================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996.
OR
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period ______________ to _____________.
Commission File Number: 0-21209
ADVANCED HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3893841
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
555 White Plains Road
Tarrytown, New York 10591
(Address of principal executive offices, including zip code)
(914) 524-4200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |_| No |X|
As of November 18, 1996, there were 7,145,267 shares outstanding of the
registrant's Common Stock, $.01 par value.
================================================================================
<PAGE>
ADVANCED HEALTH CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page No.
- --------------------------------------------------------------------------------
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 ........................... 1
Consolidated Statements of Operations -
Three and nine months ended September 30, 1996 and 1995 ............ 2
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1995 ...................... 3
Notes to Consolidated Financial Statements ......................... 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 6
PART II - OTHER INFORMATION
- ---------------------------
SIGNATURES ................................................................. 9
<PAGE>
PART I. -- FINANCIAL INFORMATION
- --------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 58,925 $ 1,464,427
Accounts receivable 4,684,092 1,020,558
Note receivable -- 125,000
Prepaid expenses and deferred registration costs 655,290 278,305
------------ ------------
Total current assets 5,398,307 2,888,290
PROPERTY AND EQUIPMENT, net 1,571,410 1,538,898
DEFERRED INCOME TAXES, net of valuation allowance
of $4,658,408 and $3,506,540, respectively -- --
INTANGIBLE ASSETS, net 1,884,725 1,875,611
OTHER ASSETS 146,258 159,112
------------ ------------
Total assets $ 9,000,700 $ 6,461,911
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,754,383 $ 1,312,571
Accrued expenses 1,324,218 407,241
Due to affiliate 67,105 --
Deferred revenue 675,000 1,500,000
Promissory notes 5,025,500 --
Loan payable related to acquisitions -- 150,000
Current portion of capital lease obligations 133,867 259,805
------------ ------------
Total current liabilities 8,980,073 3,629,617
------------ ------------
CAPITAL LEASE OBLIGATIONS 170,106 157,254
------------ ------------
Total liabilities 9,150,179 3,786,871
------------ ------------
COMMITMENTS
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 5,000,000 shares authorized
Series A Convertible Preferred Stock, $.01 par value; 971,800
shares authorized; 0 and 971,800 shares issued
and outstanding, respectively -- 9,718
Series B Convertible Preferred Stock, $.01 par value; 282,900
shares authorized; 0 and 282,900 shares issued
and outstanding, respectively -- 2,829
Series C Convertible Preferred Stock, $.01 par value;
200,000 shares authorized; 0 and 200,000
shares issued and outstanding, respectively -- 2,000
Series D Convertible Preferred Stock, $.01 par value;
666,360 shares authorized; 0 and 666,360
shares issued and outstanding, respectively -- 6,664
Common stock, $.01 par value; 15,000,000 shares authorized;
4,500,267 and 2,595,649 shares issued and
outstanding, respectively 45,003 25,957
Additional paid-in capital 11,526,538 11,479,223
Accumulated deficit (11,646,020) (8,776,351)
Less: Treasury stock, at cost (8,937 and 8,937 shares,
respectively (75,000) (75,000)
----------------------------
Total shareholders' equity (deficit) (149,479) 2,675,040
----------------------------
Total liabilities and shareholders' equity (deficit) $ 9,000,700 $ 6,461,911
============================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(1)
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE $ 1,121,518 $ 252,518 $ 3,227,580 $ 352,518
REVENUE FROM MSOs 3,433,639 -- 8,944,641 --
------------------------------------------------------------
Total Revenues 4,555,157 252,518 12,172,221 352,518
COST OF SALES 2,452,127 14,502 5,963,914 36,324
------------------------------------------------------------
Gross profit 2,103,030 238,016 6,208,307 316,194
OPERATING EXPENSES 2,052,602 793,508 6,086,104 1,410,011
RESEARCH AND
DEVELOPMENT
EXPENSES 968,367 889,868 2,843,355 2,401,549
------------------------------------------------------------
Operating (loss) (917,939) (1,445,360) (2,721,152) (3,495,366)
OTHER INCOME
(EXPENSE), net (94,889) (3,125) (148,517) (1,784)
------------------------------------------------------------
Net (loss) $ (1,012,828) $ (1,448,485) $ (2,869,669) $ (3,497,150)
============================================================
PER SHARE
INFORMATION
Net loss per share $ (0.20) $ (0.34) $ (0.57) $ (0.98)
Weighted average common
shares outstanding (in thousands) 4,996 4,296 4,993 3,591
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(2)
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
----------------------------
September 30, September 30,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (2,869,669) $ (3,497,150)
Adjustments to reconcile net (loss) to net cash
used in operating activities --
Depreciation and amortization 713,305 264,319
Changes in operating assets and liabilities
Accounts receivable (3,686,840) (82,330)
Note receivable 125,000 --
Prepaids and deferred registration costs (353,679) (9,487)
Other assets 12,854 (9,096)
Accounts payable 441,812 29,213
Accrued expenses 916,977 (119,345)
Due to affiliate 67,105 (680,891)
Deferred revenue (825,000) 1,000,000
----------------------------
Net cash used in operating activities (5,458,135) (3,104,767)
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase price of acquisitions (45,000) (548,790)
Purchases of property and equipment, net (664,931) (327,219)
----------------------------
Net cash used in investing activities (709,931) (876,009)
----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from loans payable
related to acquisitions (150,000) 100,000
Net proceeds from sale and issuance of common stock 150 7,280,531
Net proceeds from promissory notes 5,025,500 --
Repayment of capital lease obligations (113,086) (71,534)
----------------------------
Net cash provided by financing activities 4,762,564 7,308,997
----------------------------
Net change in cash (1,405,502) 3,328,221
CASH, beginning of period 1,464,427 6,903
----------------------------
CASH, end of period $ 58,925 $ 3,335,124
============================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 151,250 $ 1,119
Income taxes $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(3)
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(in thousands, except per share data)
(unaudited)
1. Reference is made to the Notes to Consolidated Financial Statements
contained in the Company's December 31, 1995 audited consolidated financial
statements included in the Company's Prospectus dated October 3, 1996 as
filed with the Securities and Exchange Commission. In the opinion of
Management, the interim unaudited financial statements included herein
reflect all adjustments necessary, consisting of normal recurring
adjustments, for a fair presentation of such data on a basis consistent
with that of the audited data presented therein. The Company believes that
its historical results of operations from period to period are not
comparable and that such results are not necessarily indicative of results
for any future period because the Company was a development stage company
investing in technology development and did not provide significant
physician practice and network management services prior to December 11,
1995.
2. Effective October 2, 1996, the Company completed an initial public offering
of its common stock (including the exercise of the underwriters'
over-allotment option). In the offering, the Company sold 2,645,000 shares
of common stock at an initial public offering price of $13.00 per share.
3. The Company used a portion of the proceeds of the initial public offering
to repay bridge financing of which $5,025,000 was outstanding at September
30, 1996. The supplementary net loss per share for the three and nine
months ended September 30, 1996 (unaudited) which follows gives
supplemental effect to the issuance of 386,538 shares of common stock for
the entire period during which the related bridge financing was
outstanding, which is the number of shares issued in the initial public
offering, the proceeds of which were used to repay the $5,025,500
outstanding at September 30, 1996, as well as to the effect of the
reduction of related interest expense in these periods. These shares are
presumed outstanding for supplementary purposed only, and were neither
issued nor outstanding for any purpose during the three and nine months
ended September 30, 1996.
Three Months Nine Months
------------ -----------
Supplementary net loss per share ($0.17) ($0.51)
Supplementary weighted average common
shares outstanding 5,384,364 5,296,490
(4)
<PAGE>
4. The following reflects selected consolidated balance sheet data, at
September 30, 1996, as adjusted to reflect the sale of common stock from
the Company's initial public offering and the exercise of the underwriters'
over-allotment option:
(In thousands)
September 30, 1996
------------------
Actual As Adjusted
------ -----------
Cash $ 59 $27,037
Working capital (deficit) (3,582) 27,716
Total assets 9,001 35,469
Total debt 5,329 319
Total shareholders' equity (149) 31,318
5. Net loss per share on a fully-diluted basis (which assumes a treasury stock
method weighted average number of common shares outstanding that includes
options, warrants and contingent warrants) was ($0.19) and ($0.55) for the
three and nine months ended September 30, 1996. This data, although used by
the Company for benchmarking and other purposes, has not been presented on
the face of the consolidated statements of operations as it is (ii)
anti-dilutive and (ii) not in accordance with generally accepted accounting
principles.
(5)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
Advanced Health Corporation (the "Company") provides a full range of integrated
management services and clinical information systems to physician group
practices and physician networks. The Company generates revenues from (i) fees
for managing and providing consulting services to physician group practices,
(ii) fees for managing physician networks and (iii) fees for use and support of
its clinical information systems, including recurring license, software
installation, software integration, training and data conversion fees. The
Company contracts with its physician practice and network management clients
pursuant to long term agreements with its MSOs, the results of which MSOs are
consolidated in the Consolidated Financial Statements.
To date, the Company has been dependent on a small number of contracts to
generate the majority of its revenues. The Company expects that the
concentration of its revenues will be reduced as the Company enters into
additional contracts to provide management services and clinical information
systems to physician organizations.
Results of Operations
Three Months Ended September 30, 1996 and 1995
Net revenue for the three months ended September 30, 1996 increased to $4.6
million from $.3 million in the comparable period ended September 30, 1995,
primarily as a result of the initiation of the Company's group practice and
network management services. The Company began providing network management
services in September 1995 and physician group practice management and related
services in December 1995. The provision of physician group practice management
and related services and network management services accounted for approximately
$3.8 million of the Company's net revenue for the three months ended September
30, 1996 as compared to $.1 million in the comparable period ended September 30,
1995. The Company earned fees for the use and support of its clinical
information systems, including the recognition of license revenues and software
and training revenues, of approximately $.8 million for the three months ended
September 30, 1996, as compared to $.2 million in the comparable period ended
September 30, 1995.
Cost of sales for the three months ended September 30, 1996 increased to $2.5
million from approximately $15,000 for the comparable period ended September 30,
1995. The increase in cost of sales related primarily to the non-medical and
system expenses outsourced to the Company from physician group practices under
management.
Operating expenses for the three months ended September 30, 1996 increased to
$2.1 million from $.8 million for the comparable period ended September 30,
1995. The increase in operating expenses reflected expenses related to the
provision of physician group practice management services for the three months
ended September 30, 1996 whereas the Company was not providing such services for
the comparable period ended September 30, 1995.
Research and development expenses for the three months ended September 30, 1996
increased to $1.0 million from $.9 million for the comparable period ended
September 30, 1995, due to an increase in the Company's development activities
for its clinical information systems.
(6)
<PAGE>
Other expense for the three months ended September 30, 1996 was $.1 million and
related to interest on capital lease obligations and interest on $3.0 million
and $2.0 million of indebtedness issued as of June 20, 1996, bearing interest at
8% and 9% respectively. The Company incurred interest expense of approximately
$3,000 for the comparable period ended September 30, 1995, primarily with
respect to capital leases.
The net loss for the three months ended September 30, 1996 was $1.0 million
compared to a loss of $1.4 million for the three months ended September 30, 1995
due to the factors described above.
Nine Months Ended September 30, 1996 and 1995
Net revenue for the nine months ended September 30, 1996 increased to $12.2
million from $.4 million in the comparable period ended September 30, 1995,
primarily as a result of the initiation of the Company's group practice and
network management services. The provision of physician group practice
management and related services and network management services accounted for
approximately $9.9 million of the Company's net revenue for the nine months
ended September 30, 1996 as compared to $.1 million in the comparable period
ended September 30, 1995. The Company earned fees for the use and support of its
clinical information systems, including the recognition of license revenues and
software and training revenues, of approximately $2.3 million for the nine
months ended September 30, 1996, as compared to $.3 million in the comparable
period ended September 30, 1995.
Cost of sales for the nine months ended September 30, 1996 increased to $6.0
million from approximately $36,000 for the comparable period ended September 30,
1995. The increase in cost of sales related primarily to the non-medical
outsourced expenses and system sale-related expenses to the Company from
physician group practices under management.
Operating expenses for the nine months ended September 30, 1996 increased to
$6.1 million from $1.4 for the comparable period ended September 30, 1995. The
increase in operating expenses reflected expenses related to the provision of
physician group practice management services for the nine months ended September
30, 1996 whereas the Company was not providing such services for the comparable
period ended September 30, 1995.
Research and development expenses for the nine months ended September 30, 1996
increased to $2.8 million from $2.4 million for the comparable period ended
September 30, 1995, due to an increase in the Company's development activities
for its clinical information systems.
Other expense for the nine months ended September 30, 1996 was $.1 million and
related to interest on capital lease obligations and interest on $3.0 million
and $2.0 million of indebtedness issued as of June 20, 1996, bearing interest at
8% and 9% respectively. The Company incurred interest expense of approximately
$2,000 for the comparable period ended September 30, 1995.
The net loss for the nine months ended September 30, 1996 was $2.9 million
compared to a loss of $3.5 million for the nine months ended September 30, 1995
due to the factors described above.
(7)
<PAGE>
As of September 30, 1996, the Company had net operating loss carryforwards
("NOLs") available to offset future book and taxable income of approximately
$11.6 million and $9.1 million, respectively, which expire through 2010. The
difference between the book and tax NOLs relates principally to the differences
between book and tax accounting with respect to start-up costs, depreciation of
fixed assets, amortization of intangible assets and recognition of deferred
revenue. The book income tax benefits of $4.7 million and $3.5 million as of
September 30, 1996 and December 31, 1995, respectively, have been fully reserved
due to the uncertainty of their future realization.
Liquidity and Capital Resources
Effective October 2, 1996, the Company completed its initial public offering
raising net proceeds to the Company of approximately $31 million net of expenses
from the sale of $2,645,000 shares of Common Stock, including the underwriters'
over-allotment option. Prior to its initial public offering and since its
inception, the Company financed its capital requirements through the sale of
equity and debt securities. The Company issued three 8% promissory notes in the
principal amounts of $1.5 million, $.75 million and $.75 million on February 28,
April 26 and June 28, 1996, respectively. The Company issued six 9% promissory
notes in the aggregate principal amount of $2.0 million on June 19 and August
13, 1996. All such notes were repaid in October 1996 using proceeds from the
initial public offering.
For the nine months ended September 30, 1996, the Company had negative cash flow
from its operating activities of $5.5 million, compared with $3.1 for the
comparable period ended September 30, 1995. Net cash used in investing
activities was $.7 million for the nine months ended September 30, 1996 compared
with $.9 million for the comparable period ended September 30, 1995. Net cash
provided by financing activities was $4.8 million for the nine months ended
September 30, 1996 and related to the issuance of debt securities. Net cash
provided by financing activities for the nine months ended September 30, 1995
was $7.3 million, principally attributable to the private placement of equity
securities.
The Company's operating plan for the remainder of 1996 and for the first two
quarters of 1997 includes continued development of the Company's integrated
management services and clinical information systems. The principal categories
of expenditures include research and development of the Company's clinical
information systems as well as ongoing business development and marketing. The
Company believes that the proceeds of the initial public offering, cash on hand,
interest income and revenues from operations will be sufficient to fund planned
operations of the Company through at least the end of 1998. The Company has no
planned material capital expenditures or capital commitments.
(8)
<PAGE>
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.
November 18, 1996 ADVANCED HEALTH CORPORATION
By: /s/ Jonathan Edelson
---------------------------
Jonathan Edelson, M.D.
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Alan B. Masarek
---------------------------
Alan B. Masarek
Chief Operating Officer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
(9)
