SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 31, 1994 Commission File No. 0-18472
HEALTH MANAGEMENT, INC.
(Formerly Homecare Management, Inc.)
(Exact name of registrant as specified in charter)
Delaware 75-2096632
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
4250 Veterans Memorial Highway, Suite 400 West, Holbrook, New York 11741
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 981-0034
Homecare Management, Inc.
(Former name, former address and former fiscal year, if changed since last
report)
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 November 15, 1994, there were outstanding 9,151,431 shares of common
stock, $.03 par value.
HEALTH MANAGEMENT, INC.
October 31, 1994
TABLE OF CONTENTS
Page No.
Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . .
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . .
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . .
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed consolidated financial statements of Health Management,
Inc. (the "Company") begin on the page following Item 2 of this Part
I.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Preliminary Statement
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding the Company's current business strategy,
the Company's projected sources and uses of cash, and the Company's plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; the ability of the
Company to adequately defend or reach a settlement of outstanding litigations
and investigations involving the Company or it management; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which statements are made pursuant to the Private Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
The financial information for the three months ended October 31, 1994 and the
six months ended October 31, 1994 has been restated. (See accompanying note 5
to the Condensed Consolidated Financial Statements.)
Three months ended October 31, 1994 vs. October 31, 1993
The Company's revenues were $20,884,327 for the quarter ended October 31, 1994,
an increase of $10,736,486 or 105.8% over revenues of $10,147,841 for the three
months ended October 31, 1993. This increase was attributable principally to
the increase in revenues generated by the recent acquisitions of the Company
which expanded the Lifecare Program into other chronic disease therapies as well
as to continued growth in the Company's organ transplant aftercare business.
Gross profit margins were 29.2% for the quarter ended October 31, 1994, as
compared to 34.5% for the quarter ended October 31, 1993. The decrease in
gross profit margin was primarily attributable to restatements of current year
cost of sales.
Operating expenses as a percentage of revenues increased to 21.0% for the
quarter ended October 31, 1994, compared to 19.6% for the quarter ended October
31, 1993. This increase is attributable to an increased provision in the
allowance for doubtful accounts of approximately $900,000.
Net income was $1,044,913 for the quarter ended October 31, 1994, compared to
$890,456 the quarter ended October 31, 1993, an increase of $154,457 or 17.3%.
The increase in net income was primarily attributable to the increases in
Lifecare revenues, increased revenues derived from the Company's acquisitions,
and certain economies of scale achieved in consolidating these recent
acquisitions, offset by the increase in allowance for doubtful accounts.
Primary earnings and fully diluted earnings per common share for the quarter
ended October 31, 1994 were $.11 compared to $.14 for the quarter ended October
31, 1993.
Six months ended October 31, 1994 vs. October 31, 1993
Revenues increased $18,395,364 to $38,100,629 for the six months ended October
31, 1994, an increase of 93.4%, in comparison to revenues for the six months
ended October 31, 1993. This increase was attributable principally to the
increase in revenues generated by the recent acquisitions of the Company which
expanded the Lifecare Program into other chronic disease therapies as well as to
continued growth in the organ transplant aftercare business.
Gross profit margins were 29.1% for the six months ended October 31, 1994
compared to 34.5% for the same period last year. The decrease in gross profit
margin was primarily attributable to restatements of current year cost of sales.
Operating expenses as a percentage of revenues increased to 23.4% for the six
months ended October 31, 1994, compared to 20.0% for the six months ended
October 31, 1993. This increase is principally attributable to an increase of
the provision in the allowance for doubtful accounts of approximately $1.7
million. Income before taxes on income decreased $458,895 to $2,351,887. The
decrease is primarily attributable to the increased provisions for doubtful
accounts receivable.
Net income was $1,347,787, a decrease of $334,260 or 19.9% for the six months
ended October 31, 1994 compared to net income of $1,682,047 for the same period
last year.
Primary and fully diluted earnings per share for the six months ended October
31, 1994 were $.14 and $.14 respectively as compared to $.27 and $.26 for the
same fiscal period last year.
LIQUIDITY AND CAPITAL RESOURCES
The decrease in the Company's cash and cash equivalents of $3,933,872 to
$9,561,608 at October 31, 1994 was attributable to cash used for operating
activities and offset by net cash provided by investing and financing
activities. The Company's continued growth resulted in utilization of cash for
operating activities. Increases in accounts payable, accrued expenses and non-
cash adjustments were offset by decrease in net income, increases in accounts
receivable, inventory and the payment of corporate income taxes.
Working capital at October 31, 1994 was $35,798,655, an increase of $3,465,462
from April 30, 1994. The primary factors were increases in accounts receivable
net of the allowance for doubtful accounts and increases in deferred taxes
offset by decreases in income taxes payable.
At October 31, 1994, the Company had a line of credit with a bank in the amount
of $5,000,000 collateralized by a first security lien on the Company's assets.
The line of credit provided for interest at the bank's prime rate plus .5%. At
October 31, 1994, the Company did not have an outstanding balance under this
line of credit.
The Company's cash flow depends on its receipt of payments for its products and
services and upon reimbursement from private third-party payors, from federal
programs such as Medicare and from various state Medicaid programs. The Company
is paid for products and services it sells directly to individual customers of
its pharmacies, to customers covered by third-party prescription plans and most
Medicaid patients either at the time of purchase or within 30 days of invoice to
such payors. Medicare and private third-party insurers generally pay the
Company 60 to 90 days after invoicing. Hospitals and clinics to whom the
Company sells its products on a wholesale basis generally pay approximately 90
days after invoicing. The days sales outstanding of the Company's accounts
decreased from 155 days at October 31, 1993, to 117 at October 31, 1994.
In August, 1994 the Company signed a purchase agreement with Bioject, Inc.,
granting the Company exclusive rights to distribute a needleless injection
device for use in the home healthcare market. In return, the Company entered
into a minimum purchase commitment requiring the purchase of 8,000 units over a
two year period. In accordance with the agreement, the Company issued a standby
letter of credit in the amount of $750,000, expiring September, 1995. Other
than this commitment there are no material commitments regarding capital
expenditures.
The Company has funded the growth of its operations and its working capital
needs primarily through a public offering , earnings and to a lesser extent,
borrowings under a revolving bank line of credit.
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
Page No.
Balance Sheets as of October 31, 1994 (Unaudited)
and April 30, 1994 (Audited) . . . . . . . . . . . . . . . . . . . . . . . . .
Statements of Income for the Three and Six Months Ended
October 31, 1994 and October 31, 1993 (Unaudited) . . . . . . . . . . . . . . .
Statements of Cash Flows for the Six Months Ended October 31, 1994
and October 31, 1993 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . .
Statement of Changes in Stockholders' Equity for the Six Months
Ended October 31, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
ASSETS
<CAPTION>
October 31, April 30,
1994 1994
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,561,608 $13,495,480
Accounts Receivable, less
allowance for doubtful accounts 25,516,672 22,257,279
Inventories 2,828,068 2,341,488
Other receivables - 1,444,426
Deferred Taxes 2,121,000 937,000
Tax Refund Receivable 565,321 -
Prepaid Expenses and Other 277,694 71,811
Total Current Assets 40,870,363 40,547,484
IMPROVEMENTS and EQUIPMENT,
less accumulated depreciation and
amortization 1,544,139 1,456,557
EXCESS OF PURCHASE PRICE OVER NET
ASSETS ACQUIRED 10,406,905 9,999,317
OTHER 450,999 414,746
$53,272,406 $52,418,104
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (concluded)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
October 31, 1994 April 30, 1994
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable: 5,513,118 5,237,210
Accounts Salaries and Bonuses 318,877 356,678
Accrued Expenses 1,274,131 713,397
Income Taxes Payable ---- 1,759,590
Current Maturities of Long Term Debt 231,553 147,416
TOTAL CURRENT LIABILITIES 5,071,708 8,214,291
LONG TERM DEBT, Less Current Maturities 73,733 108,311
TOTAL LIABILITIES 7,411,412 8,322,602
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred Stock - $.01 par value:
shares authorized - 1,000,000:
issued and outstanding
Common Stock - $.03 par value:
shares authorized - 20,000,000:
issued and outstanding -
9,151,431 and 9,104,431 274,543 273,133
Additional Paid-In-Capital 36,341,046 35,953,281
Retained Earnings 9,273,940 7,926,153
Unearned Restricted Stock Corporation (28,535) (57,065)
TOTAL STOCKHOLDERS' EQUITY 45,860,994 44,095,502
$53,272,406 $52,418,104
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue $20,884,327 $10,147,841 $38,100,629 $19,705,265
Cost of Sales 14,781,442 6,640,964 27,012,402 12,914,855
Gross Profits 6,102,885 3,506,877 11,088,227 6,790,410
Operating Expense:
Selling 804,027 468,488 1,326,111 791,657
General & Administrative 3,582,619 1,520,338 7,588,987 3,148,759
Total Operating Expenses 4,386,646 1,988,826 8,915,098 3,940,416
Income From Operations 1,716,239 1,518,051 2,173,129 2,849,994
Interest Expense/(Income) (90,454) 23,860 (178,758) 39,212
Income Before Taxes on
Income 1,806,693 1,494,191 2,351,887 2,810,782
Taxes on Income 762,500 603,735 1,004,100 1,128,735
Net Income $ 1,044,193 $ 890,456 $ 1,347,787 $ 1,682,047
Earnings Per Common Share
Primary $ .11 $ .14 $ .14 $ .27
Fully Diluted $ .11 $ .14 $ .14 $ .26
Weighted Average Shares
Outstanding
Primary 9,332,371 6,319,650 9,326,910 6,222,236
Fully Diluted 9,373,719 6,605,361 9,347,584 6,546,404
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE> HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flow
For The Six Months Ended October 31
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from operating
activities:
Net Income $1,347,787 $1,682,047
Adjustments to reconcile net
income to net cash used
in operating activities
Depreciation & Amortization 358,457 164,829
Provision for Doubtful Accounts 2,918,777 821,000
Deferred Taxes (1,024,000) (352,000)
Loss from Disposition of Rental 287,287 ----
Equipment 28,530 28,530
Compensation Under Restricted Stock
Increase (decrease) in cash flows
from changes in operating assets
and liabilities net of effects of
acquisition of PMA:
Accounts receivable (6,178,170) (7,134,963)
Inventory (486,580) (438,888)
Prepaid Expenses and Other (189,015) 18,613
Other Assets (85,658) 5,195
Accounts Payable 275,908 2,972,885
Accrued Bonus (37,801) 103,739
Accrued Expenses (560,734) (66,358)
Income Tax Payable, (2,484,911) 119,312
Net of Tax Refund Receivable
Net cash used in operating
activities (4,708,655) (2,076,059)
Cash flows from investing activities:
Capital Expenditures (724,600) (250,478)
Cash used in acquisition of PMA (187,500) ----
Proceeds from closing adjustments of
the Murray Group 1,444,426 ----
Proceeds from Sale of Rental Equipment 214,598 ----
Net Cash provided by (used in)
Investing activities 746,924 (250,478)
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flow (concluded)
For The Six Months Ended October 31
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
Cash flows from financing activities:
Increase in bank loan,
net of repayments - 1,000,000
Principal payments on long-term debt, (117,941) (16,309)
Proceeds from exercise of underwriter
warrants 145,800 -
Proceeds from exercise of stock options - 9,996
Deferred Registration Fees - (73,849)
Net cash provided by
financing activities 27,859 919,838
Net decrease in cash and
cash equivalents (3,933,872) (1,406,699)
Cash and cash equivalents,
at beginning of period 13,495,480 3,542,974
Cash, at end of period $ 9,561,608 $ 2,136,275
Supplemental disclosures of cash flow information:
Cash Paid for Interest $ 54,215 $ 67,544
Cash Paid for Taxes $ 2,687,683 $ 1,361,423
Supplemental disclosure of non-cash investing activities:
On May 14, 1994 the Company issued 20,000 shares of non-registered common stock
in connection with the PMA acquisition.
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders'
Equity for the Six Months Ended October 31, 1994
(Unaudited)
<CAPTION>
Unearned
Common Stock Capital Restricted
$.03 Par Value Excess of Retained Stock
Shares Amount Par Value Earnings Compensation
<S> <C> <C> <C> <C> <C>
Balance, May 1, 1994 9,104,431 $273,133 $35,953,281 $7,926,153 $(57,065)
Common stock issued upon
exercise of
underwriter's warrants 27,000 810 144,990
Common stock issued upon
acquisition of PMA 20,000 600 242,775
Compensation under
restricted stock 28,530
Net Income for the Six
Months Ended
October 31, 1994 1,347,787
Balance, October 31, 1994 9,151,431 $274,543 $36,341,046$ 9,273,940 $(28,535)
See Notes to Condensed Consolidated Financial Statements
</TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The condensed consolidated financial statements include Health Management, Inc.,
formerly Home Care Management, Inc., a Delaware corporation, and its wholly-
owned subsidiaries Home Care Management, Inc., a New York corporation ("HMI -
New York"), HMI Pennsylvania, Inc., a Delaware corporation, HMI Retail
Corporation, a Delaware corporation, and HMI PMA, Inc., a Delaware corporation.
All intercompany accounts and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements included herein are unaudited
and include all adjustments which are, in the opinion of Management, necessary
for a fair presentation of the results of operations of the interim period
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended April 30, [1994]. The results of
operations for the interim periods are not necessarily indicative of the
operating results for the whole year.
Note 2: Acquisition
On June 16, 1994, the Company acquired certain assets of Pharmaceutical
Marketing Alliance, Inc. ("PMA") for a total purchase price of $598,375, which
is comprised of cash of $187,500, note payable of $187,500 and 20,000 shares of
common stock. Should certain performance levels be met on the first, second and
third anniversary date, an additional purchase price of $2,954,000 will be paid
to the sellers in a combination of cash and stock consideration. Immediately
following this acquisition, the Company contributed all of the acquired assets,
subject to the assumed liabilities, to HMI PMA, Inc., a newly formed Delaware
corporation which is wholly-owned by the Company. The Company also entered into
three-year employment agreements with three employees of PMA for an aggregate
base salary of $225,000 per annum.
Note 3: Capital Transactions
In connection with the acquisition on April 1, 1994 of Murray Pharmacy, Inc., a
Pennsylvania corporation, and Murray Pharmacy Too, Inc., a Pennsylvania
corporation, the Company issued 617,060 shares of non-registered common stock.
On November 18, 1993, the Company completed a secondary public offering of
2,000,000 shares of stock at $12.00 per share. Proceeds from this offering, net
of expenses of the offering of $2,017,742 were $21,982,258.
On May 26, 1993, the Compensation Committee authorized the allocation of
420,000, options at an exercise price of $10.375 per share (except for incentive
stock options issued to stockholders of more than 10% of the shares of the
Company, which had an exercise price of $11.41 per share) the market price on
the date of the grant, which will vest proportionally over a five-year period to
14 employees.
On May 26, 1993, the Compensation Committee authorized and on October 14, 1993,
the stockholders approved, the establishment of a shareholder incentive value
plan to provide incentives for key employees and members of the Board of
Directors. The maximum number of shares issuable under the plan is to be 10% of
the issued and outstanding shares not to exceed 1,000,000, shares. The exercise
period for an option shall not exceed ten years from date of grant, except in
the case of a more than 10% stockholder, when such period shall not exceed five
years. The option price per share shall be not less than the average market
value, or in the case of incentive stock options to a 10% stockholder, 110% of
fair value on the date of grant.
Note 4: Contingency
The Company is a defendant in a law suit captioned American Preferred
Prescription, Inc., vs. Homecare Management, Inc., and Preferred Rx, Inc. The
suit alleges that the Company and another unrelated defendant improperly
obtained confidential information regarding the plaintiff. It is also alleged
that the Company and the other defendant interfered with ongoing and potential
new contractual relationships of the plaintiff. The plaintiff is seeking
damages in excess of $30 million and injunctive relief. This proceeding is in
the discovery phase. Management believes this suit to be without merit and
intends to defend the proceeding vigorously. In Management's opinion, this
proceeding will not result in an outcome having a material adverse effect on
the Company's results of operations or financial position.
Note 5: Restatement
In February 1996, a Special Committee of the Board of Directors was established
to review certain accounting and financial matters. The Special Committee
determined that, as a result of certain accounting irregularities, restatements
of prior 1995 and 1996 fiscal periods would be required.
As a result of these developments, the Company's auditors withdrew their
previously issued unqualified opinion dated July 27, 1995 on the financial
statements of the Company for the year ended April 30, 1995.
The Company has restated its 1995 financial statements as well as the quarterly
financial statements for each of the four quarters in the year ended April 30,
1995. A reconciliation of the Company's previously reported net income to the
restated net income in the restated financial statements for the three months
ended October 31, 1994 and for the six months ended October 31, 1994 is as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
October 31, October 31,
1994 1994
<S> <C> <C>
Income, as previously reported $ 1,853,000 $ 3,474,000
ADJUSTMENTS:
Understatement of revenues 797,000 (105,000)
Overstatement of inventory and
understatement of purchases (1,317,000) (1,569,000)
Understatement of allowance for
doubtful accounts (852,000) (1,930,000)
Total adjustments (1,372,000) (3,604,000)
Less tax benefit of adjustments 563,000 1,478,000
Income, as restated $ 1,044,000 $ 1,348,000
Earnings per share of common stock, as
previously reported - primary and
fully-diluted $ .20 $ .37
Adjustments, net of tax benefit (.09) (.23)
Earnings per share of common stock, as
restated - primary and fully-diluted $ .11 $ .14
</TABLE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a defendant in an adversary proceeding, in the
discovery phase, American Preferred Prescription, Inc., vs. Homecare
Management, Inc., and Preferred Rx, Inc., commenced April, 1994, in
the United States Bankruptcy Court, Eastern District of New York.
There have been no material legal proceedings that commenced or arose
during the quarter ended October 31, 1994
Item 2. Change in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports of Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Suffolk, State of
New York, on the 30th day of April, 1996.
HEALTH MANAGEMENT, INC.
(Registrant)
By: /s/ James R. Mieszala
James R. Mieszala, Acting President
(Principal Executive Officer)
By: /s/ Paul Jurewicz
Paul Jurewicz, Treasurer, Chief Financial Officer
and Executive Vice President
(Principal Financial Officer)
