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 July 31, 1994 Commission File No. 0-18472
HEALTH MANAGEMENT, INC.
(Exact name of registrant as specified in charter)
Delaware 75-2096632
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
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
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 3, 1994, there were outstanding 9,151,343 shares of common stock,
$.03 par value.
HEALTH MANAGEMENT, INC.
July 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 its 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 July 31, 1994 has been
restated. (See note 5 to the Condensed Consolidated Financial Statements.)
Three months ended July 31, 1994 vs. July 31, 1993
The Company's revenues were $17,216,302 for the quarter ended July 31, 1994, an
increase of $7,658,878 or 80.1% over revenues of $9,557,424 for the three months
ended July 31, 1993. This increase was attributable to both the increase in
revenues generated by the acquisitions of the Company which expanded the
Lifecare Program into other chronic disease therapies, and to increasing
revenues in the organ transplant market place.
Gross profit margins were 29.0% for the quarter ended July 31, 1994, as compared
to 34.4% for the quarter ended July 31, 1993. The gross profit margin
decreased because the gross profit margins in the other chronic disease
therapies are lower margins than have been historically achieved.
Operating expenses as a percentage of revenues increased to 26.3% for the
quarter ended July 31, 1994, compared to 20.4% for the quarter ended July 31,
1993. This increase is principally due to an increase in the provision for
uncollectible accounts receivable of approximately $977,000.
Net income was $303,594, for the quarter ended July 31, 1994, compared to
$791,591, for the quarter ended July 31, 1993, a decrease of $487,997 or a 61.6%
decrease. The decrease in net income was primarily attributable to the
increases in the provision for uncollectible accounts receivable.
Primary earnings and fully diluted earnings per common share for the quarter
ended July 31, 1994, were $.03 compared to $.13 and $.12 for the quarter ended
July 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The increase in the Company's cash and cash equivalents of $1,031,327 to
$14,526,807, at July 31, 1994, was attributable to cash provided by operating
and financing activities offset by net cash used in investing activities.
Increases in accounts payable were offset by decreases in net income and
increases in accounts receivable and inventory. Net cash used in investing
activities was attributable to the acquisition of the business of Pharmaceutical
Marketing Alliance, Inc. and upgrading of the Company's distribution facilities.
Working capital at July 31, 1994, was $33,281,342, an increase of $948,149, from
April 30, 1994. The primary factors were increases in accounts receivable net
of the allowance for doubtful accounts of $924,764, and inventories of $351,697,
offset by increases in accounts payable of $2,014,231, in the Company's bank
line of $300,000, and the collection of $1,444,426 of other receivables.
At July 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
July 31, 1994, the Company had an outstanding balance under this line of credit
of $300,000.
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 145 days at July 31, 1993 to 132 days at July
31, 1994.
In August 1994, the Company signed a Purchase Agreement with Bioject, Inc.,
granting the Company exclusive rights to distribute a needle-free 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,
borrowing under a revolving bank line of credit.
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
Index to Condensed Consolidated Financial Statements
Page No.
Balance Sheets as of July 31, 1994 (Unaudited)
and April 30, 1994 (Audited) . . . . . . . . . . . . . . . . . . . .
Statements of Income for the Three Months Ended
July 31, 1994 and July 31, 1993 (Unaudited) . . . . . . . . . . . . .
Statements of Cash Flows for the Three Months Ended
July 31, 1994 and July 31, 1993 (Unaudited) . . . . . . . . . . . . .
Statement of Changes in Stockholders' Equity for the
Three Months Ended July 31, 1994 (Unaudited) . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . .
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
July 31, 1994 April 30, 1994
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 14,526,807 $ 13,495,480
Accounts Receivable, less allowance
for doubtful accounts 23,182,043 22,257,279
Inventories 2,615,069 2,341,488
Other Receivables -- 1,444,426
Deferred Taxes 1,596,000 937,000
Prepaid Expenses and Other 631,744 71,811
Total Current Assets 42,551,663 40,547,484
IMPROVEMENTS and EQUIPMENT, less
accumulated depreciation and
amortization 741,538 1,456,557
EXCESS OF PURCHASE PRICE OVER
NET ASSETS ACQUIRED 10,317,571 9,999,317
OTHER 561,084 414,746
$ 54,171,856 $ 52,418,104
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
July 31, 1994 April 30, 1994
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Bank Loan - Credit Line $ 300,000 $ --
Accounts Payable $ 7,251,441 $ 5,237,210
Accrued Expenses 853,895 1,070,075
Income Taxes Payable 624,982 1,759,590
Current Maturities of Long Term Debt 240,003 147,416
TOTAL CURRENT LIABILITIES 9,270,321 8,214,291
Long Term Debt, Less Current Maturities 98,999 108,311
TOTAL LIABILITIES 9,369,320 8 ,322,602
COMMITMENTS AND CONTINGENCIES
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 respectively 274,543 273,133
Additional Paid-In Capital 36,341,046 35,953,281
Retained Earnings 8,229,747 7,926,153
Unearned Restricted Stock Compensation (42,800) (57,065)
TOTAL STOCKHOLDERS' EQUITY $ 44,802,536 $ 44,095,502
$ 54,171,856 $ 52,418,104
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended July 31,
<CAPTION>
1994 1993
<S> <C> <C>
Revenue $17,216,302 $ 9,557,424
Cost of Sales 12,230,960 6,273,891
Gross Profit 4,985,342 3,283,533
Operating Expenses:
Selling 522,084 323,169
General & Administrative 4,006,368 1,628,421
Total Operating Expenses 4,528,452 1,951,590
Income from Operations 456,890 1,331,943
Interest Expense (Income) (88,304) 15,352
Income Before Taxes on Income 545,194 1,316,591
Taxes on Income 241,600 525,000
Net Income $ 303,594 $ 791,591
Earnings Per Common Share:
Primary $ .03 $ .13
Fully Diluted $ .03 $ .12
Weighted Average Share Outstanding
Primary 9,321,448 6,124,821
Fully Diluted 9,321,448 6,487,447
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED JULY 31
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 303,594 $ 791,591
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation & Amortization 154,805 82,072
Provision for Doubtful Accounts 1,607,000 630,000
Deferred Taxes (659,000) (280,000)
Loss from disposition of rental equipment 287,287 --
Compensation Under Restricted Stock 14,265 14,265
Increase (decrease) in cash flows
from changes in operating assets
and liabilities:
Accounts Receivable (2,531,764) (4,964,579)
Inventory (351,697) (260,908)
Other Receivables 1,444,426 --
Prepaid Expenses and Other 7,081 12,715
Other Assets 28,662 (6,943)
Accounts Payable 2,014,231 1,418,110
Accrued Expenses (216,180) (42,130)
Income Tax Payable (1,134,608) (556,415)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 968,102 (3,162,222)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in acquisition of PMA (187,500) --
Capital Expenditures (325,448) (115,837)
Other Acquisitions -- --
Proceeds from Sale of Rental Equipment 214,598 --
NET CASH (USED IN) INVESTING ACTIVITIES (298,350) (115,837)
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (CONCLUDED)
FOR THE THREE MONTHS ENDED JULY 31
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in bank loan,
Net of Repayments $ 300,000 $ 1,550,000
Principal payments on long-term debt (84,225) (8,720)
Proceeds from Issuance of Common Stock -- --
Proceeds from Exercise of Stock Options -- 500
Proceeds from Exercise of Warrants 145,800 --
Net Cash Provided by Financing Activities 361,575 1,541,780
Net Increase (Decrease) in Cash and
Cash Equivalents 1,031,327 (1,736,279)
Cash and Cash Equivalents,
at Beginning of Period 13,495,480 3,542,974
Cash and Cash Equivalents, at End of
Period $ 14,526,807 $ 1,806,695
Supplemental disclosures of cash flow information:
Cash Paid for Interest $ 20,000 $ 24,020
Cash Paid for Taxes $ 1,715,20 $ 1,361,423
Supplemental Disclosure of Non-Cash Investing Activities:
During the quarter, the Company issued 20,000 shares of non-requested 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
THREE MONTHS ENDED JULY 31, 1994
(Unaudited)
<CAPTION>
Common Stock
$.03 Par Value Capital Excess Retained Unearned Restricted
Shares Amount of Par Value Earnings Stock 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 14,265
Net Income for the Three
Months Ended
July 31, 1994 303,594
_______________________________________________________________
Balance, July 31, 1994 9,151,431 $274,543 $36,341,046 $ 8,229,747 $(42,800)
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.,
a Delaware corporation (the "Company"), and its wholly-owned subsidiaries
Homecare Management, Inc., a New York corporation ("HMI - New York"),
HMI Pennsylvania, Inc., a Delaware corporation, HMI Retail Corp., Inc., a
Delaware corporation, HMI PMA, Inc., a Delaware corporation, Health
Reimbursement Corp., a Delaware corporation, HMI Maryland, Inc., a Delaware
corporation, and HMI Illinois, 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, in the opinion of Management, are 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 periods for the interim periods are not necessarily
indicative of the operating results for the whole year.
NOTE 2: ACQUISITIONS
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 $355,000, 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
wholly-owned by the Company. The Company also entered into three-year
employment agreements with three employees of PMA at an aggregate of $225,000
per annum.
NOTE 3: CAPITAL TRANSACTIONS
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.
In connection with the acquisition of the business of Murray Pharmaceuticals,
Inc., a Pennsylvania corporation, and Murray Pharmaceuticals Too, Inc., a
Pennsylvania corporation on April 1, 1994, the Company issued 617,060 shares of
non-registered common stock.
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 share 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, 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 a 10% stockholder with respect to incentive stock
options, 110% of fair value on the date of grant.
On May 26, 1993, the Compensation Committee authorized and on October 14, 1993
the stockholders approved the allocation of 420,000 options at an exercise price
of $10.375 per share, (except those incentive options issued to stockholders of
more than 10% of the shares of the Company, which had an exercise price of
$11.41) the market price on the date of the grant, which will vest
proportionally over a five-year period to 14 employees.
NOTE 4: CONTINGENCY
The Company is a defendant in a lawsuit captioned American Preferred
Prescription Inc., vs. Homecare Management, Inc., and Preferred, 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: SUBSEQUENT EVENTS
In August 1994, the Company signed a Purchase Agreement with Bioject, Inc.,
granting the Company exclusive rights to distribute a needle-free 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.
NOTE 6: 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 July 31, 1994 is as follows:
THREE MONTHS ENDED JULY 31, 1994
Net Income, as previously reported $ 1,620,000
Adjustments:
Overstatement of revenues (902,000)
Overstatement of inventory (252,000)
Understatement of allowance for doubtful accounts (1,077,000)
Total adjustments (2,231,000)
Less Tax benefit of adjustments 915,000
Net Income, as restated $ 304,000
Earnings per share of common stock, as
previously reported - primary and
fully-diluted $ .17
Adjustments, net of tax benefit (.14)
Earnings per share of common stock, as
restated - primary and fully-diluted $ .03
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in an adversary proceeding which is in the discovery
phase which is captioned American Preferred Prescription, Inc. vs. Homecare
Management, Inc., and Preferred, Inc., commenced April 1994, in the United
States Bankruptcy Court, Eastern District of New York. There have been no
material developments that arose during the quarter ended July 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 - Not Applicable
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 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)
