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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 March 31, 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 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 [X] No [ ]
As of May 13, 1997, there were 7,235,328 shares outstanding of the registrant's
Common Stock, $.01 par value.
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<PAGE>
ADVANCED HEALTH CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page No.
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets-
March 31, 1997 and December 31, 1996..................................1
Consolidated Statement of Operations-
Three months ended March 31, 1996 and 1997............................2
Consolidated Statements of Cash Flows-
Three months ended March 31, 1997 and 1996............................3
Notes to Consolidated Financial Statements............................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................5
PART II - OTHER INFORMATION
SIGNATURES.....................................................................7
<PAGE>
PART I - FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $3,748 $12,086
Investments in marketable securities 7,391 7,390
Accounts receivable 14,890 8,637
Prepaid expenses 112 182
Advances to affiliates 2,594 647
Deferred income taxes 977 977
----------------- ----------------
Total current assets 29,712 29,919
PROPERTY AND EQUIPMENT, net 2,099 2,053
INTANGIBLE ASSETS, net 1,831 1,858
OTHER ASSETS 2,898 1,570
----------------- ----------------
Total assets $36,540 $35,400
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $1,087 $1,968
Accrued expenses 2,376 913
Deferred revenue 150 200
Loan payable related to acquisitions 23 23
Current portion of capital lease obligations 70 131
----------------- ----------------
Total current liabilities 3,706 3,235
----------------- ----------------
DEFERRED REVENUE 200 200
CAPITAL LEASE OBLIGATIONS 81 81
----------------- ----------------
Total liabilities 3,987 3,516
----------------- ----------------
COMMITMENTS
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 5,000,000 shares
authorized; 0 shares issued and outstanding
Common stock, $.01 par value; 15,000,000 shares
authorized; 7,169,444 and 7,166,941 shares
issued and outstanding, respectively 72 72
Additional paid-in capital 42,078 42,069
Accumulated deficit (9,582) (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) 32,553 31,884
----------------- ----------------
Total liabilities and shareholders' equity
(deficit) $36,540 $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)
For the Three Months Ended
-----------------------------------
March 31, March 31,
1997 1996
----- ----
REVENUE $3,840 $1,074
REVENUE FROM MSOs 6,167 2,618
------------- -----------
Total Revenues 10,007 3,692
COST OF REVENUES 6,401 1,932
------------- -----------
Gross profit 3,606 1,760
OPERATING EXPENSES 3,082 2,942
------------- -----------
Operating income/(loss) 524 (1,182)
OTHER INCOME/(EXPENSE) 202 (19)
------------- -----------
Net Income(Loss) Before Taxes 726 (1,201)
PROVISION FOR TAXES 66 --
------------- -----------
Net Income (Loss) $660 ($1,201)
============= ===========
PER SHARE
INFORMATION
Net income (loss) per share $0.08 ($0.27)
Weighted average common
shares and equivalents outstanding 8,110 4,482
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 Three Months Ended
-----------------------------------
March 31, March 31,
1997 1996
----- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income/(loss) $660 ($1,201)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 228 216
Changes in operating assets and liabilities
Accounts receivable (6,253) (1,427)
Note receivable --- 110
Prepaids 70 (66)
Advances to affiliates (1,947) ---
Other assets (1,328) 2
Accounts payable (881) (171)
Accrued expenses 1,463 381
Deferred revenue (50) (275)
----------------- ----------------
Net cash used in operating activities (8,038) (2,431)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (247) (206)
----------------- ----------------
Net cash provided by (used in) investing activities (247) (206)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from loans payable
related to acquisitions --- (69)
Net proceeds from sale and issuance of common stock 9 ---
Net proceeds from promissory notes --- 1,500
Repayment of capital lease obligations (62) (118)
----------------- ----------------
Net cash provided by (used in) financing activities (53) 1,313
----------------- ----------------
Net change in cash (8,338) (1,324)
CASH, beginning of period 12,086 1,464
----------------- ----------------
CASH, end of period $3,748 $140
================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
(3)
<PAGE>
ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,1997
(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. 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 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. In March 1997, the Financial Accounting Standards Board
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 MSOs, the results of which MSOs are
consolidated in the Consolidated Financial Statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Net revenue for the three months ended March 31, 1997 increased to $10.0 million
from $3.7 million in the comparable period ended March 31, 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 $6.6 million of the Company's net revenue for the three months
ended March 31, 1997 as compared to $2.9 million in the comparable period ended
March 31, 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 $3.4 million for the three months ended
March 31, 1997, as compared to $.8 million in the comparable period ended March
31, 1996.
Cost of revenues for the three months ended March 31, 1997 increased to $6.4
million from $1.9 million for the comparable period ended March 31, 1996. The
increase in cost of revenues 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 March 31, 1997 increased to $3.1
million from $2.9 million for the comparable period ended March 31, 1996. The
increase in operating expenses reflected expenses related to the incremental
provision of physician group practice management and related services.
Other income/expense for the three months ended March 31, 1997 was $.2 million
and related to interest earned 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 approximatley $19,000 for
the comparable period ended March 31, 1996, which related primarily to interest
on $1.5 million of indebtedness issued on February 28, 1996 bearing interest at
8% 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 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 March 31, 1997 was $.7 million
compared to a net loss of $1.2 million for the three months ended March 31, 1996
due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Effective October 2, 1996, the Company completed its IPO of 2,645,000 shares of
Common Stock, including the underwriter's 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. 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 IPO.
For the three months ended March 31, 1997, the Company had negative cash flow
from its operating activities of $8.0 million, compared with $2.4 for the
comparable period ended March 31, 1996. Net cash provided by (used in) investing
activities was ($.2) million for the three months ended March 31, 1997 compared
with ($.2) million for the comparable period ended March 31, 1996, both relating
to the purchase of fixed assets. Net cash (used in) financing activities was
($.1) million for the three months ended March 31, 1997 and related primarily to
the repayment of capital lease obligations. Net cash provided by financing
activities for the three months ended March 31, 1996 was $1.3 million,
principally attributable to net proceeds from issuance of $1.5 million in
indebtedness in February 1996.
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 is planning to acquire a minority interest in a developer of
disease management software tools, which are complementary to products developed
and licensed by the Company. Initially the Company will provide a bridge loan,
secured by all of the assets, both tangible and intangible, of the developer,
which is convertible into preferred stock, and the Company may acquire
additional preferred stock in connection with this transaction. The bridge loan
and investment is not expected to be material in amount. The Company has no
other planned material capital expenditures or capital commitments.
(6)
<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.
May 15, 1997 ADVANCED HEALTH COPORATION
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)
(7)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,748
<SECURITIES> 7,391
<RECEIVABLES> 15,100
<ALLOWANCES> 210
<INVENTORY> 0
<CURRENT-ASSETS> 29,710
<PP&E> 2,099
<DEPRECIATION> 201
<TOTAL-ASSETS> 36,540
<CURRENT-LIABILITIES> 3,706
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 32,481
<TOTAL-LIABILITY-AND-EQUITY> 36,540
<SALES> 10,007
<TOTAL-REVENUES> 10,007
<CGS> 6,401
<TOTAL-COSTS> 3,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 726
<INCOME-TAX> 66
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 660
<EPS-PRIMARY> .08
<EPS-DILUTED> 0
</TABLE>
