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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 31, 1996
Commission File No. 0-18472
HEALTH MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2096632
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
1371-A Abbott Court, Buffalo Grove, Illinois 60089
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 913-2700
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 December 19, 1996, there were outstanding 9,330,182 shares of common
stock, $.03 par value.
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HEALTH MANAGEMENT, INC.
October 31, 1996
TABLE OF CONTENTS
Page No.
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Part I. FINANCIAL INFORMATION:
Item 1. Financial Statements 3
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of Operations 3-12
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings 22-24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25-28
SIGNATURES 29
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This Quarterly Report on Form 10-Q/A-2 is intended to amend certain
information contained in Part I, Items 1 and 2, and Part II, Items 5 and 6 of
Health Management, Inc.'s (the "Company's") Report on Form 10-Q, as amended by
the Company's Report on Form 10-Q/A, for the quarter ended October 31, 1996
(the "Original Report"), in order to ensure that the information contained in
the Original Report is true, accurate and complete as of the date of the filing
of the Form 10-Q, December 20, 1996. See Note 3 to the Condensed Consolidated
Financial Statements.
Part I of the Original Report is hereby amended in its entirety as follows:
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
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; changes or conditions affecting the
transactions with Transworld Home Health Care, Inc. described herein;
competitive factors; the ability of the Company to adequately defend or reach a
settlement of outstanding litigation and investigations involving the Company
or its prior management; changes in labor, equipment and capital costs; changes
in regulations affecting the Company's business; 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 discussed herein has been restated. (See Note 3 to
the Condensed Consolidated Financial Statements).
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SPECIAL CONSIDERATIONS
The Company's business is subject to a number of special considerations, such
as industry trends, certain risks inherent in the business and the Company's
recent events. Some of these considerations are described in "Recent Events and
Other Considerations" below.
RECENT EVENTS AND OTHER CONSIDERATIONS
Financial Condition. As a result of the restatements and special charges
recorded in the Company's financial statements for the fiscal years 1995 and
1996, the Company recorded significant charges to its balance sheet including
reductions of the Company's working capital, retained earnings and
stockholders' equity. The Company was in default under its Credit Agreement
with Chase Manhattan Bank, N.A., as agent and lender, for among other things,
failure to make a $1,000,000 principal amount repayment. This senior debt, the
principal amount of which aggregate approximately $28.3 million, was acquired
by Transworld Home HealthCare, Inc., a New York corporation ("Transworld"), on
November 13, 1996, the date on which Transworld entered into a stock purchase
agreement and merger agreement with the Company. Also on November 13, 1996,
Transworld agreed to forbear until December 12, 1996 from exercising any
remedies under such bank debt and agreed, in its discretion, to loan the
Company up to an additional $3 million under its revolving credit facility. As
of December 12, 1996, the Forbearance Agreement was further extended until
December 23, 1996 and the availability under the revolving line of credit was
further increased by up to an additional $2 million, subject to certain
conditions and at the discretion of Transworld. (See "Transworld Transaction"
below.) In addition, Hyperion Partners II, L.P., the majority stockholder of
Transworld, has acquired the obligations of the Company due to Foxmeyer Drug
Co., and has informed the Company that it is in final negotiations to acquire
the obligations of the Company due to Bindley Western, Inc. and Caremark, Inc.
The obligations of the Company due to Foxmeyer Drug Co., Bindley Western, Inc.
and Caremark, Inc. are in the aggregate amount of approximately $18.2 million.
There are no assurances that Transworld will extend the forbearance agreement
past December 23, 1996 and, if no such agreement is reached, it is likely that
the Company will seek protection under the Federal Bankruptcy laws.
Transworld Transaction. In November 1996, Transworld acquired the Company's
outstanding bank debt, in the aggregate principal amount of $28.3 million,
agreed to forbear until December 12, 1996 from exercising any remedies under
such bank debt and agreed, in its discretion, to loan the Company up to an
additional $3 million under its revolving credit facility. As of December 12,
1996, the forbearance agreement was further extended until December 23, 1996 and
the availability under the revolving line of credit was further increased by up
to an additional $2 million, subject to certain conditions and at the discretion
of Transworld. Also, on November 13, 1996, the Company entered into a Stock
Purchase Agreement with Transworld, pursuant to which Transworld agreed to
acquire 8,964,292 newly issued shares (the "Shares") of common stock of the
Company ("Common Stock"), representing 49% of the outstanding Common Stock, as
well as an option to purchase an additional 2% of the Common Stock. The closing
of this transaction is currently scheduled to occur on or about December 23,
1996, subject to the satisfaction of certain conditions including, among others,
approval of Transworld's lenders and preliminary court approval of a settlement
of the consolidated class action lawsuit for $7.2 million in cash, which
preliminary court approval was granted on December 20, 1996 (the "Proposed
Settlement"). The consideration for the Shares includes: (i) Transworld entering
into the Merger Agreement, (ii) Transworld purchasing the rights of the
Company's senior lenders, (iii) Transworld forbearing under the Credit agreement
for a specified period of time (as
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discussed above), (iv) Transworld agreeing to extend additional amounts (as
discussed above) under the revolving credit facility, subject to certain
conditions and at Transworld's discretion, (v) Transworld causing to be canceled
certain warrants to purchase 5% of the outstanding stock of the Company on a
fully diluted basis, at an exercise price of $2.00 per share, to which the
Company's senior lenders were entitled, and (vi) $1.00 per share of Common
Stock. Of the $1.00 per share consideration, which aggregates $8,964,292, a
portion will be used to repay any amounts loaned to the Company under the
revolving credit facility subsequent to November 13, 1996 and interest thereon.
The option will have an exercise price of $1.00 per share and will have a
one-year term.
On November 13, 1996 the Company also entered into a Merger Agreement with
Transworld pursuant to which a newly formed subsidiary of Transworld will merge
into the Company and each stockholder of the Company will receive cash
consideration equal to $2.00 per share. The merger is subject to certain
conditions, which include, among others, approval by the Company's stockholders,
the expiration or termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and final
court approval of the Proposed Settlement. The Company believes the conditions
of the merger could be satisfied by Spring, 1997. Either party may terminate the
Merger Agreement if the merger is not consummated by June 30, 1997. Because
various conditions to closing the Transworld transactions have not yet been
satisfied, the Company can give no assurances that the transactions contemplated
by the Stock Purchase Agreement and/or the Merger Agreement will be consummated
in their entirety or in the manner contemplated by the Stock Purchase Agreement
and/or the Merger Agreement.
Significant Litigation. The Company has been named as a defendant in a
consolidated stockholder class action lawsuit and as a nominal defendant in two
derivative suits. No assurances can be given as to the outcome of such
litigation and the effects on the financial condition or future results of
operations of the Company. With respect to the consolidated stockholder class
action lawsuit, the Company entered into a Stipulation of Partial Settlement
with the plaintiffs' counsel and on September 18, 1996 such Stipulation of
Partial Settlement received preliminary court approval (the "Original
Settlement"). The Original Settlement provided for, among other things, the
payment by the Company of $2,000,000 in cash, the issuance of 2,200,000 shares
of Common Stock and warrants to purchase 2,200,000 shares of Common Stock. As a
condition to Transworld's obligation to close the Stock Purchase Agreement and
the Merger Agreement, preliminary court approval and final court approval,
respectively, is required with respect to a modified settlement providing for a
$7,200,000 cash payment in lieu of the consideration provided in the Original
Settlement to be paid after the merger is consummated. An Amended Stipulation
of Partial Settlement to this effect was executed on December 19, 1996,
preliminary approval by the U.S. District Court for the Eastern District of New
York thereof was granted on December 20, 1996 and a hearing for final approval
is currently scheduled for March 14, 1997. (See Part II, Item 1, "Legal
Proceedings"). The Company is in the process of negotiating with its directors
and officers liability insurance carrier with respect to coverages for damages
in connection with the stockholder class action lawsuit and any payments
received from such carrier will reduce the Company's liability with respect to
such suits.
Changes in Management. Effective May 1, 1996, W. James Nicol, an experienced
health care executive, was named President and Chief Executive Officer of the
Company, succeeding the office of the Chief Executive Officer of the Company
which was formed when Clifford E. Hotte resigned in February 1996. James R.
Mieszala, formerly of Caremark, Inc., who became
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president of Homecare Management, Inc., a wholly-owned operating subsidiary of
the Company, in January 1996, was named Chief Operating Officer of the Company
effective May 10, 1996. Paul S. Jurewicz, formerly of Caremark, Inc., who
became Chief Financial Officer of the Company in December 1995, was also named
the Executive Vice President of the Company in April 1996. On December 13, 1996,
Mr. Jurewicz submitted notice of his intent to resign, effective January 31,
1997, to assume a new position. The Company expects that Mr. Nicol will
thereafter assume, on an interim basis, the additional duties of Chief Financial
Officer. The Company has experienced substantial turnover of its senior
management group over the past twelve months and several of the Company's
executive officers have been in their current positions for only a limited
period of time. The Company's future growth and success depends, in large part,
upon its ability to obtain, retain and expand its staff of executive and
professional personnel. The Company's ability to successfully conclude the
Transworld transaction may likewise depend on its ability to retain its key
personnel to manage through the transition. There can be no assurances that the
Company will be successful in its efforts to attract and retain such personnel.
Goodwill and Other Long Lived Assets. At October 31, 1996, the Company had
goodwill of approximately $33.4 million, or 37% of its assets. A significant
portion of the Company's goodwill relates to the Clozaril Patient Management
Business ("CPMB") (See "Introduction of New Antipsychotic Drugs; Blood
Monitoring".) It is the Company's policy to review the recoverability of
goodwill and other long-lived assets periodically to determine if any impairment
indicators are present. The evaluation of the recoverability of goodwill is
significantly affected by estimates of future cash flows from each of the
Company's market areas. If estimates of future cash flows from operations
decrease, the Company may be required to write down its goodwill and other long-
lived assets in the future. Any such write-down could have a material adverse
effect on the financial position and results of operations of the Company.
Business Strategy. The Company's strategy, which it has been in the process of
implementing since May 1996, is focused on the basic factors that could improve
profitability: revenue generation, cost reduction, quality improvement and cash
collections. To generate increased revenue, the Company is directing its
marketing efforts towards improving its referral relationships in addition to
developing new programs, expanding relationships with payor organizations
(including managed care organizations) and forging relationships with
pharmaceutical companies requiring services such as clinical management,
marketing, reimbursement and other services. Cost reduction efforts are focused
on the integration of the Company's pharmacy locations and increasing
efficiencies in reimbursement and distribution services. Management is also
focused on improved cash collections through an emphasis on enhancing systems
capabilities within the Company. However, much of senior management's attention
this fiscal year has been focused on the normally routine task of sourcing
product from its suppliers and this distraction was heightened substantially
following the bankruptcy filing, on August 27, 1996, by its principal
wholesaler. Additionally, concerns about the Company's financial condition may
result in declining customer referrals. While management believes the
commencement of its business strategy has improved and will continue to improve
the Company's operations and financial performance, no assurances can be given
to its ultimate success.
Introduction of New Antipsychotic Drugs; Blood Monitoring. In October, 1996,
Olanzapine, a new antipsychotic agent for the treatment of schizophrenia, was
introduced into the market. The Company also expects several additional
antipsychotic drugs to be introduced in the next year, based upon the recent
history of such new products having been introduced into the market and
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the present pipeline of potential new products in various stages of the FDA
review process. The Company anticipates providing these new drugs to
schizophrenic patients as it broadens its Lifecare(TM) Program. To date,
management believes that the introduction of Olanzapine has been a factor in
the recent decline of the Company's Clozapine customer base as physicians
preferentially prescribe Olanzapine for treatment of schizophrenia. Because
Olanzapine does not require weekly blood monitoring, and therefore is less
costly than Clozapine, and because the relative efficacy of Olanzapine is still
uncertain, the Company cannot predict the ultimate effect on its customer base
and, in turn, its financial condition from the introduction of Olanzapine. The
Company also cannot predict the effect on its financial condition of the
introduction of other antipsychotic drugs.
In addition, the Company's Clozaril Patient Management Business contains
multiple components including weekly blood draws to test for a side effect
associated with Clozapine. The Company understands that the Food and Drug
Administration may be contemplating a reduction in blood monitoring which, with
no changes in the way that the Company participates in this market, could have
a substantial negative impact on the Company's earnings and cash flow.
Dilution. The Company's issuance of 8,964,292 shares of Common Stock to
Transworld under the Stock Purchase Agreement and up to an additional 746,713
shares of Common Stock pursuant to an option to be issued in connection with
the Stock Purchase Agreement, will result in substantial dilution of the
Company's outstanding shares. Additionally, the Caremark convertible
Subordinated Note to be acquired by Hyperion, the principal and accrued
interest of which may be converted into shares of Common Stock at Hyperion's
option, if converted could also result in additional dilution to the Company's
outstanding shares. Based on the Company's calculations, the Note is currently
convertible into approximately 256,185 shares of Common Stock.
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RESULTS OF OPERATIONS
Three months ended October 31, 1996 versus October 31, 1995
The Company's revenues were $39,740,052, an increase of $465,265 or 1.2% over
revenues of $39,274,787 for the quarter ended October 31, 1995. The increase
was derived from internal growth resulting from the ongoing patient referrals
from existing referral sources and the addition of new referral sources over
the course of the comparable periods.
Gross profit margins were 18.3% for the quarter ended October 31, 1996, as
compared to 23.3% for the quarter ended October 31, 1995. The decrease in the
gross profit rate represents an overall reduction in reimbursement rates from
third party payors, which reflects pricing pressures exerted by managed care
payors on the Company, in particular, and across the healthcare industry,
generally. In addition, the gross profit margin in the quarter ended October
31, 1996 was negatively impacted by the following factors: (i) a one-time
payment to Caremark, Inc. of approximately $525,000 to account for a working
capital adjustment relating to the Company's acquisition of the Clozaril
Patient Management Business, (ii) a two month delay in gaining approval for
increased Medicare pricing for an immunosuppressant drug widely distributed by
the Company and servicing its organ transplant patients for which the drug
manufacturer raised prices, and (iii) lost purchase discounts associated with
drug purchases due to more unfavorable terms under which vendors recently
placed the Company.
Operating expenses for the quarter ended October 31, 1996 were $10,901,858, an
increase of $2,638,351 or 32% over the quarter ended October 31, 1995. This was
primarily attributable to: (i) estimated costs associated with overpayments
from New York State Medicaid of $1.4 million (unusual charge) and (ii)
increased legal, audit, tax return preparation and consulting fees.
Loss from operations for the quarter ended October 31, 1996 was ($3,621,673)
compared to a $891,534 profit for the quarter ended October 31, 1995. The
primary reasons for this loss are the decline in gross profits and the increase
in operating expenses described above.
Interest expense for the quarter ended October 31, 1996 was $723,694, an
increase of $71,768, or 11.0% over the quarter ended October 31, 1995. The
increase is attributable to increased borrowings under the Company's line of
credit partially offset by reduced interest expense related to the Company's
term loan.
Loss before income taxes for the quarter ended October 31, 1996 was
($11,545,367) compared to a $239,608 profit for the quarter ended October 31,
1995. Expenses related to the estimated costs of settlement of the stockholder
class action litigation of $7.2 million and estimated costs associated with
overpayments from New York State Medicaid of $1.4 million together with the
increased legal, audit, tax return preparation and consulting fees and lower
margins were the primary reasons for the loss.
Income taxes for the three months ended October 31, 1996 are less than the
statutory rate since the Company, in accordance with generally accepted
accounting principles, did not record the benefit, if any, of the potential net
operating loss carry forward because of the uncertainty of its future
realization.
The net loss was ($11,545,367) for the quarter ended October 31, 1996 compared
to net income of $139,522 for the quarter ended October 31, 1995. The net loss
was primarily a result of the
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settlement costs and estimated costs associated with overpayments from New York
State Medicaid, as well as reduced margins and increased operating expenses, all
previously described.
Primary and fully diluted loss per common share for the quarter ended October
31, 1996 was ($1.24) compared to earnings per common share of $.01 for the
quarter ended October 31, 1995. The weighted average number of shares
outstanding used in the calculation of primary and fully diluted earnings per
share were 9,328,887 for the quarter ended October 31, 1996 and 9,405,222 for
the quarter ended October 31, 1995.
Six Months Ended October 31, 1996 versus October 31, 1995
Revenues for the six months ended October 31, 1996 were $80,262,962, an
increase of $2,694,145 or 3.5% in comparison to revenues for the six months
ended October 31, 1995. The increase in revenues was derived from internal
growth from ongoing patient referrals from existing referral sources and the
addition of new referral sources over the course of the comparable periods.
Gross profit margins were 19.9% for the six months ended October 31, 1996, as
compared to 27.0% for the comparable period in the prior year. The decrease in
the gross profit rate represents an overall reduction in reimbursement rates
from third party payors, which reflects pricing pressures exerted by managed
care payors on the Company, in particular, and across the healthcare industry,
generally. In addition, the gross profit margins were negatively impacted by
the following: (i) a one-time payment to Caremark, Inc. of approximately
$525,000 to account for a working capital adjustment relating to the Company's
acquisition of the Clozaril Patient management Business; (ii) the delay in
updated Medicare pricing for an immunosuppressant drug widely distributed by
the Company and servicing its organ transplant patients for which the drug
manufacturer raised prices; and (iii) lost purchase discounts associated with
drug purchases due to more unfavorable terms under which vendors recently
placed the Company.
Operating expenses for the six months ended October 31, 1996 were $19,989,839,
an increase of $3,276,716 or 19.6% over the comparable period last year. This
was primarily attributable to: (i) estimated costs associated with overpayments
from New York State Medicaid of $1.4 million (unusual charge) and (ii)
increased legal, audit, tax return preparation and consulting fees.
Loss from operations for the six months ended October 31, 1996 was ($4,048,249)
compared to a $4,202,714 profit in the comparable period last year. The primary
reasons for the loss are the decline in gross profits and the increased
operating expenses described above.
Interest expense for the six months ended October 31, 1996 was $1,463,231, an
increase of $200,369 or 15.9% over the six months ended October 31, 1995. The
increase was driven by increased borrowings under the Company's line of credit
partially offset by reduced interest expense related to the Company's term
loan.
Loss before income taxes for the six months ended October 31, 1996 was
($12,711,480) compared to income of $2,939,852 for the six months ended October
31, 1995. Expenses related to the estimated costs of the settlement of the
stockholder class action litigation of $7.2 million and estimated costs
associated with overpayments from New York State Medicaid of $1.4 million,
together with increased legal fees, audit fees, tax return preparation fees and
consulting fees and lower margins were the primary reasons for the loss.
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Income taxes for the six months ended October 31, 1996 are less than the
statutory rate since the Company, in accordance with generally accepted
accounting principles, did not record the benefit, if any, of the potential net
operating loss carry forward because of the uncertainty of its future
realization.
The net loss for the six months ended October 31, 1996 was ($12,833,437)
compared to net income of $1,728,260 for the period ended October 31, 1995. The
net loss was primarily a result of the settlement charges of $7.2 million,
estimated costs associated with overpayments from New York State Medicaid of
$1.4 million, the increased operating expenses previously discussed and lower
margins.
Primary and fully diluted loss per common share for the six months ended
October 31, 1996 were ($1.38) compared to earnings per common share of $0.18
for the six months ended October 31, 1995. The weighted average number of
shares outstanding used in the calculation of primary and fully diluted
earnings per share were 9,328,564 for the six months ended October 31, 1996 and
9,425,071 for the six months ended October 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The net decrease of $1,965,901 in the Company's cash and cash equivalents to
$1,314,294 at October 31, 1996 was attributable to cash used in operating
activities.
Working capital at October 31, 1996 was a negative $9,312,181, a decrease of
$11,803,800 from April 30, 1996. Current assets decreased $5,250,451 due to a
decrease in cash and cash equivalents of $1,965,901, an increase in net
accounts receivable of $2,533,227, an increase in inventories of $331,569, a
decrease in tax refund receivable of $6,710,637, an increase in deferred tax
assets of $1,110,000 and a decrease in prepaid expenses of $548,709.
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Current liabilities increased $6,553,349 from April 30, 1996 principally due to
an increase of $6,044,446 in accrued unusual charges and settlement costs and
an increase in accounts payable of $816,690. The increase in accrued unusual
charges and settlement costs is a result of the accrual of $7.2 million for the
settlement of the stockholder class action litigation and the accrual of $1.4
million to settle overpayments from New York State Medicaid and the payment of
approximately $2.5 million of such charges accrued as of April 30, 1996.
On November 13, 1996, Transworld acquired the Company's outstanding bank debt,
in the aggregate principal amount of $28.3 million, agreed to forbear until
December 12, 1996 from exercising any remedies under such bank debt and agreed
in its discretion to loan the Company up to an additional $3 million under its
revolving credit facility. As of December 12, 1996, the forbearance agreement
was further extended until December 23, 1996 and the availability under the
revolving line of credit was increased by up to an additional $2 million,
subject to certain conditions and at the discretion of Transworld.
Also on November 13, 1996, the Company entered into a Stock Purchase Agreement
with Transworld, pursuant to which Transworld agreed to acquire 8,964,292 newly
issued shares of Common Stock, representing 49% of the outstanding Common
Stock, as well as an option to purchase an additional 2% of the Common Stock.
The closing of this transaction is currently scheduled to occur on or about
December 23, 1996, subject to the satisfaction of certain conditions. The
conditions to closing the stock purchase transaction include, among others,
approval of Transworld's lenders and preliminary court approval of the Proposed
Settlement. The consideration for the Shares includes: (i) Transworld entering
into the Merger Agreement, (ii) Transworld purchasing the rights of the
Company's senior lenders, (iii) Transworld forbearing under the Credit
Agreement for a specified period of time (as discussed more fully above), (iv)
Transworld agreeing to extend additional amounts under the revolving credit
facility, subject to certain conditions and at Transworld's discretion, (v)
Transworld causing to be canceled certain warrants to purchase 5% of the
outstanding stock of the Company on a fully diluted basis, at an exercise price
of $2.00 per share, to which the Company's senior lenders were entitled, and
(vi) $1.00 per share of Common Stock. Of the $1.00 per share consideration,
which aggregates $8,964,292, a portion will be used to repay any amounts loaned
to the Company under the revolving credit facility subsequent to November 13,
1996 and interest thereon. The option will have an exercise price of $1.00 per
share and will have a one-year term.
On November 13, 1996, the Company also entered into a Merger Agreement with
Transworld pursuant to which a newly formed subsidiary of Transworld will merge
into the Company and each stockholder of the Company will receive cash
consideration equal to $2.00 per share. The merger is subject to certain
conditions, which include, among others, approval by the Company's stockholders
of the merger, the expiration or termination of any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
final court approval of the Proposed Settlement. The Company believes the
conditions of the merger could be satisfied by Spring, 1997. Either party may
terminate the Merger Agreement if the merger is not consummated by June 30,
1997.
Because various conditions to closing the Transworld transactions have not yet
been satisfied, the Company can give no assurances that transactions
contemplated by the Stock Purchase Agreement and/or the Merger Agreement will
be consummated in their entirety or in the manner contemplated by the Stock
Purchase Agreement and/or the Merger Agreement.
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The Company purchases its pharmaceuticals from wholesalers and, to a lesser
degree, directly from pharmaceutical manufacturers. Its sources have established
credit limitations and a few suppliers are seeking to reduce their credit
limitations with the Company. The Company's primary supplier, Foxmeyer Drug
Company, filed for protection under the Federal Bankruptcy laws on August 27,
1996 and has subsequently been acquired by McKesson Drug Company. There has been
no improvement in the lines of credit available to the Company as a result of
entering into the Stock Purchase Agreement and Merger Agreement with Transworld.
Although the Company has been able to maintain adequate product supply within
the credit limitations, there can be no assurances that it will continue to do
so in the future. Such an inability would have a material adverse impact on the
Company if alternative sources of product supply were inadequate.
If the Company is unsuccessful in consummating the Stock Purchase Agreement or
Merger Agreement with Transworld, or in continuing satisfactory relations with
its suppliers, it is likely that the Company will seek protection under the
Federal Bankruptcy laws.
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HEALTH MANAGEMENT, INC.
And Subsidiaries
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Balance Sheets as of October 31, 1996 (Unaudited)
and April 30, 1996 (Audited) 14-15
Statements of Operations for the Three and Six Months Ended
October 31, 1996 and October 31, 1995 (Unaudited) 16
Statements of Cash Flow for the Six Months Ended October 31, 1996 and
October 31,1995 (Unaudited) 17
Statement of Stockholders' Equity for the Six Months
Ended October 31, 1996 (Unaudited) 18
Notes to Condensed Consolidated Financial Statements (Unaudited) 19-21
</TABLE>
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HEALTH MANAGEMENT, INC.
And Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
Restated
October 31, 1996 April 30, 1996
---------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,314,294 $ 3,280,195
Accounts Receivable, Less Allowance for
Doubtful Accounts 38,990,426 36,457,199
Inventories 7,132,389 6,800,820
Tax Refund Receivable 1,326,393 8,037,030
Deferred Taxes 2,917,000 1,807,000
Prepaid Expenses and other 106,649 655,358
----------- -----------
TOTAL CURRENT ASSETS 51,787,151 57,037,602
IMPROVEMENTS and EQUIPMENT, Less
Accumulated Depreciation and Amortization 3,647,030 3,825,974
GOODWILL 33,414,092 34,008,496
OTHER 541,744 1,043,607
----------- -----------
$89,390,017 $95,915,679
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
14
<PAGE> 15
HEALTH MANAGEMENT, INC.
And Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Restated
October 31, 1996 April 30, 1996
---------------- --------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $ 21,531,526 $20,714,836
Accrued Unusual Charges and Settlement Costs 9,603,446 3,559,000
Accrued Expenses 1,213,994 1,526,119
Current Maturities of Long Term Debt 28,750,366 28,746,028
------------ -----------
TOTAL CURRENT LIABILITIES 61,099,332 54,545,983
Long Term Debt, Less Current Maturities 3,753,503 4,006,077
------------ -----------
TOTAL LIABILITIES 64,852,835 58,552,060
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred Stock - $0.01 Par Value:
Shares Authorized - 1,000,000
Issued and Outstanding, none
Common Stock - $0.03 Par Value:
Shares Authorized - 20,000,000
Issued and Outstanding - 9,330,182 and
9,328,240
shares, respectively 279,906 279,848
Additional Paid-in Capital 38,145,713 38,138,771
Accumulated Deficit (13,888,437) (1,055,000)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 24,537,182 37,363,619
------------ -----------
$ 89,390,017 $95,915,679
============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
15
<PAGE> 16
HEALTH MANAGEMENT, INC.
And Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
Restated Restated
<S> <C> <C> <C> <C>
Revenues $ 39,740,052 $39,274,787 $ 80,262,962 $77,568,817
Cost of Sales 32,459,867 30,119,746 64,321,372 56,652,980
------------ ----------- ------------ -----------
Gross Profit 7,280,185 9,155,041 15,941,590 20,915,837
------------ ----------- ------------ -----------
Operating Expenses:
Selling 1,566,432 1,206,433 2,799,749 2,291,635
General & Administrative 7,935,426 7,057,074 15,790,090 14,421,488
Unusual Charge 1,400,000 ---- 1,400,000 ----
------------ ----------- ------------ -----------
10,901,858 8,263,507 19,989,839 16,713,123
------------ ----------- ------------ -----------
Income (Loss) from Operations (3,621,673) 891,534 (4,048,249) 4,202,714
Settlement Costs 7,200,000 ---- 7,200,000 ----
Interest Expense 723,694 651,926 1,463,231 1,262,862
------------ ----------- ------------ -----------
Income (Loss) Before Income
Taxes (11,545,367) 239,608 (12,711,480) 2,939,852
Income Taxes ---- 100,086 121,957 1,211,592
------------ ----------- ------------ -----------
Net Income (Loss) ($11,545,367) $ 139,522 ($12,833,437) $ 1,728,260
============ =========== ============ ===========
Earnings (Loss) Per Common
Share:
Primary ($1.24) $ 0.01 ($1.38) $ 0.18
Full Diluted ($1.24) $ 0.01 ($1.38) $ 0.18
Weighted Average
Shares Outstanding:
Primary 9,328,887 9,405,222 9,328,564 9,425,071
Fully Diluted 9,328,887 9,405,222 9,328,564 9,425,071
</TABLE>
See Notes to Condensed Consolidated Financial Statements
16
<PAGE> 17
HEALTH MANAGEMENT, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Six Months Ended October 31
(Unaudited)
1996 1995
------------- ------------
Restated
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss) ($12,833,437) $ 1,728,260
Adjustments to Reconcile Net
Income (Loss) to Net Cash provided by (used in)
Operating Activities:
Depreciation and Amortization 1,293,581 1,302,574
Provision for Doubtful Accounts 3,428,929 3,429,901
Deferred Taxes (1,110,000) (351,168)
Increase (Decrease) in Cash Flows
From Changes in Operating Assets
and Liabilities:
Accounts Receivable (5,962,156) (12,802,321)
Inventory (331,569) (3,055,905)
Prepaid Expenses and Other 548,709 91,802
Other Assets 501,863 (12,535)
Accounts Payable 816,690 6,209,920
Receivable from Seller -- (403,000)
Accrued Expenses (312,125) 2,852,438
Accrued Unusual Charges and Settlement Costs 6,051,446 ---
Tax Refund Receivable 6,710,637 (620,380)
------------ -----------
NET CASH USED IN OPERATING ACTIVITIES (1,197,432) (1,630,414)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (520,233) (1,037,034)
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (520,233) (1,037,034)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Bank Loan,
Borrowing on Credit Facility -- 2,150,000
Principal Payments on Long-Term Debt (248,236) (3,266)
Proceeds from Exercise of Stock Options -- 51,875
------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (248,236) 2,198,609
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,965,901) (468,839)
Cash and Cash Equivalents, at Beginning of Period 3,280,195 4,562,712
------------ -----------
Cash and Cash Equivalents, at End of Period $ 1,314,294 $ 4,093,873
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid for Interest $ 1,177,870 $ 924,511
Cash Paid (Refund) for Taxes $ (5,441,907) $ 2,202,380
</TABLE>
See Notes to Condensed Consolidated Financial Statements
17
<PAGE> 18
HEALTH MANAGEMENT, INC.
And Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six Months Ended October 31, 1996
Restated
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
$.03 Par Value
-------------- Additional
Paid-in Accumulated
Shares Amount Capital Deficit
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Balance May 1, 1996 9,328,240 $279,848 $38,138,771 ($1,055,000)
Issuance of common shares 1,942 58 6,942
Net Loss for the Six
Months Ended
October 31, 1996 (12,833,437)
--------- -------- ----------- ------------
Balance, October 31, 1996 9,330,182 $279,906 $38,145,713 ($13,888,437)
========= ======== =========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
18
<PAGE> 19
HEALTH MANAGEMENT
And Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The condensed consolidated financial statements include Health Management,
Inc., a Delaware corporation (the "Company"), and its wholly-owned
subsidiaries, including Homecare Management, Inc., a New York corporation, 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, 1996. The results of operations for the interim
periods are not necessarily indicative of the operating results for the whole
year.
NOTE 2: CONTINGENCIES
The Company and certain of its past and current officers and directors and its
outside auditors, BDO Seidman, LLP have been named as defendants in a
consolidated class action securities fraud lawsuit filed in the United States
District Court for the Eastern District of New York entitled In re Health
Management, Inc. Securities Litigation, Master File No. 96 Civ. 0889 (ADS). The
consolidated actions allege claims under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, arising out of alleged misrepresentations and
omissions by the Company in connection with certain of its previous securities
filings. The consolidated actions purport to represent a class of persons who
purchased the Company's common stock between August 25, 1994 and February 27,
1996, the date the Company announced that it would have to restate certain of
its financial statements. The consolidated actions seek unspecified monetary
damages reflecting the decline in the trading price of the Company's stock that
allegedly resulted from the Company's February 1996 announcements. Pursuant to
the Order of Consolidation, the Company will not be required to answer or
otherwise move in the action until January 6, 1997. The Company entered into a
Stipulation of Partial Settlement with the plaintiffs' counsel and on September
18, 1996 such Stipulation of Partial Settlement received preliminary court
approval (the "Original Settlement"). The Original Settlement provided for,
among other things, the payment by the Company of $2,000,000 in cash, the
issuance of 2,200,000 shares of Common Stock and warrants to purchase 2,200,000
shares of Common Stock. As a condition to Transworld's obligation to close the
Stock Purchase Agreement and the Merger Agreement, preliminary court approval
and final court approval, respectively, is required with respect to a modified
settlement providing for a $7,200,000 cash payment in lieu of the consideration
provided in the Original Settlement. The $7.2 million is included in settlement
costs in the
19
<PAGE> 20
accompanying Condensed Consolidated Statement of Operations for
the three and six months ended October 31, 1996. An Amended Stipulation of
Partial Settlement to this effect was executed on December 19, 1996,
preliminary approval by the U.S. District Court for the Eastern District of New
York thereof was granted on December 20, 1996 and a hearing for final approval
is currently scheduled for March 14, 1997. The Company is in the process of
negotiating with its directors and officers liability insurance carrier with
respect to coverages for damages in connection with the stockholder class
action lawsuit and any payments received from such carrier will reduce the
Company's liability with respect to such suits.
Certain of the Company's current and former directors and officers, including
Messrs. Bergman, Hotte, Clifton and Dimitriadis and Ms. Belloise, have been
named as defendants, and the Company has been named as a nominal defendant, in
a consolidated derivative action filed in the United States District Court for
the Eastern District of New York entitled In re Health Management, Inc.
Stockholders' Derivative Litigation, Master File No. 96 Civ. 1208 (TCP). The
consolidated action alleges claims for breach of fiduciary duty and
contribution against the individual director defendants arising out of alleged
misrepresentations and omissions contained in certain of the Company's previous
securities filings. The consolidated action seeks unspecified monetary damages
on behalf of the Company as well as declaratory and injunctive relief. An
amended consolidated complaint was served on the Company on August 12, 1996.
The Company's time to answer or move with respect to the amended consolidated
complaint has been extended pursuant to stipulation until January 31, 1997.
Under the Company's Certificate of Incorporation and Bylaws, certain officers
and directors may be entitled to indemnification, or advancement of expenses
for legal fees in connection with the above suits. The Company may be required
to make payments in respect thereof in the future.
BDO Seidman, LLP has been named as a defendant, and the Company has been named
as a nominal defendant, in a derivative lawsuit filed in the Supreme Court for
the State of New York, County of New York entitled Howard Vogel, et al. v. BDO
Seidman, LLP, et al., Index No. 96-603064. The complaint alleges claims for
breach of contract, professional malpractice, negligent misrepresentation,
contribution and indemnification against BDO Seidman arising out of alleged
misrepresentations and omissions contained in certain of the Company's previous
securities filings. BDO Seidman was the Company's auditor at the time those
filings were made and has continued to serve as such. The complaint seeks
unspecified monetary damages on behalf of the Company as well as declaratory
and injunctive relief. Pursuant to stipulation, the Company's time to answer or
otherwise move against the complaint in this action has been adjourned
indefinitely.
The enforcement division of the Securities and Exchange Commission has a formal
order of investigation relating to matters arising out of the Company's public
announcement on February 27, 1996 that the Company would have to restate its
financial statements for prior periods as a result of certain accounting
irregularities and the Company is fully cooperating with this investigation
and has responded to the commission's requests for documentary evidence.
As a result of a New York State Medicaid audit, the Company is in discussions
with the New York State Department of Social Services regarding certain
overpayments to the Company. The Company estimates that it will have to pay
approximately $1.4 million in respect thereof. The $1.4 million is
included as an unusual charge in the accompanying Condensed Consolidated
Statement of Operations for the three and six months ended October 31, 1996.
20
<PAGE> 21
NOTE 3: RESTATEMENTS
The Company has restated its quarterly condensed consolidated financial
statements for the quarters ended July 31, 1996 and October 31, 1996 and the
six months ended October 31, 1996 related to certain errors in the computation,
accumulation and summarization of accounts payable, as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, 1996 October 31, 1996
------------------ -----------------
<S> <C> <C>
Net loss, as previously reported $(10,621,000) $(10,189,000)
Adjustments - Understatement of
accounts payable and cost of sales (793,000) (2,644,000)
Tax effects of adjustments (131,000) --
------------ ------------
(924,000) (2,644,000)
------------ ------------
Net loss, as restated $(11,545,000) $(12,833,000)
============ ============
Loss per common share, as
previously reported - primary and
fully diluted ($1.14) ($1.09)
Adjustments, net of tax (.10) (.29)
------ ------
Loss per common share, as
restated - primary and fully diluted ($1.24) ($1.38)
====== ======
</TABLE>
The tax benefit of the adjustments is less than the statutory rate since the
Company did not record the benefit, if any, of the potential net operating loss
carry forward because of the uncertainty of its future realization.
21
<PAGE> 22
Items 5 and 6 of Part II of the Original Report are hereby amended in their
entirety as follows:
ITEM 5. OTHER INFORMATION
On March 17, 1997, the Company issued a press release, a copy of which is
attached as Exhibit 99-1 to the Quarterly Report on this Form 10-Q/A-2.
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company, as filed with
the Secretary of State of Delaware on March 25, 1986 (incorporated
by reference to registration Statement on Form S-1, Registration No.
33-04485).
3.2 Certificate of Amendment to Certificate of Incorporation of
the Company, as filed with the Secretary of State of Delaware on
March 9, 1988 (incorporated by reference to Form 10-K for year ended
April 30, 1988).
3.3 Certificate of Amendment to Certificate of Incorporation of
the Company, as filed with the Secretary of State of Delaware on
March 31, 1992 (incorporated by reference to Registration Statement
on Form S-1, No. 33-46996).
3.4 Certificate of Amendment to Certificate of Incorporation of
the Company, as filed with the Secretary of State of Delaware on
October 27, 1994 (incorporated by reference to Form 10-K for year
ended April 30, 1995).
3.5 Certificate of Amendment of Certificate of Incorporation of
the Company, as filed with the Secretary of State of Delaware on
November 8, 1996.
3.6 Amended and Restated By-Laws of the Company (incorporated by
reference to Form 10-Q for the quarter ended January 31, 1996).
4.1 Form of 10% Convertible Subordinated Debenture (incorporated
by reference to Form 8-K dated March 4, 1991).
4.2 Specimen Form of Certificate for Common Stock (incorporated
by reference to Registration Statement on Form S-1, Registration No.
33-46996).
4.3 Form of Representatives' Purchase Warrant (incorporated by
reference to Amendment Number 2 to Registration Statement on Form
S-1, Registration No. 33-46996).
4.4 Form of Selling Shareholders' Power of Attorney (incorporated
by reference to Registration Statement on Form S-1, Registration No.
33-46996).
4.5 Form of Selling Shareholders' Custody Agreement (incorporated
by reference to Registration Statement on Form S-1, Registration No.
33-46996).
23
<PAGE> 24
10.1 Stock Purchase Agreement dated December 8, 1988 (incorporated by
reference to Form 8-K dated December 23, 1988).
10.2 Addendum dated February 1, 1989 to Stock Purchase Agreement dated
December 23, 1988 (incorporated by reference to Amendment Number 1
to Registration Statement on Form S-1, Registration No. 33-46996).
10.3* 1989 Stock Option Plan (incorporated by reference to Registration
Statement on Form S-1, Registration No. 33-46996).
10.4 Lease dated April 20, 1990 on Company's Ronkonkoma, New York
facility between the Company and Four L Realty Co. (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-46996).
10.5 Amendment, dated March 16, 1992 to Lease dated April 20, 1990 on
Company's Headquarters between the Company and Four L Realty Co.
(incorporated by reference to Form 10-K for year ended April 30,
1992).
10.6* Company 401(k) Plan (incorporated by reference to Amendment Number
1 to Registration Statement on Form S-1, Registration No.
33-46996).
10.7* Employment Agreement, dated as of May 1, 1996, between the Company
and W. James Nicol (incorporated by reference to Annual Report on
Form 10-K for the fiscal year ended April 30, 1996).
10.8* Letter Agreement dated November 13, 1996, between W. James Nicol
and the Company and guaranteed by Transworld Home HealthCare, Inc.
10.9* Employment Agreement, dated as of September 9, 1996, between the
Company and James R. Mieszala (incorporated by reference to Current
Report on Form 8-K dated September, 1996).
10.10* Letter Agreement dated November 13, 1996, between James R.
Mieszala and the Company and guaranteed by Transworld Home
HealthCare, Inc.
10.11* Employment Agreement, dated as of September 9, 1996, between the
Company and Paul S. Jurewicz (incorporated by reference to Current
Report on Form 8-K dated September, 1996).
10.12* Letter Agreement dated November 13, 1996, between Paul S. Jurewicz
and the Company and guaranteed by Transworld Home HealthCare, Inc.
10.13 Assets Purchase Agreement, dated as of March 27, 1994, between the
Registrant, Murray Pharmacy Too, Inc. and the Shareholders named
therein (incorporated by reference to Current Report on Form 8-K
dated April 1, 1994).
24
<PAGE> 25
10.14 Assets Purchase Agreement, dated as of March 27, 1994, between
HMI Retail Corp., Murray Pharmacy, Inc. and the Shareholders
named therein (incorporated by reference to Annual Report on Form
10-K filed August 2, 1994).
10.15 Asset Purchase Agreement, dated as of February 21, 1995, between
Caremark Inc. and Health Management, Inc. (incorporated by
reference to Current Report on Form 8-K dated April 14, 1995).
10.16 First Amendment to Asset Purchase Agreement, dated as of March
31, 1995, between Caremark Inc. and Health Management, Inc.
(incorporated by reference to Current Report on Form 8-K dated
April 14, 1995).
10.17 Transition Agreement, dated as of March 31, 1995, between
Caremark Inc. and HMI Illinois (incorporated by reference to
Current Report on Form 8-K dated April 14, 1995).
10.18 Credit Agreement, dated as of March 31, 1995 among, Health
Management, Inc., Home Care Management, Inc., HMI Pennsylvania,
Inc., HMI Illinois, Inc., Chemical Bank, and the Guarantors and
Lenders named therein (incorporated by reference to Current
Report on Form 8-K dated April 14, 1995).
10.19 Security Agreement, dated as of March 31, 1995, among Health
Management, Inc., Home Care Management, Inc., Health
Reimbursement Corporation, HMI Retail Corp., Inc., HMI
Pennsylvania, Inc. and HMI Maryland, Inc. and Chemical Bank for
itself and the Lenders named therein (incorporated by reference
to Current Report on Form 8-K dated April 14, 1995).
10.20 Security Agreement and Mortgage-Trademarks and Patent, dated as
of March 31, 1994, among Health Management, Inc., Home Care
Management, Inc., Health Reimbursement Corporation, HMI Retail
Corp., Inc., HMI Pennsylvania, Inc. and HMI Maryland, Inc. and
Chemical Bank for itself and the Lenders named therein
(incorporated by reference to Current Report on Form 8-K dated
April 14, 1995).
10.21 Forbearance Agreement, dated July 26, 1996 among Health
Management, Inc., Home Care Management, Inc., HMI Illinois, Inc.,
HMI Pennsylvania, Inc., Health Reimbursement Corporation, HMI
Retail Corp., Inc., HMI PMA, Inc., HMI Maryland, Inc., Chase
Manhattan Bank, as lender and agent, and European American Bank,
as lender (incorporated by reference to Annual Report on Form
10-K for the fiscal year ended April 30, 1996).
10.22 Forebearance Agreement, dated as of November 13, 1996, between
the Company and Transworld Home Healthcare, Inc. (incorporated
by reference to Form 8-K dated November 13, 1996).
25
<PAGE> 26
10.23 Agreement of Lease by and between Joseph M. Rosenthal and the
Company dated December 13, 1994 (incorporated by reference to
Form 10-K for the year ended April 30, 1995).
10.24 Lease by and between Irwin Hirsh and Lloyd N. Myers and HMI
Pennsylvania, Inc. dated March 27, 1994 (incorporated by
reference to Form 10-K for the year ended April 30, 1995).
10.25 Lease by and between Irwin Hirsh and HMI Retail Corp., Inc. dated
March 27, 1994 (incorporated by reference to Form 10-K for the
year ended April 30, 1995).
10.26 Lease Agreement by and between Domas Mechanical Contractors, Inc.
and the Company dated May 18, 1995 (incorporated by reference to
Form 10-K for the year ended April 30, 1995).
10.27 Stipulation of Partial Settlement dated September 16, 1996,
between the Company and the Representative Plaintiffs
(incorporated by reference to Form 8-K dated September, 1996).
10.28 Amended Stipulation of Partial Settlement dated December 19,
1996, between the Company and the Representative Plaintiffs.
10.29 Agreement and Plan of Merger among IMH Acquisition Corp.,
Transworld Home HealthCare, Inc. and the Company (incorporated by
reference to Form 8-K dated November 13, 1996).
10.30 Stock Purchase Agreement dated as of November 13, 1996, between
the Company and Transworld Home HealthCare, Inc. (incorporated by
reference to Form 8-K dated November 13, 1996).
10.31* 1996 Non-Employee Director Stock Option Plan (incorporated by
reference to Form 8-K dated November 13, 1996).
10.32* 1996 Employee Stock Option Plan (incorporated by reference to
Schedule 14A dated October 9, 1996).
10.33* 1997 Employee Stock Purchase Plan (incorporated by reference to
Schedule 14A dated October 9, 1996).
11 Statement re Computation of Per Share Earnings (incorporated by
reference to Annual Report on Form 10-K/A for the fiscal year
ended April 30, 1996).
27+ Financial Data Schedule
99-1+ Press release dated March 17, 1997, issued by the Company
* Management contract or compensatory plan or arrangement.
+ Filed with this Report.
(b) Reports on Form 8-K
The Company filed the following Current Report on Form 8-K
during the fiscal quarter ending October 31, 1996:
Current Report on Form 8-K dated September, 1996.
26
<PAGE> 27
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 Lake, State of
Illinois, on the 24th day of March, 1997.
HEALTH MANAGEMENT, INC.
(Registrant)
By: /s/ W. James Nicol
---------------------------------------------------
W. James Nicol
(Principal Executive Officer and Financial Officer)
27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> JUL-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 1,314,294
<SECURITIES> 0
<RECEIVABLES> 44,517,660
<ALLOWANCES> 5,527,234
<INVENTORY> 7,132,389
<CURRENT-ASSETS> 51,787,151
<PP&E> 6,060,663
<DEPRECIATION> 2,413,633
<TOTAL-ASSETS> 89,390,017
<CURRENT-LIABILITIES> 61,099,332
<BONDS> 32,503,869
0
0
<COMMON> 279,906
<OTHER-SE> 24,257,276
<TOTAL-LIABILITY-AND-EQUITY> 89,390,017
<SALES> 0
<TOTAL-REVENUES> 80,262,962
<CGS> 0
<TOTAL-COSTS> 64,321,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,428,929
<INTEREST-EXPENSE> 1,463,231
<INCOME-PRETAX> (12,711,480)
<INCOME-TAX> 121,957
<INCOME-CONTINUING> (12,833,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,833,437)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> (1.38)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[HEALTH MANAGEMENT LETTERHEAD]
FOR IMMEDIATE RELEASE
HEALTH MANAGEMENT, INC. TO RESTATE FIRST & SECOND QUARTER FINANCIAL STATEMENTS
AND TAKE A 3RD QUARTER CHARGE; ANNOUNCES AN AMENDMENT TO THE TRANSWORLD
TRANSACTION
Buffalo Grove, Illinois - March 17, 1997 - Health Management, Inc. ("HMI")
(NASDAQ Small Cap Market: HMIS) announced today that it plans to restate its
financial statements for the first and second quarters of its 1997 fiscal year
to correct certain errors relating to costs of goods sold, which were
previously understated by approximately $1.8 million and $800,000,
respectively. HMI also plans to take a charge of approximately $13 million in
the third quarter of 1997, which includes a writeoff of approximately $2.8
million in goodwill and other costs associated with the sale of the Baltimore
retail pharmacies and a writedown of approximately $10 million in accounts
receivable. The Company will also report substantial operating losses for the
quarter ended January 31, 1997 and for the nine months then ended. The filing
of amended 10-Qs reflecting such restatements and the third quarter 10-Q is
expected to be made on or before March 24, 1997.
HMI and Transworld Home Healthcare, Inc. are currently in discussions regarding
a renegotiated deal.
The March 14, 1997 hearing for final approval of the amended settlement
agreement in respect of the stockholder class action lawsuit was adjourned until
April 11, 1997.
Earlier this week, listing of HMI's common stock was moved the NASDAQ Small Cap
Market from the NASDAQ National Market System.
Health Management, Inc. is a national provider of integrated pharmacy
management services to patients with chronic medical conditions and to health
care professionals, pharmaceutical manufacturers and third-party payers
involved in their care.
For additional information:
At HMI:
Jim Nicol, President CEO and CFO
847-913-2404
At Edelman Financial:
Diane Perry or Joseph Kist (Investors) Mark Danes (Media)
212-704-8293 or 212-704-8239 212-704-4464
