ThreeTable Months Ended June 30, Six Months Ended June 30, ------------------------------------- --------------------------------- 1999 1998 1999 1998 ------------------ ----------------- ----------------- --------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues: Hospitals and medical clinics $ 2,743 $ 3,840 $ 5,902 $ 8,456 Biological products 295 417 467 468 -------- -------- -------- -------- 3,038 4,257 6,369 8,924 -------- -------- -------- -------- Costs and expenses: Compensation and benefits 2,212 2,391 4,456 4,851 Biological products 185 306 273 347 Supplies 280 379 622 899 Fees for services 284 695 594 1,385 Bad debts 384 433 751 477 Depreciation and amortization 63 61 126 115 Occupancy 152 175 313 356 Occupancy-related party 241 241 481 481 Equipment rental and maintenance 118 91 216 214 Equipment rental-related party 46 46 92 92 Other 389 470 730 1,005 -------- -------- -------- -------- 4,354 5,288 8,654 10,222 -------- -------- -------- -------- Operating loss (1,316) (1,031) (2,285) (1,298) Other income (expense): Interest (27) (92) (49) (187) Interest - related party (2,118) (1,898) (4,044) (3,473) Gain (loss) on settlement of liabilities 64 -- (184) 150 Other income 23 84 69 103 -------- -------- -------- -------- (2,058) (1,906) (4,208) (3,407) -------- -------- -------- -------- Loss from continuing operations (3,374) (2,937) (6,493) (4,705) Gain from discontinued operations -- 31 -- 74 -------- -------- -------- -------- Net loss $ (3,374) $ (2,906) $ (6,493) $ (4,631) ======== ======== ======== ======== Basic and diluted net loss per common share: Loss from continuing operations $ (0.19) $ (0.32) $ (0.36) $ (0.51) Gain from discontinued operations -- 0.01 -- 0.01 -------- -------- -------- -------- Basic and diluted net loss per common share $ (0.19) $ (0.31) $ (0.36) $ (0.50) ======== ======== ======== ========Contents

~~June~~FORM ~~30, December 31, 1999 1998~~ 10-~~--------------~~Q SECURITIES ~~--------------~~AND ~~(Unaudited)~~EXCHANGE ~~Assets: Current assets: Cash $ 157 $ 22 Accounts receivable (less allowance for doubtful accounts of $3~~COMMISSION Washington,~~105~~ ~~and~~D.C. $3,488 at 1999 and 1998, respectively) 2,498 2,994 Inventories 480 379 Other 102 194 ------- ------- Total current assets 3,237 3,589 ------- ------- Property and equipment, at cost Land and buildings 713 713 Equipment 1,229 1,255 Furniture, fixtures and improvements 170 183 ------- ------- 2,112 2,151 Less: accumulated depreciation and amortization (613) (534) ------- ------- 1,499 1,617 Other assets (less allowance for doubtful accounts of $263 at 1998) 108 134 ------- ------- Total assets $ 4,844 $ 5,340 ======= =======20549

June 30, December 31, 1999 1998 --------------- -------------- (Unaudited) Liabilities and shareholders' deficit: Current liabilities: Notes payable $ 35 $ 20 Notes payable - related party 52,664 47,169 Accounts payable 6,140 5,772 Accrued liabilities 925 885 Accrued liabilities - related party 113 105 Accrued compensation, benefits and related taxes 1,208 1,040 Current portion of long-term debt 25 25 Current portion of long-term debt - related party 94 87 Current portion of capital lease obligations 64 75 Current portion of capital lease obligations-related party 58 55 -------- -------- Total current liabilities 61,326 55,233 Long-term liabilities: Long-term debt 164 177 Long-term debt - related party 413 461 Obligations under capital leases 42 42 Obligations under capital leases-related party 119 151 -------- -------- Total long-term liabilities 738 831 -------- -------- Total liabilities 62,064 56,064 -------- -------- Commitments and contingencies -- -- Shareholders' deficit: Convertible preferred stock, $.001 par value, authorized shares 20,000,000, issued and outstanding 63,836 shares at 1999 and 1998; aggregate liquidation preference of $322 at 1999 and 1998 1 1 Convertible preferred stock, $.001 par value, authorized shares 1,500,000, issued and outstanding 800,000 shares at 1999 and 1998; aggregate liquidation preference of $60 and $56 at 1999 and 1998, respectively 1 1 Common stock, $.002 par value, authorized 25,000,000 shares, issued and outstanding 18,633,774 and 17,982,814 shares at 1999 and 1998, respectively 37 35 Additional paid-in capital 42,356 42,361 Accumulated deficit (99,614) (93,121) Treasury stock, 605,554 shares of common stock, at par value, at 1999 and 1998 (1) (1) -------- -------- Total shareholders' deficit (57,220) (50,724) -------- -------- Total liabilities and shareholders' deficit $ 4,844 $ 5,340 ======== ========


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2001

		OR

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Six~~For ~~Months~~the ~~Ended~~transition ~~June~~period ~~30, ---------------------------------------- 1999 1998 ----------------- ------------------ (Unaudited) (Unaudited) Cash flows~~ from ~~operating~~___ ~~activities: Net loss $(6,493) $(4,631) Adjustments~~ to reconcile net loss to net cash used in operating activities: Depreciation and amortization 126 115 Provision for bad debts 751 477 Loss on sales of property and equipment 12 -- (Gain) loss on settlement of liabilities 184 (150) Changes in operating assets and liabilities, net of effects of acquisition: (Increase) decrease in accounts receivable (255) 221 Increase in inventories (101) (7) Increase in other assets (50) (199) Increase in accounts payable and accrued liabilities 574 1,780 Increase (decrease) in accrued liabilities - related party 8 (448) Change in discontinued operations -- (50) ------- ------- Net cash used in operating activities (5,244) (2,892) ------- ------- Cash flows from investing activities: Acquisition of property and equipment (20) (64) ------- ------- Net cash used in investing activities (20) (64) ------- ------- Cash flows from financing activities: Proceeds from notes payable and long-term debt - related party 5,494 2,964 Payments on notes payable, long-term debt and obligations under capital leases (24) (35) Payments on notes payable, long-term debt and obligations under capital leases - related party (71) (12) ------- ------- Net cash provided by financing activities 5,399 2,917 ------- ------- Net decrease in cash 135 (39) Cash - beginning of period 22 110 ------- ------- Cash - end of period $ 157 $ 71 ======= =======___

~~Six~~Commission ~~Months~~File ~~Ended~~Number ~~June 30,~~ 1----------------------------------------- 1999 1998 ------------------ ------------------ (Unaudited) (Unaudited) The following is supplementary information relating to the consolidated statement of cash flows: Noncash investing and financing activities: Equipment purchased under capital leases $ -- $242 ==== ==== Common stock issued for payment of dividends in arrears $ 56 $600 ==== ====10963

~~Three~~Rx ~~Months~~MEDICAL ~~Ended~~SERVICES June 30, ---------------------------------------------------------------------- 1999 1998 ---------------------------------- ---------------------------------- Per-Share Per-Share Amount Amount Amount Amount ---------------- ---------------- --------------- ----------------- Loss from continuing operations $ (3,374) $(0CORP.18) $ (2,937) $(0.31) Dividends on preferred stock (30) (0.01) (60) (0.01) -------- ----- -------- ----- Loss available to common shareholders' (3,404) (0.19) (2,997) (0.32) Gain from discontinued operations -- -- 31 0.01 -------- ----- -------- ----- Net loss $ (3,404) $(0.19) $ (2,966) $(0.31) ======== ===== ======== ===== Weighted average common shares outstanding 18,226 9,679 ======== ========

Six Months Ended June 30, ---------------------------------------------------------------------- 1999 1998 ---------------------------------- ---------------------------------- Per-Share Per-Share Amount Amount Amount Amount ---------------- ---------------- --------------- ----------------- Loss from continuing operations $ (~~6,493)~~Exact ~~$(0.35)~~name $of ~~(4,705)~~registrant ~~$(0.50)~~as ~~Dividends~~specified onin ~~preferred~~its ~~stock (60~~charter) (0.01) (120) (0.01) -------- ----- -------- ----- Loss available to common shareholders' (6,553) (0.36) (4,825) (0.51) Gain from discontinued operations -- -- 74 0.01 -------- ----- -------- ----- Net loss $ (6.553) $(0.36) $ (4,751) $(0.50) ======== ===== ======== ===== Weighted average common shares outstanding 18,105 9,423 ======== ========

Hospitals and Medical Biological Clinics Products Corporate Total ------------------ ------------------- ------------------ ------------------ Revenues $ 5,902 $ 467 $ -- $ 6,369 Operating profit (loss) $(1,850) $ 91 $ (526) $(2,285) Capital expenditures (including capital leases) $ 1 $ -- $ -- $ 1 Depreciation and amortization expense $ 115 $ 3 $ 8 $ 126 Identifiable assets at end of period $ 4,521 $ 274 $ 49 $ 4,844


NEVADA		87-0436782

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Hospitals and Medical Biological Clinics Products Corporate Total ------------------ ------------------- ------------------ ------------------ Revenues $ 8,456 $ 468 $ -- $ 8,924 Operating profit (loss) $ (649) $ 13 $ (662) $(1,298) Capital expenditures (including capital leases) $ 306 $ -- $ -- $ 306 Depreciation and amortization expense $ 97 $ 2 $ 16 $ 115 Identifiable assets at end of period $ 6,044 $ 27 $ 63 $ 6,134


888 EAST LAS OLAS BOULEVARD, SUITE 210, FORT LAUDERDALE, FLORIDA		33301

(Address of principal executive offices)		(Zip code)

(954) 462-1711

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

The number of shares outstanding of the registrant’s common stock, par value $.002 per share, at March 31, 2002, was 23,145,034 shares.

TABLE OF CONTENTS


	Item 1. Financial Statements.
	PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K

Rx MEDICAL SERVICES CORP.

FORM 10-Q

Six Months Ended June 30, 2001

INDEX


		Page No.

PART I	FINANCIAL INFORMATION		3

Item 1.	Financial Statements		3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14


PART II	OTHER INFORMATION		17

Item 1.	Legal Proceedings		17

Item 2.	Changes In Securities and Use of Proceeds		17

Item 3.	Defaults Upon Senior Securities		17

Item 4.	Submission of Matters to a Vote of Security Holders		17

Item 5.	Other Information		17

Item 6.	Exhibits and Reports on Form 8-K		17

	SIGNATURES		18

Item 1. Financial Statements.

Rx MEDICAL SERVICES CORP.

Consolidated Statements of Operations
(Dollars in thousands except per share amounts)


		Three Months Ended June 30,						Six Months Ended June 30,

		2001			2000			2001			2000

		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues:
	Hospitals and medical clinics	$	2,916		$	2,403		$	5,460		$	4,723

Costs and expenses:
	Compensation and benefits		1,791			1,664			3,599			3,352
	Supplies		308			254			601			517
	Fees for services		317			314			600			604
	Bad debts		247			193			487			401
	Depreciation and amortization		49			36			88			73
	Occupancy		125			128			268			234
	Occupancy-related party		241			241			481			481
	Equipment rental and maintenance		56			93			121			187
	Equipment rental-related party		46			46			92			92
	Other		187			184			368			349

			3,367			3,153			6,705			6,290

Operating loss			(451	)		(750	)		(1,245	)		(1,567	)
Other income (expense):
	Interest		(9	)		(12	)		(19	)		(22	)
	Interest — related party		(3,008	)		(2,639	)		(5,947	)		(5,089	)
	Gain on retirement/settlement of liabilities		500			—			500			—
	Other income		19			102			41			139

			(2,498	)		(2,549	)		(5,425	)		(4,972	)

Net loss		$	(2,949	)	$	(3,299	)	$	(6,670	)	$	(6,539	)

Basic and diluted net loss per common share		$	(0.13	)	$	(0.14	)	$	(0.29	)	$	(0.29	)

The accompanying notes are an integral part of these financial statements

Rx MEDICAL SERVICES CORP.

Consolidated Balance Sheets
(Dollars in thousands)


				June 30,			December 31,
				2001			2000

				(Unaudited)
Assets:
	Current assets:
		Cash		$	268		$	81
		Accounts receivable (less allowance for doubtful accounts of $1,907 and $2,624 at 2001 and 2000, respectively)			2,076			2,033
		Inventories			320			294
		Other			263			52

			Total current assets		2,927			2,460

	Property and equipment, at cost Equipment				1,009			756
		Furniture, fixtures and improvements			100			94

					1,109			850
		Less: accumulated depreciation and amortization			(634	)		(546	)

					475			304
	Other assets				11			11

			Total assets	$	3,413		$	2,775

The accompanying notes are an integral part of these financial statements

Rx MEDICAL SERVICES CORP.

Consolidated Balance Sheets (continued)
(Dollars in thousands)


				June 30,			December 31,
				2001			2000

				(Unaudited)
Liabilities and shareholders’ deficit:
	Current liabilities:
		Notes payable		$	16		$	16
		Notes payable — related party			79,734			70,999
		Accounts payable			3,575			4,541
		Accrued liabilities			1,433			1,580
		Accrued liabilities — related party			179			280
		Accrued compensation, benefits and related taxes			762			907
		Current portion of long-term debt — related party			124			116
		Current portion of capital lease obligations			52			50
		Current portion of capital lease obligations-related party			48			62

			Total current liabilities		85,923			78,551

	Long-term liabilities:
		Long-term debt — related party			181			245
		Obligations under capital leases			104			28
		Obligations under capital leases-related party			—			16

			Total long-term liabilities		285			289

			Total liabilities		86,208			78,840

Commitments and contingencies					—			—
Shareholders’ deficit:
	Convertible preferred stock, $.001 par value, authorized shares 1,500,000, issued and outstanding 800,000 shares at 2001 and 2000; aggregate liquidation preference of $1,010 and $950 at 2001 and 2000, respectively				1			1
	Common stock, $.002 par value, authorized 25,000,000 shares, issued and outstanding 23,145,034 and 23,751,920 shares at 2001 and 2000, respectively				46			47
	Additional paid-in capital				45,079			45,139
	Accumulated deficit				(127,921	)		(121,251	)
	Treasury stock, 605,554 shares of common stock, at par value, at 2000				—			(1	)

			Total shareholders’ deficit		(82,795	)		(76,065	)

			Total liabilities and shareholders’ deficit	$	3,413		$	2,775

The accompanying notes are an integral part of these financial statements

Rx MEDICAL SERVICES CORP.

Consolidated Statements of Cash Flows
(Dollars in thousands)


					Six Months Ended June 30,

					2001			2000

					(Unaudited)			(Unaudited)
Cash flows from operating activities:
	Net loss				$	(6,670	)	$	(6,539	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization				88			73
		Provision for bad debts				487			401
		Loss on sales of property and equipment				—			2
		Gain on retirement/settlement of liabilities				(697	)		—
		Changes in operating assets and liabilities:
			Increase in accounts receivable			(530	)		(455	)
			(Increase) decrease in inventories			(25	)		41
			(Increase) decrease in other assets			(212	)		27
			Decrease in accounts payable and accrued liabilities			(622	)		(627	)
			Increase (decrease) in accrued liabilities — related party			(101	)		30

				Net cash used in operating activities		(8,282	)		(7,047	)

Cash flows from investing activities:
	Proceeds from the disposition of property and equipment					—			1
	Acquisition of property and equipment					(154	)		(3	)

				Net cash used in investing activities		(154	)		(2	)

Cash flows from financing activities:
	Proceeds from notes payable and long-term debt — related party					8,736			7,193
	Payments on notes payable, long-term debt and obligations under capital leases					(27	)		(14	)
	Payments on notes payable, long-term debt and obligations under capital leases — related party					(86	)		(76	)

				Net cash provided by financing activities		8,623			7,103

Net increase in cash						187			54
Cash — beginning of period						81			46

Cash — end of period					$	268		$	100

(Continued)

The accompanying notes are an integral part of these financial statements

Rx MEDICAL SERVICES CORP.

Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)


		Six Months Ended June 30,

		2001		2000

		(Unaudited)		(Unaudited)
The following is supplementary information relating to the consolidated statement of cash flows:
Noncash investing and financing activities:
	Equipment purchased under capital leases	$	105	$	—

Effective December 30, 1999 the Company sold Consolidated Health Corporation Of Pittsburgh, Inc. (“PSH”). During the six months ended June 30, 2000, the Financing Source provided $113 to process certain PSH transactions and $1,121 to settle certain PSH trade debts. Due to the related party aspects of the transactions no gain or loss was recognized on the transactions and these amounts were recorded to paid in capital.

For the six months ended June 30, 2001 and 2000, interest paid, which includes interest on obligations under capitalized leases, was $1,921 and 1,296, respectively. No income taxes were paid during these periods.

The accompanying notes are an integral part of these financial statements

Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements, which are for interim periods, do not include all disclosures provided in the audited annual consolidated financial statements. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the footnotes thereto, together with management’s discussion and analysis of financial condition and results of operations, contained in the Annual Report on Form 10-K for the year ended December 31, 2000 of Rx Medical Services Corp. (the “Company”), as filed with the Securities and Exchange Commission. The December 31, 2000 balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the financial position and results of operations.

The Company has experienced significant losses in each of the past three years, had a working capital deficit of $82.9 million at June 30, 2001, is in default with respect to certain indebtedness and there are uncertainties regarding the Company’s compliance with federal and state self-referral regulations while operating its medical diagnostic services business segment. However, the accompanying financial statements have been prepared on the basis that the Company will continue as a going concern because management believes it has an attainable plan to overcome these matters and provide sufficient capital to operate for the coming year. The Company’s ability to continue as a going concern is dependent on the continued funding of its operations from its primary financing source, National Century Financial Enterprises, Inc. and its affiliates (the “Financing Source”) or an alternative source, without which funding the Company’s ability to continue as a going concern would be adversely impacted.

While the Company has not yet reached operational profitability, it has several plans of action in progress designed to improve profitability, as well as, cash flow. The Company’s primary focus though is on the reorganization of the hospital ownership and management business.

As mentioned above, the Company’s intends to continue reorganizing the hospital ownership and management line of business. This line of business has and currently is incurring significant operating losses due to a reduction in patient services eligible for reimbursement and reimbursement rates from third party payors, such as Medicare and Medicaid. The Company anticipates entering into an agreement to sell or to close the hospital it currently operates. There can be no assurance that suitable candidates can be found or that a sale can be negotiated on terms acceptable or economically feasible to the Company. If the Company can not find a suitable candidate to acquire its hospital, the Company may have to or could be forced to close the remaining hospital it operates.

Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company is looking to expand its presence, through joint ventures and/or acquisitions, into new markets in related health care businesses with perceived growth potential. The Company anticipates limiting its joint ventures and/or acquisitions to those that meet certain criteria and are expected to generate positive cash flow.

NOTE 2 — NOTES PAYABLE — RELATED PARTY

Notes payable — related party includes notes payable due to the Financing Source that are collateralized by accounts receivable and equipment. The collateral also includes all the issued and outstanding common stock of Consolidated Health Corporation of Mississippi, Inc. The Company has defaulted on the required payments due under these notes payable which aggregate $79.7 million at June 30, 2001.

NOTE 3 — GAIN ON RETIREMENT OF LIABILITIES

In April 1996, due to continuing operating losses and intense pressure from creditors, Manatee Medical Laboratories, Inc. (“Manatee”), a wholly owned subsidiary of the Company which operated the Company’s medical diagnostic services business segment, filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. The Company established certain trade liability accounts, as of December 31, 1995, for potential Manatee trade liabilities the Company believed it could potentially be held liable for regardless on the bankruptcy petition. None of the entities for which these liability accounts were established have sought legal action against the Company since the filing of Manatee’s bankruptcy petition and thus the statute of limitations for filing any legal action against the Company has expired. Based on these facts the Company retired these liability accounts in the second quarter of 2001 and recognized a gain on retirement of liabilities in the amount of approximately $0.5 million.

In addition, the Company, in the normal course of business, established certain trade liability accounts, as of December 31, 1995. None of the entities for which these liability accounts were established have sought legal action against the Company since December 31, 1995 and thus the statute of limitations for filing any legal action against the Company has expired. Based on these facts the Company retired these liability accounts in the second quarter of 2001 and recognized a gain on retirement of liabilities in the amount of approximately $0.2 million.

NOTE 4 — EARNINGS PER SHARE

Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” requires public companies to present basic earnings (net loss) per share and, if applicable, diluted earnings (net loss) per share for all periods that statements of operations are presented.

Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company has only presented basic net loss per share since (a) the potential common shares of the Company would be anti-dilutive and (b) the Company has reflected net losses from continuing operations for all periods presented and thus the diluted net loss per share would be the same as basic net loss per share.

The following tables reflects the computation of the net loss per common share:


	Three Months Ended June 30,

	2001						2000

				Per-Share						Per-Share
	Amount			Amount			Amount			Amount

Loss from continuing operations	$	(2,949	)	$	(0.13	)	$	(3,299	)	$	(0.14	)
Dividends on preferred stock		(30	)		(0.00	)		(30	)		(0.00	)

Loss available to common shareholders’		(2,979	)		(0.13	)		(3,329	)		(0.14	)
Other Items		—			—			—			—

Net loss	$	(2,979	)	$	(0.13	)	$	(3,329	)	$	(0.14	)

Weighted average common shares outstanding		23,146						23,146


	Six Months Ended June 30,

	2001						2000

				Per-Share						Per-Share
	Amount			Amount			Amount			Amount

Loss from continuing operations	$	(6,670	)	$	(0.29	)	$	(6,539	)	$	(0.28	)
Dividends on preferred stock		(60	)		(0.00	)		(60	)		(0.01	)

Loss available to common shareholders’		(6,730	)		(0.29	)		(6,599	)		(0.29	)
Other items		—			—			—			—

Net loss	$	(6,730	)	$	(0.29	)	$	(6,599	)	$	(0.29	)

Weighted average common shares outstanding		23,146						23,146

Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Company has issued potential common share securities that could potentially dilute basic earnings per share in the future. These potentially dilutive securities, as of June 30, 2001, are as follows:


a)		stock options for 163,627 shares of the Company’s Common Stock,

b)		the Company’s Series G Preferred Stock that could convert, based on the market value of the Company Common Stock on June 30, 2001, into approximately 80,000,000 shares of the Company’s Common Stock,

c)		dividends in arrears on the Company’s Series G Preferred Stock that could convert into approximately 15,428,571 shares of the Company’s Common Stock.

These securities were not included in the computations of net loss per common share presented in the financial statements because they were anti-dilutive.

At June 30, 2001, the Company does not have enough authorized shares of Common Stock to either convert the Company’s Series G Preferred Stock and/or pay the dividends in arrears on the Company’s Series G Preferred Stock.

NOTE 5 — BUSINESS SEGMENTS

Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” requires disclosure of net profit or loss, certain specific revenue and expense items and certain asset items by reportable segments and how reportable segments are determined. The statement defines a reportable segment as a component of an entity about which separate financial information is produced internally, that is evaluated by the chief operating decision-maker to assess performance and allocate resources.

The Company operates in two business segments: the operation of hospitals and medical clinics, and the distribution of biological products.

Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents information on the Company’s two business segments for the six months ended June 30, 2001 and 2000 (in thousands):


			Hospitals and
			Medical			Biological
			Clinics			Products			Corporate			Total

		2001
Revenues			$	5,460		$	—		$	—		$	5,460
Operating profit (loss)			$	(796	)	$	(77	)	$	(372	)	$	(1,245	)
Capital expenditures
	(including capital leases)		$	259		$	—		$	—		$	259
Depreciation and amortization expense			$	84		$	1		$	3		$	88
Identifiable assets at end of period			$	3,162		$	2		$	249		$	3,413
		2000
Revenues			$	4,723		$	—		$	—		$	4,723
Operating profit (loss)			$	(1,121	)	$	(87	)	$	(359	)	$	(1,567	)
Capital expenditures (including capital leases)			$	3		$	—		$	—		$	3
Depreciation and amortization expense			$	68		$	2		$	3		$	73
Identifiable assets at end of period			$	3,340		$	7		$	111		$	3,458

NOTE 6 — LEGAL PROCEEDINGS

In July 1998, an action was commenced against the Company in the Superior Court of California, County of Contra Costa, under the title NORTH BAY MRI ASSOCIATES v. RX MEDICAL SERVICES CORP. (Case No. C 98-02610). The complaint stated many issues though the primary issue was that Rx Medical Services Corp. guaranteed the performance of a lease agreement entered into by a partnership of which a subsidiary of Manatee was a general partner. This subsidiary was included in voluntary bankruptcy petition of Manatee filed on April 4, 1996. The Company chose not to defend against this action and on October 20, 1998, a judgment by default was entered against the Company in the amount of $1,432,900. The Company has established a liability account, which is included in accounts payable, for the full amount of the judgment. In February 2002, the Company settled this action with the plaintiffs for $80,000 in cash and the transference from the Company’s Chief Executive Officer of 210,000 shares of the Company’s Common Stock. The Company will recognize a gain on the settlement of this action, in the second quarter of 2002, of approximately $1.4 million.

Rx MEDICAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In November 1998, an action was commenced against Biologic Health Care (“BHC”), which the Company’s wholly owned subsidiary RxMIC was a 25% general partner, in the Superior Court of California, County of Santa Clara, under the title of CENTEON LLC v. BIOLOGIC HEALTH (Case No. CV775830). The complaint stated that BHC owed Centeon LLC for biological and other medical products purchased but not paid for. The partnership was subsequently dissolved and Centeon LLC on January 8, 1999, entered and was granted a default judgment against RxMIC, who was the 25% general partner in BHC, and Biologic Health Resources, who was the 75% general partner in BHC, in the amount of $437,343. This default judgment as of May 22, 2000, had increased to $472,245. The Company has not established a liability account for this judgment as the only asset of RxMIC was the investment in the BHC partnership, which was written off in a previous year, and the Company did not guarantee the performance of BHC or RxMIC. Therefore, Centeon LLC, in the Company’s opinion, has no viable way to collect on the default judgment granted to them.

In addition to the foregoing, the Company is involved in routine litigation arising in the ordinary course of its business which the Company believes would not have a material adverse effect on its financial position.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Three Months:

Revenues from hospitals and medical clinics for the three months ended June 30, 2001 were $2.9 million compared to $2.4 million for the three months ended June 30, 2000. The increase in revenues from hospitals and medical clinics is primarily the result of an increase in patient services provided at and a decrease in contractual adjustments realized at the Dickenson County Medical Center (“DCMC”) which resulted in an increase of revenues of approximately $0.5 million.

There were no revenues generated from the distribution of biological products for the three months ended June 30, 2001 and 2000. This is the result of the Company facing challenges in securing reliable suppliers of biological products in which to distribute and the Company’s decision to de-emphasize this line of business.

Costs and expenses increased 7% to $3.3 million for the three months ended June 30, 2001 from $3.1 million for the three months ended June 30, 2000. Of these 2001 expenses, hospital management operations accounted for $3.1 million and the corporate expenses of the Company were $0.2 million. The increase in costs and expenses is primarily the result of an increase in patient services provided at DCMC resulting in an increase of costs and expenses of approximately $0.2 million.

Interest expense increased 15% to $3.0 million for the three months ended June 30, 2001 from $2.6 million for the three months ended June 30, 2000. This increase is due to a higher level of borrowings from the Financing Source. (see “Financial Condition, Liquidity, and Capital Resources” below). Interest expense for the three months ended June 30, 2001 was reduced $0.3 million for the reversal of accrued interest.

Six Months:

Revenues from hospitals and medical clinics for the six months ended June 30, 2001 were $5.4 million compared to $4.7 million for the six months ended June 30, 2000. The increase in revenues from hospitals and medical clinics is primarily the result of an increase in patient services provided at DCMC which resulted in an increase of revenues of approximately $0.7 million.

There were no revenues generated from the distribution of biological products for the six months ended June 30, 2001 and 2000. This is the result of the Company facing challenges in securing reliable suppliers of biological products in which to distribute and the Company’s decision to de-emphasize this line of business.

Costs and expenses increased 6% to $6.7 million for the six months ended June 30, 2001 from $6.3 million for the six months ended June 30, 2000. Of these 2001 expenses, hospital management operations accounted for $6.2 million, biological product distribution accounted for $0.1 million, and the corporate expenses of the Company were $0.4 million. The increase in costs and expenses is primarily the result of an increase in patient services provided at DCMC resulting in an increase of costs and expenses of approximately $0.4 million.

Interest expense increased 15% to $5.9 million for the six months ended June 30, 2001 from $5.1 million for the six months ended June 30, 2000. This increase is due to a higher level of borrowings from the Financing Source. (see “Financial Condition, Liquidity, and Capital Resources” below).

Financial Condition, Liquidity, and Capital Resources

During the six months ended June 30, 2001, the Company’s working capital deficit increased by approximately $6.9 million to $82.9 million. This increase in the working capital deficit was primarily due to a $8.7 million increase in the level of funding from the Financing Source, and a $1.4 million decrease in accounts payable and accrued liabilities. Through June 30, 2001, the Company’s ability to continue as a going concern is dependent on the continued funding of its operations by the Financing Source. Without this funding, the Company’s ability to operate its business would be adversely impacted. However, until the Company’s revenues increase so as to exceed the Company’s operating expenses, the Company will continue to utilize funding from the Financing Source, or other alternative sources of funding, to the extent available. To the extent fundings from the Financing Source are insufficient to pay the Company’s operating expenses, the Company will require alternative sources of funding. There can be no assurance that any alternative sources of financing will be available to the Company at such point in time, or if obtainable, on terms that are commercially feasible.

The Company’s current operations are presently being funded through financing agreements with the Financing Source. Financing agreements exist between the Financing Source, the Company and four of the Company’s subsidiaries.

While the Company has not yet reached profitability operationally, it has several plans of action in progress designed to improve profitability, as well as, cash flow. The Company intends to continue reorganizing the hospital operation and management business. The Company is also looking to expand its presence, through joint ventures and/or acquisitions, into new markets in related health care businesses with perceived growth potential. There can be no assurance, however, that the Company will achieve these strategic objectives.

Going Concern

The reports of the independent auditors of the Company on its 2000, 1999 and 1998 consolidated financial statements express substantial doubt about the Company’s ability to continue as a going concern. Factors contributing to this substantial doubt include recurring operating losses, a working capital deficiency, delinquencies and defaults on its accounts payable and other outstanding liabilities, litigation, as well as, to the uncertainty of the Company’s compliance with certain Medicare and state statutes and regulations. As of January 1, 1995, the Company was unable to comply with certain provisions of the OBRA 1993 amendments to the Stark Act, as well as, certain similar state statutes. Although the Company has not been the subject of, and is not currently the subject of, any administrative proceedings concerning violations of federal or state self-referral statutes or regulations, in the event that the Company is found to have violated such statutes and regulations, it could be subject to cumulative fines and penalties and could also be required to make refunds, which may aggregate up to approximately $50.0 million. The Company believes, however, that due to the filing of the Chapter 7 bankruptcy petition for Manatee, the Company’s subsidiary that operated the medical diagnostic services business segment, in April 1996, the likelihood of such enforcement actions occurring is remote.

As mentioned in the Financial Condition section, the Company is dependent on the continued funding currently being received from the Financing Source to continue operations. The discontinuance of such funding, and the unavailability of financing to replace such funding, could result in the Company ceasing its operations.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings


	See Note 6 — Legal Proceedings in Item 1 Financial Statements of Part I Financial Information.

Item 2. Changes in Securities and Use of Proceeds


	None

Item 3. Defaults Upon Senior Securities


	See Note 2 — Notes Payable — Related Party in Item 1 Financial Statements of Part I Financial Information.

Item 4. Submission of Matters to a Vote of Security Holders


	None

Item 5. Other Information


	None

Item 6. Exhibits and Reports on Form 8-K


	None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Rx MEDICAL SERVICES CORP.


By: /s/ MICHAEL L. GOLDBERG

Michael L. Goldberg
Director, Chairman, and Chief Executive Officer

Date: June 24, 2002


By: /s/ DENNIS DOLNICK

Dennis Dolnick
Chief Financial Officer

Date: June 24, 2002

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · RX MEDICAL SERVICES CORP