- --------------------------------------------------------------------------------
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 June 30, 1997.
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 or (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 | X | No | |
As of August 12, 1997, there were 7,333,485 shares outstanding of the
registrant's Common Stock, $.01 par value.
- --------------------------------------------------------------------------------
<PAGE>
ADVANCED HEALTH CORPORATION
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION Page No.
- ---------------------------------------------------------------------------------------------
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets -
June 30, 1997 (unaudited) and December 31, 1996........................1
Consolidated Statement of Operations-
Three and six months ended June 30, 1996 and 1997 (unaudited)..........2
Consolidated Statements of Cash Flows-
Six months ended June 30, 1997 and 1996 (unaudited)....................3
Notes to Consolidated Financial Statements.............................4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................5
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk....................8
PART II - OTHER INFORMATION
ITEM 4. Submission of Matter to a Vote of Security Holders...........................8
SIGNATURES...............................................................................9
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
As Of
-------------------------
June 30, December 31,
1997 1996
---- ----
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 4,840 $ 12,086
Investments in marketable securities 7,336 7,390
Accounts receivable 7,870 8,637
Note receivable 60 -
Prepaid expenses 124 182
Advances to affiliates 3,372 647
Deferred income taxes 977 977
-------- --------
Total current assets 24,579 29,919
PROPERTY AND EQUIPMENT, net 2,644 2,053
INTANGIBLE ASSETS, net 5,259 1,858
OTHER ASSETS 4,517 1,570
======== ========
Total assets $ 36,999 $ 35,400
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,942 $ 1,968
Accrued expenses 739 913
Deferred revenue 200 200
Loan payable related to acquisitions - 23
Current portion of capital lease obligations 53 131
-------- --------
Total current liabilities 2,934 3,235
DEFERRED REVENUE 100 200
CAPITAL LEASE OBLIGATIONS - 81
-------- --------
Total liabilities 3,034 3,516
-------- --------
COMMITMENTS
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value, 5,000,000 shares authorized;
0 shares issued and outstanding - -
Common stock, $.01 par value; 15,000,000 shares authorized;
7,201,600 and 7,166,941 shares issued and
outstanding, respectively 72 72
Additional paid-in capital 42,339 42,069
Accumulated deficit (8,431) (10,242)
Unrealized gain on marketable securities, net of deferred income taxes 60 60
Less: Treasury stock, at cost (8,937 and 8,937 shares, respectively) (75) (75)
-------- --------
Total shareholders' equity (deficit) 33,965 31,884
======== ========
Total liabilities and shareholders' equity (deficit) $ 36,999 $ 35,400
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(1)
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---- ----- ---- ----
<S> <C> <C> <C> <C>
REVENUE $13,021 $ 3,925 $23,028 $ 7,617
COST OF REVENUES 9,908 2,569 17,309 5,580
------- ------- ------- -------
Gross profit 3,113 1,356 5,719 2,037
OPERATING EXPENSES 2,103 1,977 4,185 3,840
-------- ------- ------- -------
Operating income/(loss) 1,010 (621) 1,534 (1,803)
OTHER INCOME/(EXPENSE) 141 (34) 343 (53)
-------- ------- ------- -------
Net Income(Loss) Before Taxes $ 1,151 ($ 655) $ 1,877 ($1,856)
PROVISION FOR INCOME TAXES 0 0 66 0
======== ======= ======= =======
Net Income (Loss) $ 1,151 ($ 655) $ 1,811 ($1,856)
======== ======= ======= =======
PER SHARE INFORMATION
Net income (loss) per share $ 0.14 ($ 0.15) $ 0.22 ($ 0.41)
Weighted average common
shares and equivalents outstanding 8,338 4,491 8,190 4,487
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(2)
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $1,811 ($1,856)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 483 423
Changes in operating assets and liabilities
Accounts receivable 767 (2,282)
Note receivable (60) 110
Prepaid expenses 58 (58)
Advances to affiliates (125) 50
Other assets (2,085) (15)
Accounts payable (26) (341)
Accrued expenses (174) 445
Deferred revenue (100) (550)
---------- ----------
Net cash used in operating activities 549 (4,074)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Minority investment in affiliated entity (500) -
Advances to affiliates (2,600) -
Investment in affiliate (3,763) -
Purchases of property and equipment, net (1,020) (249)
---------- ----------
Net cash provided by (used in) investing activities (7,883) (249)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from loans payable
related to acquisitions (23) (95)
Net proceeds from exercise of stock options 270
Net proceeds from promissory notes - 4,000
Repayment of capital lease obligations (159) (209)
---------- ----------
Net cash provided by financing activities 88 3,696
---------- ----------
Net change in cash (7,246) (627)
CASH, beginning of period 12,086 1,464
========== ==========
CASH, end of period $4,840 $837
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
(3)
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(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, 1996 audited consolidated financial
statements as filed with the Securities and Exchange Commission on Form
10-K. 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. Certain
prior period expenses have been reclassified to conform to the 1997
presentation. Amounts advanced to an affiliate during the current period
have been classifed as an investment in such affiliate and included in
other assets in the accompanying balance sheet at June 30, 1997 under the
terms and conditions of the applicable agreement. 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 periods.
2. In March 1997, the Financial Accounting Standard Boards issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. This
Statement establishes standards for computing and presenting earnings per
share (EPS), replacing the presentation of currently required primary EPS
with a presentation of Basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both Basic EPS
and Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted EPS reflects
potential dilution from the exercise or conversion of securities into
common stock or from other contracts to issue common stock and is similar
to the currently required fully diluted EPS. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods and earlier application is not permitted. When
adopted, the Company will be required to restate its EPS data for all prior
periods presented. The Company does not expect the impact of the adoption
of this statement to be material to previously reported EPS amounts.
(4)
<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 Management Services Organizations
(each, an "MSO"), the financial results of such MSO's are included in the
Consolidated Financial Statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Net revenue for the three months ended June 30, 1997 increased to $13.0 million
from $3.9 million in the comparable period ended June 30, 1996, primarily as a
result of the addition of new physician group practices under management,
provision of incremental network management services and fees for the use and
support of clinical information systems. The provision of physician group
practice management and related services and network management services
accounted for approximately $10.4 million of the Company's net revenue for the
three months ended June 30, 1997 as compared to $3.2 million in the comparable
period ended June 30, 1996. 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 $2.6 million for the three
months ended June 30, 1997, as compared to $.7 million in the comparable period
ended June 30, 1996.
Cost of revenues for the three months ended June 30, 1997 increased to $9.9
million from $2.6 million for the comparable period ended June 30, 1996. The
increase in cost of revenues related primarily to the expenses outsourced to the
Company from physician group practices under management and expenses related to
Med-E-System sales.
Operating expenses for the three months ended June 30, 1997 increased to $2.1
million from $2.0 million for the comparable period ended June 30, 1996. The
modest increase in operating expenses related to the increased provision of
physician group practice management and related services.
For the three months ended June 30, 1997, the Company also earned interest
income in the amount of $.1 million from investments in marketable securities as
a result of the investment of proceeds from the Company's initial public
offering (the "IPO"). The Company incurred interest expense of approximately
$34,000 for the comparable period ended June 30, 1996, which related primarily
to interest on $4.0 million of then-outstanding indebtedness bearing interest at
8% per annum and interest on capital lease obligations.
(5)
<PAGE>
Provision for income taxes represents the net effect of a full forty percent
effective income tax rate on the Company's pre-tax income for the quarter,
largely offset by a reduction in the Company's reserve on previously generated,
fully-reserved deferred income tax assets due to the Company's expectations with
regard to future taxable income. No income tax benefit was recorded by the
Company in the first or second quarter of 1996 due to the uncertainty at that
time as to the Company's ability to generate future taxable income to provide
for the realization of related deferred income tax assets.
The net income for the three months ended June 30, 1997 was $1.2 million
compared to a net loss of $655,000 for the three months ended June 30, 1996 due
to the factors described above.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net revenue for the six months ended June 30, 1997 increased to $23.0 million
from $7.6 million in the comparable period ended June 30, 1996, primarily as a
result of the addition of new physician group practices under management,
provision of incremental network management services and fees for the use and
support of clinical information systems. 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 $17.0 million of the Company's net revenue for the six months
ended June 30, 1997 as compared to $6.1 million in the comparable period ended
June 30, 1996. 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 $6.0 million for the six months ended
June 30, 1997, as compared to $1.5 million in the comparable period ended June
30, 1996.
Cost of revenues for the six months ended June 30, 1997 increased to $17.3
million from $5.6 million for the comparable period ended June 30, 1996. The
increase in cost of revenues related primarily to the expenses outsourced to the
Company from physician group practices under management and expenses related to
Med-E-System sales.
Operating expenses for the six months ended June 30, 1997 increased to $4.2
million from $3.8 for the comparable period ended June 30, 1996. The increase in
operating expenses related to the increased provision of physician group
practice management and related services.
For the six months ended June 30, 1997, the Company also earned interest income
in the amount of $.3 million from investments in marketable securities as a
result of the investment of proceeds from the IPO. The Company incurred interest
expense of approximately $53,000 for the comparable period ended June 30, 1996,
which related primarily to interest on $4.0 million of then-outstanding
indebtedness bearing interest at 8% per annum and interest on capital lease
obligations.
The net income for the six months ended June 30, 1997 was $1.8 million compared
to a net loss of $1.8 million for the six months ended June 30, 1996 due to the
factors described above.
(6)
<PAGE>
As of June 30, 1997, the Company had net operating loss carryforwards ("NOLs")
available to offset future book and taxable income of approximately $8.3 million
and $6.8 million respectively, which will expire in 2011. 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 $3.3 million and $2.7 as of June 30, 1997 and December
31, 1996 respectively have been fully reserved due to the uncertainty of their
future realization, although management is evaluating these reserve levels based
on expected earnings, and they may be revised in the future.
LIQUIDITY AND CAPITAL RESOURCES
Effective October 2, 1996, the Company completed its IPO of 2,645,000 shares of
Common Stock, including the underwriters' over-allotment option. The IPO
generated proceeds to the Company of approximately $31 million, net of
underwriting expenses. Prior to the IPO and since its inception, the Company
financed its capital requirements through the sale of equity and debt
securities. In 1996, 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, respectively, and six 9% promissory notes in the aggregate
principal amount of $2.0 million on June 19 and August 13. All such notes were
repaid in October 1996 using proceeds from the IPO.
For the six months ended June 30, 1997, the Company had positive cash flow from
its operating activities of $.5 million, compared with a negative $4.1 million
for the comparable period ended June 30, 1996. Net cash provided by (used in)
investing activities was ($7.9) million for the six months ended June 30, 1997
compared with ($.2) million for the comparable period ended June 30, 1996,
primarily relating to a minority investment in Caresoft, a developer of disease
management tools, advances to, and investments in, affiliates and purchases of
fixed assets. Net cash provided by financing activities was $.1 million for the
six months ended June 30, 1997 and related to proceeds from the exercise of
stock options and the repayment of capital lease obligations. Net cash provided
by financing activities for the six months ended June 30, 1996 was $3.7 million,
principally attributable to net proceeds from issuance of $4.0 million in
indebtedness in February, April and June 1996 and repayment of capital lease
obligations.
The Company's operating plan for the remainder 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 net proceeds
of the IPO, 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.
(7)
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
PART II - Other Information
ITEM 4. SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS.
(a) The Company's Annual Meeting of Stockholders was held on
June 6, 1997.
(b) Proxies for the Annual Meeting were solicited pursuant to
Regulation 14 under the Securities Act of 1934. Jonathan
Lieber was listed in the proxy statement as management's
nominee for election as director of the Company and no
candidates were offered in opposition to management's
nominee and the nominee was elected. The following directors
terms continued after the Annual Meeting: James T. Carney,
Barry Kurokawa, Jonathan Edelson and Steven Hochberg.
(c) The Company's stockholders approved the amendment of the
Company's Stock Option Plan (the "Plan") to increase the
number of shares available for grant under the Plan. There
were 3,835,633 affirmative votes and 674,104 negative votes
cast with respect to the amendment of the Plan.
(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 therewith duly authorized.
August 14,1997 ADVANCED HEALTH CORPORATION
By: /s/ Jonathan Edelson, M.D.
-------------------------------------
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)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,840
<SECURITIES> 7,336
<RECEIVABLES> 7,870
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,579
<PP&E> 2,644
<DEPRECIATION> 429
<TOTAL-ASSETS> 36,999
<CURRENT-LIABILITIES> 2,934
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 33,893
<TOTAL-LIABILITY-AND-EQUITY> 36,999
<SALES> 23,028
<TOTAL-REVENUES> 23,028
<CGS> 17,309
<TOTAL-COSTS> 21,494
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,877
<INCOME-TAX> 66
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,811
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
