Although the
Company believes that its plans and objectives reflected in or suggested by such
forward-looking statements are reasonable, the Company may not achieve such
plans or objectives. You should read this report completely and with the
understanding that actual future results may be materially different from what
the Company expects. The Company will not update forward-looking statements even
though the situation may change in the future.
Specific factors that might cause actual results to differ from the Company's
expectation include, but are not limited to:
- economic, competitive demographic, business and other conditions
in the Company's markets;
- a decline in patient referrals;
- change in the rates or methods of third-party reimbursement for
diagnostic imaging services;
- the termination of contracts with third party payers;
- the availability of additional capital to fund capital
expenditure requirements;
- burdensome lawsuits against contracted radiology practices and
the Company;
- reduced operating margins due to managed care contracts and
capitated fee arrangements;
- any failure on the Company's part to comply with state and
federal anti-kickback and anti-self-referral laws or any other
applicable healthcare regulations;
- the Company's substantial indebtedness, debt service requirements
and liquidity constraints and the Company's inability to obtain a
replacement lender for its Coast Business Credit line or the
failure of the Company to sell some of its assets to reduce its
credit line dependence;
- risks related to convertible subordinated debentures and
healthcare securities generally;
- unforeseen technological changes; and
- other factors discussed elsewhere in this report.
All future written and verbal forward-looking statements attributable to the
Company or any person acting on its behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur.
13
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 2003 AND 2002
The following table sets forth, for the periods indicated, the percentage that
certain items in the statement of income bear to net revenue and the percentage
dollar increase (decrease) of such items from period to period.
PERCENTAGE DOLLAR
PERCENT OF NET REVENUE INCREASE
THREE MONTHS ENDED JANUARY 31, (DECREASE)
--------------------------------------- ---------------------
2003 2002 `02 TO `03
------------------- ------------------- ---------------------
Revenue 281.9% 259.3 % 19.8%
Less: Allowances (181.9) (159.3) 25.8
------------------- ------------------- ---------------------
Net revenue 100.0 100.0 10.2
Operating expense
Operating expenses (75.2) (72.6) 14.0
Depreciation and amortization (11.9) (10.3) 27.6
Provision for bad debts (5.4) (3.7) 62.4
------------------- ------------------- ---------------------
Total operating expense (92.5) (86.6) 17.7
------------------- ------------------- ---------------------
Income from operations 7.5 13.4 (38.3)
Interest expense, net (12.9) (11.7) 21.6
Other, net .2 1.0 (71.4)
------------------- ------------------- ---------------------
(Loss) Income before minority (5.2) 2.7 (313.0)
interest
Minority interest (0.4) 0.1 (400.0)
------------------- ------------------- ---------------------
Net (loss) income (5.6) 2.8 (317.7)
=================== =================== =====================
The following discussion explains in greater detail the consolidated operating
results and financial condition of the Company for the three months ended
January 31, 2003 compared to the three months ended January 31, 2002. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this quarterly report.
2003 2002
---- ----
NET REVENUE $35,746,000 $ 32,441,000
- -----------
Revenue of the contracted radiology practices and diagnostic imaging centers is
recorded when services are rendered based upon established charges and reduced
by contractual allowances. The Company utilizes historical collection experience
in estimating contractual allowances. The factors influencing the historical
collection experience include the contracted radiology practices' and diagnostic
imaging centers' patient or insurance mix, impact of managed care contract
pricing and contract revenue and the aging of the patient accounts receivable
balances. As these factors change, the historical collection experience is
revised accordingly in the period known.
Net revenue increased approximately $3,305,000, or 10.2%, for the three months
ended January 31, 2003, compared to the same period last year. Of the net
revenue increase, 41.8% was due to the addition of four new sites subsequent to
November 1, 2001 (Burbank, Tarzana Advanced, Grove Diagnostic and Rancho
14
Bernardo). The remaining 58.2% increase was due primarily to new contracts and
increases in throughput at many sites due to the addition or upgrade of medical
equipment and expansion of existing facilities. In particular were improvements
at the Company's Orange facility where net revenue increased by approximately
$612,000 during the three months ended January 31, 2003 versus the same period
the prior year due to its expansion in late fiscal 2002. The Company's first
quarter is negatively effected by the number of holidays and the variance
between work days and pay days during the given period. The Company believes
that patient volume was even more dramatically effected this fiscal quarter due
to the mid-week placement of the Christmas and New Year's holidays causing
reductions in patient volume both before and after each of these holidays.
OPERATING EXPENSES 2003 2002
- ------------------ ---- ----
OPERATING EXPENSES $ 26,867,000 $ 23,571,000
DEPRECIATION AND AMORTIZATION 4,253,000 3,333,000
PROVISION FOR BAD DEBTS 1,949,000 1,200,000
-----------------------------------
TOTAL OPERATING EXPENSES $ 33,069,000 $ 28,104,000
Operating expenses for the three months ended January 31, 2003 increased
approximately $3,296,000, or 14.0%, compared to the same period last year. The
majority of this increase was due to a 10.2% increase in net revenue and the
variable nature of many of the expense line items including, but not limited to,
medical supplies, percentage of revenue agreements relating to physician reading
fees and the GE repair and maintenance agreement which increased contracted fees
from 3.64% to 3.74% of net revenue effective November 1, 2002.
Included in operating expenses for the three months ended January 31, 2003 and
2002 is approximately $16,166,000 and $14,228,000, respectively, for salaries
and reading fees, approximately $2,373,000 and $2,055,000, respectively, for
building and equipment rentals, and approximately $8,328,000 and $7,288,000,
respectively, in general and administrative expenditures. The Company's general
and administrative expenses include billing fees, medical supplies, office
supplies, repairs and maintenance, insurance, business tax and license, outside
services, utilities and other expenses including marketing, auto expenses and
travel.
During fiscal 2002, the Company in negotiation with some of its outside
physician groups converted some of its fixed fee agreements to percent of
revenue arrangements. At these centers, including, but not limited to, DRI,
Vacaville and Santa Rosa, the physician fees now range from 15% to 18% of net
revenue as opposed to a fixed salary. During the three months ended January 31,
2003, these three sites generated increases in net revenue of approximately
$697,000 resulting in additional professional reading fees of approximately
$110,000 compared to last year. In addition, with the expansion of facilities
and increases in the quantity of medical equipment, the Company was required to
hire additional technologists and clinic personnel. In fiscal 2002, the Company
hired a medical director to oversee physician recruitment and staffing. During
the last nine months, he has worked to solidify the existing physician staff and
recruit new physicians to replace engaged independent contractors and locum
tenens (part-time fill in physicians) who interpreted patient films at much
higher fees.
During the last quarters of fiscal 2002, the Company experienced significant
insurance rate increases upon policy renewals. From July to October 2002,
general liability rates increased 50%, workers compensation insurance rates
increased 45% and malpractice rates increased 80%. For the three months ended
January 31, 2003, the Company's costs for insurance increased 58%, or $480,000,
compared to the same period last year.
Depreciation and amortization for the three months ended January 31, 2003
increased approximately $920,000, or 27.6%, compared to the same period last
year. The increase is due to the addition of new sites and the upgrade or
addition of equipment throughout fiscal 2002. As of January 31, 2002, net
property and equipment was approximately $74.8 million compared to approximately
$91.9 million as of January 31, 2003.
15
Provision for bad debt for the three months ended January 31, 2003 increased
approximately $749,000, or 62.4%, compared to the same period last year. Coupled
with the increase in net revenue, the Company's overall bad debt percentage
increased from approximately 1.4% of gross revenue to approximately 1.9% during
fiscal 2002. The Company's historical percentage was primarily affected by the
write-off of one individual contract during fiscal 2002.
2003 2002
---- ----
INTEREST EXPENSE, NET $ 4,620,000 $ 3,798,000
- ---------------------
Net interest expense for the three months ended January 31, 2003 increased
approximately $822,000, or 21.6%, compared to the same period last year. The
increase is primarily a result of new equipment financing and working capital
loans capitalized into notes payable during fiscal 2002.
2003 2002
---- ----
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY $ (147,000) $ 49,000
- -------------------------------------------
Minority interest expense for the three months ended January 31, 2003 increased
approximately $196,000, or 400.0%, compared to the same period last year. The
increase is primarily a result of the income generated from Burbank Advanced
Imaging Center and Westchester Imaging Group offset by the losses incurred by
Rancho Bernardo Advanced Imaging Center. Burbank's net income increased
approximately 159% compared to the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased for the three months ended January 31, 2003 by $14,000. Cash
decreased for the three months ended January 31, 2002 by $37,000.
Cash used by investing activities for the three months ended January 31, 2003
was $1,689,000 compared to $2,221,000 for the same period in 2002. For the three
months ended January 31, 2003 and 2002, the Company purchased property and
equipment for approximately $1,684,000 and $2,221,000, respectively, and paid
loan fees of $5,000 in each period. In addition, during the three months ended
January 31, 2002, the Company received payments from related parties of $53,000.
Cash used for financing activities for the three months ended January 31, 2003
was $2,499,000 compared to $3,276,000 for the same period in 2002. For the three
months ended January 31, 2003 and 2002, the Company made principal payments on
capital leases and notes payable of approximately $6,516,000 and $4,577,000,
respectively, received proceeds from borrowing under existing lines of credit
and refinancing arrangements of approximately $4,040,000 and $2,766,000,
respectively, made payments to related parties of $30,000 and $75,000,
respectively, and distributed $300,000 and $200,000, respectively, to one of its
joint venture partners. In addition, during the three months ended January 31,
2003, the Company increased its cash disbursements in transit by $278,000 and
received proceeds from the issuance of common stock of $29,000. During the three
months ended January 31, 2002, the Company decreased its cash disbursements in
transit by $1,190,000.
At January 31, 2003, the Company had a working capital deficit of $52,491,000 as
compared to a working capital deficit of $44,668,000 at October 31, 2002,
representing an increased deficit of $7,823,000. Included in current liabilities
of the Company at January 31, 2003 and October 31, 2002 are approximately $14.2
million and $10.2 million, respectively, of revolving lines of credit
liabilities and $16.3 million of subordinated bond debentures. Over the past
16
several years, management has been addressing the issues that have lead to these
deficiencies, and the results of management's plans and efforts have been
positive in two of the last three years. However, the results of the last three
quarters show that continued effort is necessary in the future to allow the
Company to operate profitably. Such actions and plans include:
o Increase revenue by selectively opening imaging centers in areas
currently not served by the Company. In December 2002, the Company
opened a new center in Rancho Bernardo. The Company has no current
plans to open any new facilities in the near future.
o Increase revenue by expanding existing facilities or opening new
locations close to existing sites. In order to obtain certain new
large contracts, the Company has opened nearby x-ray or satellite
offices to meet the increase in patient volume for a certain region.
In January 2002, the Company opened two x-ray offices near its
Temecula facility which allowed the Company to obtain a new capitation
contract for approximately 62,000 lives. In addition, to meet demand
and generate economies of scale, the Company has consolidated its
mammography and ultrasound services at a few of its largest facilities
into separate womens' centers. In September 2002, the Company opened a
women's center adjacent to its Orange Imaging facility.
o Increase net revenue and decrease operating losses by eliminating poor
performing capitation and managed care contracts where reimbursements
fall short of the Company's costs. The Company will renegotiate
several of its existing capitation contracts with the goal of
increasing net reimbursement for the current fiscal year.
o Continue to evaluate all facilities' operations and trim excess
operating costs as well as general and administrative costs where it
is feasible to do so including consolidating underperforming
facilities to reduce operating cost duplication and improve operating
income. Due to a shortage of qualified radiologists in the
marketplace, the Company continues to solidify its physician staff
while reducing the outside engagement of independent contractors and
locum tenens (part-time fill-in physicians) to interpret patient
films. In addition, the Company is reviewing its entire staff for
potential reductions in non core personnel.
o Continue to selectively acquire new medical equipment and replace old
and obsolete equipment in order to increase service volume and
throughput at many facilities. Upgrades and new equipment would be
acquired only when anticipated increases in patient volume support the
increased debt service.
o Continue to work with lessors and lenders to extend terms of leases
and financing to accommodate cash flow requirements for ongoing
agreements and upon the expiration of leases and notes. The Company
has demonstrated past success in renegotiation of many of its existing
notes payable and capital lease obligations by extending payment
terms, reducing interest rates, reducing or eliminating monthly
payments and creating long-term balloon payments. Subsequent to the
quarter-end, the Company is currently renegotiating several notes
payable with DVI and GE to reduce monthly payments and extend terms.
On February 10, 2003, the Company was advised that the Federal Deposit
Insurance Corporation ("FDIC") had elected to close Coast Business
Credit ("Coast") and liquidate its accounts. While the FDIC has agreed
that the Company's credit facility shall continue through its December
2003 term, it has reduced the amount available from $22 million to $15
million. The Company is currently seeking an alternative lending
source.
o Continue its attempt to settle historical notes payable, subordinated
bond debentures and other debt at a discount. The Company plans to
offer the debenture holders the right to extend the debenture for
three (3) years, in which event the conversion price would be reduced
from $10 to $4. Any remaining debentures would be redeemed on their
due date of June 30, 2003.
o Depending on price, market circumstances and strategic buyers, the
Company may look to sell non core assets.
17
The Company's future obligations for existing notes payable, equipment under
capital lease, lines of credit, subordinated bond debentures and equipment and
building operating leases for the next five years and thereafter include
(numbers in thousands):
02/01/03 02/01/04 02/01/05 02/01/06 02/01/07
to to to to to There-
01/31/04 01/31/05 01/31/06 01/31/07 01/31/08 after Total
--------- --------- --------- --------- --------- --------- ---------
Notes payable $ 14,670 $ 14,910 $ 23,098 $ 13,667 $ 9,545 $ 4,248 $ 80,138
Interest $ 8,019 $ 6,402 $ 4,731 $ 2,459 $ 1,271 $ 381 $ 23,263
--------- --------- --------- --------- --------- --------- ---------
Total $ 22,689 $ 21,312 $ 27,829 $ 16,126 $ 10,816 $ 4,629 $103,401
Capital leases $ 12,558 $ 13,006 $ 13,348 $ 11,582 $ 8,882 $ 8,043 $ 67,419
Interest $ 5,922 $ 4,692 $ 3,424 $ 2,191 $ 1,198 $ 507 $ 17,934
--------- --------- --------- --------- --------- --------- ---------
Total $ 18,480 $ 17,698 $ 16,772 $ 13,773 $ 10,080 $ 8,550 $ 85,353
========= ========= ========= ========= ========= ========= =========
Lines of credit $ 14,240 $ -- $ -- $ -- $ -- $ -- $ 14,240
========= ========= ========= ========= ========= ========= =========
Bond debentures $ 16,291 $ -- $ -- $ -- $ -- $ -- $ 16,291
========= ========= ========= ========= ========= ========= =========
Operating Leases:
Building $ 6,896 $ 5,937 $ 5,368 $ 4,959 $ 3,801 $ 15,471 $ 42,432
Equipment $ 2,300 $ 2,041 $ 1,845 $ 906 $ 265 $ -- $ 7,357
--------- --------- --------- --------- --------- --------- ---------
Total $ 9,196 $ 7,978 $ 7,213 $ 5,865 $ 4,066 $ 15,471 $ 49,789
========= ========= ========= ========= ========= ========= =========
The Company's line of credit with Coast Business Credit, due December 2003, is
classified as a current liability primarily because it is collateralized by
account receivable and the eligible borrowing base is also classified as a
current asset. On February 10, 2003, the Company was advised that the Federal
Deposit Insurance Corporation ("FDIC") had elected to close Coast Business
Credit ("Coast") and liquidate its accounts. While the FDIC has agreed that the
Company's facility shall continue through its December 2003 term, it has reduced
the amount available from $22 million to $15 million. The Company intends to
seek an alternate lending source. The Company believes it will be able to obtain
a replacement for the Coast line before December, but there can be no assurance
a replacement will be available for the full $22 million or at all. Accordingly,
the Company has entered into discussions with a third party for sale of certain
non core facilities. The discussions are preliminary in nature and there can be
no assurance of their success.
Effective March 1, 2000, the Company entered into an agreement with GE Medical
Systems for the maintenance of the majority of its medical equipment for a fee
based upon a percentage of net revenues with minimum aggregate net revenue
requirements. In August 2001, the agreement was amended and expires on October
31, 2005. The service fee ranges from 2.82% to 3.74% of net revenue [less
provisions for bad debt] and the aggregate minimum net revenue ranges from
$85,000,000 to $125,000,000 during the term of the agreement. For the three
months ended January 31, 2003, the monthly service fees were 3.74% of net
revenue.
On August 31, 2001, the Company entered into a sale-leaseback transaction in
which it sold its Orange Imaging facility for $2,250,000 and leased it back for
10 years. Rental commenced at $18,750 per month and increases by 3% per annum.
The Company has an option to repurchase the property at any time prior to August
31, 2006, at fair market value (but not less than $2,350,000 nor more than
$2,550,000).
On March 18, 2002, the Company entered into a sale-leaseback transaction in
which it sold its Northridge Imaging facility for $1,700,000 and leased it back
for 10 years. Rental commenced at $13,458 per month and increases to $14,167 in
2003 to $14,167 in 2004 to $14,875 in 2005 to $15,583 in 2006 and thereafter
based upon a cost of living adjustment. The Company has an option to repurchase
the property from 2004 until 2007 at an exercise price commencing at $1,775,000
and increasing by $25,000 in the next year and an additional $50,000 in the
third year.
18
The Company's working capital needs currently are provided under two lines of
credit. Under one agreement with the FDIC [previously Coast Business Credit],
due December 31, 2003, the Company may borrow the lesser of 75% to 80% of
eligible accounts receivable, the prior four months' cash collections, or
$15,000,000. In any scenario, the Company may borrow up to the aggregate
collection of receivables in the prior four months as long as the collections in
any one month do not decrease by more than 25% from the prior month. Interest on
outstanding borrowings is payable monthly at the greater of 8% or the bank's
prime rate plus 2.5%, with a minimum interest paid each month of $30,000. At
January 31, 2003 approximately $10,500,000 was outstanding under this line. The
lender holds a first lien position on substantially all of Radnet's assets. The
president and C.E.O. of the Company has personally guaranteed $10,000,000 of the
line. The line is further secured by a $5,000,000 life insurance policy on the
life of the president and C.E.O..
Under the second agreement with DVI Business Credit, the Company may borrow the
lesser of 110% of eligible accounts receivable or $5,000,000. Interest on the
outstanding balance is payable monthly at the bank's prime rate plus 1%. At
January 31, 2003, approximately $3,740,000 was outstanding on this line. This
line of credit is on a month-to-month basis. This credit line is collateralized
by approximately 80% of the Tower division's eligible accounts receivable.
The Company's convertible subordinated debentures mature in June 2003. The
aggregate balance due at the time will be $16,698,275 (including quarterly
interest). The Company intends to offer each debenture holder the right to
extend the term by three or more years together with a reduction in the
conversion rate from $10 per share to $4 per share. The Company believes it will
have sufficient funds under its available financing resources or from existing
lenders to purchase the majority of the debentures, if necessary, but such
action will severely affect the Company's liquidity.
The Company operates in a capital intensive, high fixed-cost industry that
requires significant amounts of capital to fund operations, particularly the
initial start-up and development expense of new diagnostic imaging centers and
the acquisition of additional centers and new diagnostic imaging equipment. To
the extent the Company is unable to generate sufficient cash from operations, or
the Company is unable to structure or obtain operating leases, it may be unable
to meet its capital expenditure requirements. Furthermore, the Company may not
be able to raise any necessary additional funds through bank financing or the
issuance of equity or debt securities on terms acceptable to it, if at all.
19
ITEM 3 - QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company sells its services exclusively in the United States and receives
payment for its services exclusively in United States dollars. As a result, the
financial results are unlikely to be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
The majority of the Company's interest expense is not sensitive to changes in
the general level of interest in the United States because the majority of the
Company's indebtedness has interest rates which were fixed when the Company
entered into the note payable or capital lease obligation. None of the Company's
long-term liabilities have variable interest rates. Only the Company's lines of
credit, classified as current liabilities on the Company's financial statements,
is interest expense sensitive to changes in the general level of interest
because it is based upon the current prime rate plus a margin.
ITEM 4 - CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on
their evaluation as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-Q, the Company's principal executive officer and
principal financial officer has concluded that the Company's disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act") are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) CHANGES IN INTERNAL CONTROLS. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
There were no significant deficiencies or material weaknesses, and therefore
there were no corrective actions taken.
20
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
There are no matters to be reported under this heading.
ITEM 2. CHANGES IN SECURITIES
There are no matters to be reported under this heading.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no matters to be reported under this heading.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There
are no matters to be reported under this heading.
ITEM 5. OTHER INFORMATION
There are no matters to be reported under this heading.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Computation of Earnings Per Share
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed
21
PRIMEDEX HEALTH SYSTEMS, INC. AND AFFILIATES
SIGNATURE
- --------------------------------------------------------------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Primedex Health Systems, Inc.
(Registrant)
March 14, 2003 By: Howard G. Berger, M.D.
-----------------------------------------
Howard G. Berger, M.D., President,
Treasurer and Principal Financial Officer
22
CERTIFICATION
I, Howard G. Berger, M.D., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Primedex Health
Systems, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
23
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: March 14, 2003
Howard G. Berger, M.D.
-----------------------------------------
Howard G. Berger, M.D.
President and Principal Financial Officer
24