SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No.
December 31, 1995 0-15586
GHS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1373960
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1350 Piccard Drive, Suite 360, Rockville, Maryland 20850
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (301) 417-9808
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None Not Applicable
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed in Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this form 10-K. [ X ].
The aggregate market value of Registrant's Common Stock held by
non-affiliates was approximately $1,656,000 on March 14, 1996, based upon the
average of the bid and asked prices as reported on NASDAQ.
The number of shares of Registrant's Common Stock, par value $.01 per
share, outstanding as of March 14, 1996, was 6,447,828.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits (to this Annual Report on Form 10K for the Registrant's
fiscal year ended December 31, 1995) are incorporated by reference as listed on
the index of exhibits in Part IV, ITEM 14.
1
<PAGE>
Part I
ITEM 1. BUSINESS
GHS, Inc. (the Company) provides management services, computer systems,
technology, and management to the health care industry. The Company provides
these products and services via its two operating subsidiaries, Global Health
Systems, Inc. and U.S. NeuroSurgical, Inc.(R). In addition the Company is a
partner in Florida Specialty Networks, Ltd. As used herein, unless the context
indicates otherwise, the term "Company", "Registrant" and "GHS, Inc." means GHS,
Inc. and its subsidiaries. The Company, a Delaware corporation, was formed in
December 1984 under the name "Global Health Systems, Inc." GHS, Inc. was given
its present name in October 1988, when it assigned substantially all of its
assets and liabilities to its wholly-owned subsidiary, Global Health Systems,
Inc., a Delaware corporation formed in September 1988 to continue the business
of the Company. The Company's executive offices are located at 1350 Piccard
Drive, Suite 360, Rockville, Maryland 20850, and its telephone number is (301)
417-9808.
Global Health Systems, Inc..
General
Global Health Systems, Inc. (Global), provides computerized integrated
patient record-based processing systems and services for managed care facilities
in the public and private sector. The Company currently supports more than 100
client sites in 15 states and the Republic of Iceland. Global offers systems
either as turnkey products or under facilities management agreements providing
hardware, implementation, training, maintenance, and in some cases, billing,
claims processing, and other operational support.
The Company has expanded its scope of services to provide executive
healthcare management services via long term contracts with health care plans
including HMOs and newly emerging health systems like PSNs (Provider Service
Networks), PHOs (Physician Hospital Organizations), and MSOs (Management Service
Organizations). These services include planning and development, executive
management, finance, information systems, membership services, claims
processing, utilization management, provider relations, and quality assurance.
2
<PAGE>
Global Health Information System (GHiS)
Global's major product, the Global Health Information System (GHiS), is a
totally integrated, patient record-based information system designed, developed,
and continuously tailored to meet the needs of managed care organizations. The
system has evolved over more than a decade from an on-line ambulatory care
system supporting FFS billing and electronic medical records, into a
comprehensive information system for managed care organizations. The GHiS
automates the financial, medical, and administrative functions of the facility
in a single, integrated data base. The information in the data base is instantly
available for displaying, printing, and reporting to any authorized user, within
a facility or at geographically dispersed locations.
The GHiS contains on-line real time, integrated modules which can be sold
as an integrated whole, or in some instances, as a separate stand-alone system.
System modules include Registration/Enrollment/Eligibility; Claims Processing;
Service Authorizations; Utilization Reports; Regimen Tracking/Protocols; Case
Management; Laboratory; Pharmacy; Medical Records; Report Generator; Member
Services; Billing/Capitation; Patient and Resource Scheduling; Credentialling;
and Provider Contracts.
Software Licensing and Product Protection
Global's license agreements with clients contain provisions designed to
prevent disclosure and unauthorized use of the Company's products. Because
software applications generally cannot be patented, the Company relies upon such
license agreements and confidentiality agreements to protect its proprietary
knowledge. Clients are required to sign contracts restricting use to their own
operations and prohibiting disclosure to third-parties. Further, clients are not
provided with the software source code. Despite these restrictions it may be
possible for competitors to obtain the Company's trade secrets, which could
adversely affect the Company's business.
3
<PAGE>
Hardware
Global's systems are hardware independent and are offered on a variety of
hardware platforms from International Business Machines, Digital Equipment
Corporation, Hewlett Packard, Data General, and other hardware companies that
can support UNIX. The systems can operate on mini or mainframe computers.
Hardware support services are not included with the systems, but clients are
encouraged to obtain hardware maintenance coverage with the hardware vendor or
with third-party maintenance vendors.
Implementation, Training, Warranty, Maintenance, Facilities Management,
and Management Services
Global offers systems either as turnkey products, facilities management
agreements, or as part of a contingent fee/service bureau structure. As part of
the turnkey system approach, Global provides customer support services from
pre-installation through post-implementation. Global works with the customer to
plan the implementation of the system and provides software modifications to
customer specifications. Technical specialists install the software and train
users on-site with a simulated training data base.
Global provides annual maintenance contracts for software support and
enhancements to maintain the integrity of the system after purchase. Under the
facilities management approach, Global provides the services described above
including claims processing and also employs one or more system managers who are
responsible for operating and maintaining the system for the facility.
Maintenance and facilities management contracts accounted for approximately 25%
of the Company's revenues for the year ended December 31, 1995.
Global provides management services to managed care organizations and
public health agencies. These services are an expansion of Global's facilities
management approach. Services are offered for a fixed price, a percentage of
capitation or revenues, a rate per member per month, or a rate per system user.
4
<PAGE>
In 1995 Global signed a contract to provide comprehensive management
services to a start-up Medicaid Prepaid Health Services Plan, located in New
York State. The Plan expects to be operational by mid 1996. For public health
agencies Global provides various management services to fourteen California
County Health Care Agencies via its Sacramento office. Also in 1995, Global
entered into a contract with the City of Chicago Department of Public Health to
provide management services and the GHiS to support clinical, case management,
and billing functions in the City.
Product Development
Changing client needs as well as technological changes in hardware
necessitate constant software enhancement and/or expansion. In addition,
government regulatory changes such as reimbursement schemes require the
development of new software modules to support shifting needs of existing
clients and new clients. For example, under a managed care scenario it is
necessary to track costs, financial exposure, and utilization review. Product
development projects have been undertaken primarily in response to specific
client requests and to satisfy needs of Global's management services clients. In
the fiscal years ended December 31, 1995, 1994, and 1993 the Company expended
approximately $320,000, $124,000, and $125,000, respectively, for research,
development, and enhancement of computer software systems.
Competition
There are several hundred companies involved in the national medical
information systems and services market. Many of these companies are
considerably larger and financially stronger than the Company. These companies
provide varying combinations of hardware, software and services. Major
competitors include Shared Medical, IDX, and Computer Sciences Corporation.
5
<PAGE>
Marketing and Customers
Global markets products and services from its headquarters in Rockville,
Maryland, directly through a marketing staff and sales staff to large
municipalities and managed care providers. The marketing department responds to
Requests for Proposals (RFPs), exhibits at trade conventions, conducts direct
mail, telemarketing and public relations campaigns, and advertises occasionally
in health care computing publications.
Clients are currently distributed geographically through 15 states, the
District of Columbia and the Republic of Iceland. Systems are operating at more
than 100 locations nationwide with approximately 25% of such locations in
California.
Global's turnkey contracts cover both the system sale and the ongoing
maintenance. Revenue related to the system sale is generally recognized in
accordance with the Company's revenue recognition policy. However, billings are
made in installments based on milestones reached in accordance with the contract
provisions. The maintenance portion of the contract extends 2 to 5 years after
system installation with revenue recognized as billed, generally monthly.
Global's facilities management and management service contracts are billed
monthly for the life of the contract term, generally, two to five years.
Backlog
As of December 31, 1995, Global's backlog was approximately $1,320,000 as
compared to approximately $864,000 as of December 31, 1994. These backlog
figures represent services deliverable under maintenance contracts. Maintenance
contracts generally end at various times during the year, and are expected to be
renewed for additional one year periods. Facilities management and management
services contracts generally extend for a period of five years.
Florida Specialty Networks
The Company has installed the GHiS in Florida as part of a joint venture
with Florida Specialty Networks (FSN). FSN is a managed care organization in the
business of providing capitated medical specialty and subspecialty services to
6
<PAGE>
HMO patients. FSN processes claims for more than 2,000,000 patients of multiple
HMOs, for 25 medical specialties. The Network version of the GHiS provides FSN
the ability to segregate financial accounts by patient, by network, by HMO,
while simultaneously creating a fully integrated on-line patient record of all
data to facilitate Utilization Management and Quality Assurance. GHS has a 20%
ownership of FSN. To date no distributions have been made to GHS from this
venture.
FSN's business expanded in 1995 with new networks and a contract with a
national managed care organization. Under this contract, FSN develops specialty
networks in cities where the organization has large enrollment. During 1995 FSN
developed networks for this agreement in Maryland and Texas. More expansion is
planned for 1996.
U. S. NeuroSurgical, Inc.
US NeuroSurgical, Inc.(R) (USN) of which the Company owns 80%, was
organized in July, 1993 to own and operate stereotactic radiosurgery centers,
utilizing the Gamma Knife technology. USN's business strategy is to provide a
mechanism whereby hospitals, physicians, and patients can have access to Gamma
Knife treatment capability, a high capital cost item. USN provides the Gamma
Knife to medical facilities on a "cost per treatment" basis. USN owns the Gamma
Knife units, and is reimbursed by the facility where it is housed, based on
utilization.
USN's principal target market is medical centers in major health care
catchment areas, that have physicians experienced with and dedicated to the use
of the Gamma Knife. USN seeks cooperative ventures with these facilities. USN
believes that, as of December 31, 1995, there were approximately twenty five
Gamma Knife treatment centers in the United States.
In July 1993, USN purchased its first Leksell Gamma Knife from Elekta
Instruments, Inc. (Elekta), for the purpose of installing it at the Research
Medical Center (RMC) in Kansas City, Missouri. USN paid approximately $3,000,000
7
<PAGE>
for the Gamma Knife. In September 1993, USN entered into a lease/purchase
agreement with Financing for Science International, Inc. (FSI), a medical
equipment leasing company, to finance the Gamma Knife purchase.
USN opened its first Gamma Knife Center on the premises of RMC in
September 1994. RMC is part of Health Midwest, a consortium of eleven hospitals
and numerous affiliates. USN formed a cooperative venture with RMC in September,
1993. Per an agreement with RMC, GHS, Inc. sold 500,000 shares of its common
stock for $500,000 to RMC to secure additional working capital in order to
enable USN to develop and construct a Gamma Knife Facility. USN has installed
the Gamma Knife in the facility, where it is being utilized by neurosurgeons
credentialled by RMC. USN is reimbursed for use of the Gamma Knife by RMC based
on a percentage of the fees collected by RMC for Gamma Knife procedures.
Pursuant to a ground lease agreement, RMC leased to USN the land on which to
build the Gamma Knife facility.
USN plans to open a second treatment center on the campus of New York
University Medical Center in New York, New York. The Company has paid an initial
payment of $290,000 for the second Gamma Knife, and has secured a lease/purchase
agreement for it from FSI. In March of 1995, FSI made a progress payment in the
amount of $1,160,000. The agreement may be terminated if the Company is unable
to obtain the necessary permit for the use of the Gamma Knife. The Certificate
of Need (CON) has been obtained from New York State allowing construction and
operation of the Gamma Knife Center. The Company expects that the Center will
open in 1996. In addition, the construction of the NY Gamma Knife Center will
require additional capital not currently available to the Company. The Company
is negotiating with several financing sources but the Company will be able to
secure such capital.
Gamma Knife Technology
The Leksell Gamma Knife is a unique stereotactic radiosurgical device used
to treat brain tumors and other malformations of the brain without invasive
surgery. The Gamma Knife delivers a single, high dose of ionizing radiation
emanating from 201 cobalt-60 sources positioned about a hemispherical, precision
8
<PAGE>
machined cavity. The lesion is first targeted with precision accuracy using
advanced imaging and three dimensional treatment planning techniques such as CT
Scans, MR Scans, conventional X-rays, or angiography. Each individual beam is
focused on a common target producing an intense concentration of radiation at
the target site, destroying the lesion while spreading the entry radiation dose
uniformly and harmlessly over the patient's skull . The mechanical precision at
the target site is +/- 0.1mm (1/10 of 1 millimeter). Because of the steep
fall-off in the radiation intensity surrounding the target, the lesion can be
destroyed, while sparing the surrounding tissue.
The procedure, performed in a single treatment, sharply reduces hospital
stay and eliminates post-surgical bleeding and infection. When compared with
conventional neurosurgery, Gamma Knife treatment is less expensive. However, not
all patients are candidates for radiosurgery since the decision to use the Gamma
Knife depends on the type, size, and location of the lesion.
Regulatory Environment
The levels of revenues and profitability of companies involved in the
health services industry, such as USN, may be affected by the continuing efforts
of governmental and third party payors to contain or reduce the costs of health
care through various means. Although the Company does not believe that the
business activities of USN will be materially affected by changes in the
regulatory environment, it is uncertain what legislative proposals will be
adopted or what actions federal, state or private payors for healthcare goods
and services may take in response to any healthcare reform proposals or
legislation. The Company cannot predict the effects healthcare reform may have
on USN's business, and no assurance can be given that any such reforms will not
have a material effect on USN.
In addition, the provision of medical services in the United States is
dependent on the availability of reimbursement to consumers from third party
payors, such as government and private insurance companies. Although, patients
are ultimately responsible for services rendered, the Company expects that the
9
<PAGE>
majority of USN's revenues will be derived from reimbursements by third party
payors. Medicare has authorized reimbursement for Gamma Knife treatment. Over
the last several years, such third party payors are increasingly challenging the
cost effectiveness of medical products and services and taking other
cost-containment measures. Therefore, although treatment costs using the Gamma
Knife compare favorably to traditional invasive brain surgery it is unclear how
this trend among third party payors and future regulatory reforms affecting
governmental reimbursement will affect procedures in the higher end of the cost
scale.
The Company is planning to establish future Gamma Knife centers.
Completion of future centers will require approvals and arrangements with
hospitals, health care organizations, or other third parties, including certain
regulatory authorities. The Food and Drug Administration has issued the
requisite pre-market approval for the Gamma Knife to be utilized by USN. In
addition, many states require hospitals to obtain a Certificate of Need (CON)
before they can acquire a significant piece of medical equipment. The Company
plans to enter into future ventures in which that "need" will be demonstrable,
but it can have no assurance that Certificates of Need will be granted in every
case.
In addition, the Nuclear Regulatory Commission must issue a permit to USN
to permit loading the COBALT at each Gamma Knife site. While the Company
believes that it can obtain a NRC permit for each Gamma Knife machine, there is
no assurance that it will.
Liability Insurance
Although the Company does not directly provide medical services, it has
obtained professional medical liability insurance, and has general liability
insurance as well. The Company believes that its insurance is adequate for
providing treatment facilities and non-medical services although there can be no
assurance that the coverage limits of such insurance will be adequate or that
coverage will not be reduced or become unavailable in the future.
10
<PAGE>
Competition
The health care industry, in general, is highly competitive and the
Company expects to have substantial competition from other independent
organizations, as well as from hospitals in establishing future Gamma Knife
centers. There are other companies that provide the Gamma Knife on a "cost per
treatment basis". In addition, larger hospitals may be expected to install Gamma
Knife technology as part of their regular inpatient services. Some of these
competitors have greater financial and other resources than the Company.
Principal competitive factors include quality and timeliness of test results,
ability to develop and maintain relationships with referring physicians,
facility location, convenience of scheduling and availability of patient
appointment times. The Company believes that cost containment measures will
encourage hospitals to seek companies that are providing the technology, instead
of incurring the capital cost of establishing their own Gamma Knife centers.
Gamma Knife Supply and Servicing
Currently the only company that manufactures, sells, and services the
Gamma Knife is Elekta Instruments, Inc., a subsidiary of AB Elekta of Stockholm,
Sweden. Any interruption in the supply or services from Elekta would adversely
affect USN's plans to open additional Gamma Knife treatment centers as well as
to maintain those centers in existence.
Gamma Knife Financing
The Company secured financing from FSI for the first Gamma Knife
installation at the RMC site, and obtained a lease commitment from FSI for its
second Gamma Knife installation planned for New York. The Gamma Knife is an
expensive piece of equipment presently costing approximately $3,000,000.
Therefore, the Company's development of new Gamma Knife centers is dependent on
its ability to secure favorable financing. The Company believes that it will
11
<PAGE>
continue to be successful in obtaining financing but can give no absolute
assurance that it will.
New Technology/Possible Obsolescence
Gamma Knife technology may be subject to technological change.
Consequently, the Company will have to rely on the Gamma Knife's manufacturer,
Elekta, to introduce improvements or upgrades in order to keep pace with
technological change. Any such improvements or upgrades which the Company may be
required to introduce will require additional financing. In addition, newly
developed techniques and devices for performing brain surgery may render the
Gamma Knife less competitive or obsolete.
Employees
GHS, Inc. has twenty two full-time employees and five part-time employees.
Of these employees, two are engaged in sales and marketing, nineteen in
technical and functional site support and/or development, four in administration
and office support, one in site development, and one medical director.
ITEM 2. PROPERTIES
The Company's base facility, from which it conducts substantially all of
its operations, are located in Rockville, Maryland, and occupy approximately
2,350 square feet which is currently leased on a month to month basis. The
current rent is approximately $34,000 per year. In December 1994, the Company
opened a second office in Sacramento, California. This office occupies 1,600
square feet, and the annual rent is approximately $28,000. USN occupies
approximately 1,600 square feet in its RMC facility. This facility is located on
the campus of RMC in Kansas City, Missouri. The ground rent is not material.
ITEM 3. LEGAL PROCEEDINGS
None.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Company's Common Stock trades in the over-the-counter market, NASDAQ
symbol GHSI. The range of high and low bid quotations as reported by NASDAQ
System for the two years ended December 31, 1995 are set forth below.
Period High Bid Low Bid
------ -------- -------
January 1 - March 31, 1994 $2.00 $1.88
April 1 - June 30, 1994 1.88 1.25
July 1 - September 30, 1994 1.25 .75
October 1 - December 31, 1994 1.00 .75
Period High Bid Low Bid
------ -------- -------
January 1 - March 31, 1995 1.00 .75
April 1 - June 30, 1995 .75 .75
July 1 - September 30, 1995 .75 .75
October 1 - December 31, 1995 .625 .375
The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
As of March 14, 1996, there were approximately 500 holders of record of the
Company's Common Stock.
To date the Company declared no dividends on its Common Stock and does not
anticipate declaring dividends in the foreseeable future.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is the selected financial data pertaining to the financial
condition and operations of the Company for the years ended December 31, 1991
through 1995 . The latest financial statements of the Company are included in
Item 14 in Part IV of this report. The information set forth should be read in
conjunction with such financial statements and the notes thereto.
Year Ended
December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
Statement of
Operations Data:
Revenue $4,446,000 $2,358,000 $2,512,000 $2,085,000 $2,282,000
Net income (loss) (176,000) (666,000) 53,000 60,000 184,000
Net income (loss)
per share (.03) (.10) .01 .01 .01
Weighted Average
Common Shares
Outstanding 6,447,828 6,435,016 5,817,677 5,185,328 5,185,328
As at
December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
Balance Sheet
Data:
Working Capital 579,000 883,000 1,861,000 $1,104,983 $1,151,866
Total Assets 7,339,000 5,885,000 6,991,000 $2,012,000 $1,641,827
Long term debt 3,355,000 2,680,000 2,900,000 -- --
Total Stock-
holders equity 1,929,000 2,105,000 2,748,000 $1,456,000 $1,396,000
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes set forth elsewhere in this report.
Results of Operations
1995 Compared to 1994
Total revenues increased 89% in 1995 to $4,446,000 from $2,358,000 in
1994. New systems sales increased 39% to $1,777,000 from $1,282,000 in 1994. The
increase was attributable to a new contract with the Chicago Department of
Health (CDOH) to set up and manage public health information systems for the
city. Maintenance revenue increased 61% to $1,083,000 from $672,000 in 1994.
This also was attributable to the contract with CDOH. The company continues to
focus on using facilities management to expand the capability of the GHiS for
its clients. The Company's other subsidiary, US NeuroSurgical, Inc. (USN) had
its first full year of revenue from its center at the Research Medical Center in
Kansas City, Missouri. There were revenues of $1,283,000 in 1995 from USN.
Total expenses increased 49% to $4,644,000 from $3,109,000 in 1994. System
costs increased to $1,651,000 from $847,000 a year earlier. This increase was
caused by the large hardware order for CDOH. Maintenance expense increased to
$583,000 from $487,000 in 1994. This increase is not significant when it is
compared to the revenue increase in this area. Selling, general and
administrative expense declined 14% to $999,000 from $1,161,000 a year earlier.
The decrease is attributable to cost control measures implemented on travel,
office expenses and some salary reductions. The higher revenues were achieved
without any additions to administrative staff. Patient expenses associated with
the operation of the Kansas City Center were $751,000 for the year. The Company
had interest expense of $504,000 in 1995 compared to $308,000 in 1994. USN
15
<PAGE>
continued to pay down its lease in Kansas City and began interest payments on
its second Gamma Knife. As a result of the increased interest payments the net
loss was $176,000.
1994 Compared to 1993
Total revenues decreased 6% in 1994, to $2,358,000 from $2,512,000 in
1993. New system sales decreased 29% to $1,282,000 from $1,799,000 in 1993. The
decrease was attributable to delays in contract signing with prospective clients
and prolonged selling cycles with municipalities. Many Company clients and
prospects are large municipalities that have delayed projects because of
budgetary constraints. Maintenance revenue decreased by 3% in 1994 to $672,000
from $694,000 in 1993. The Company opened its' first Gamma Knife Center at
Research Medical Center in Kansas City, Missouri in the third quarter of 1994.
There were revenues of $381,000 for this period.
Total expenses increased 26% to $3,109,000 in 1994 from $2,459,000 in
1993. System costs declined to $847,000 from $1,120,000 a year earlier. This was
attributable to decreased hardware costs. Selling, general and administrative
cost rose 46% to $1,161,000 from $796,000 the previous year. This increase was
caused by salaries related to USN and substantial professional fees related to a
registration statement. The Company also incurred expenses related to the USN
startup. These costs were higher than expected, and the Company expects these to
decline as a percentage of revenues in the future. The lease on the Gamma Knife
had an interest expense of $308,000 in 1994. As a result of the foregoing, the
net loss was $666,000.
Liquidity and Capital Resources
The Company had a working capital ratio of 1.3 in 1995, as compared to 1.9
in 1994. As of December 31,1995, net cash provided by operating activities was
$438,000, as compared to net cash used of $93,000 in 1994.
Depreciation and amortization expense was $617,000 in 1995, as compared to
$341,000 in 1994. The reason for the increase was that 1995 was the first full
year of depreciation for the Kansas City Gamma Knife. Accounts receivable
increased by $251,000 in 1995 from 1994. Unbilled accounts receivable increased
$465,000 in 1995. The increase is the result of the long accounts receivable
16
<PAGE>
cycle associated with municipalities. In 1994, billed accounts receivable
declined by $84,000, and unbilled accounts receivable declined by $315,000 from
1993.
In 1995, net cash used in investing activities was $1,243,000. The Company
made a $1,160,000 progress payment on its second Gamma Knife. In 1994, net cash
used in investing activities was $750,000. The Company incurred $520,000 of
construction costs related to the Midwest Gamma Knife Center.
In 1995, net cash provided by financing activities was $850,000. The
company paid $430,000 towards the lease obligations on its Kansas City Gamma
Knife. The Company also is responsible for making interest payments on the
progress payment on its second Gamma Knife.
In 1994, net cash provided by financing activities was $280,000. In 1994,
the Company commenced its five year lease on the Kansas City Gamma Knife.
In 1993, the Company completed two private placements. The Company issued
1,200,000 shares of Common Stock, at $1.00 per share as part of a private
placement funded with subscription payments made in June 1993 (the "first
placement"). The proceeds from the first placement allowed the Company to
establish a new subsidiary, US NeuroSurgical, Inc. (USN), which owns and
operates stereotactic radiosurgery centers, utilizing the Gamma Knife
technology. USN entered into a series of contracts to finance the acquisition of
one Gamma Knife and to establish its first Gamma Knife center on the campus of
Research Medical Center (RMC) in Kansas City, Missouri. In December 1993 the
Company sold 500,000 shares of Common Stock to RMC in a private placement for
$500,000 (the "second placement"). The proceeds were used by the Company for the
construction of the Gamma Knife Center.
The Company currently has a line of credit for $100,000. Shareholders have
made an additional $20,000 loan. The lease that USN has entered into for Kansas
City is a five year operating lease that began in September 1994. The annual
payments are $805,000. The Company is making interest payments on a progress
17
<PAGE>
payment for its second Gamma Knife. The progress payment was for $1,160,000 and
the interest rate is 13.5% annual.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data are listed under Item 14
in this Annual Report of Form 10-K and attached hereto.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Alan Gold 51 President & Director
Jerry M. Brown, Ph.D. 57 Director
William F. Leimkuhler 44 Director
Alan Gold has served as President and a director since the Company's
formation. He was one of the founders of Global Health Systems, the predecessor
of the Company, serving as its President since its formation in July 1983. From
1981 to 1983 he served as Executive Vice-President of Libra Group, a company
located in Rockville, Maryland, engaged in health care automation, where he was
President of Global Health Foundation and Libra Research and Executive Vice
President of Libra Technology.
Jerry M. Brown, Ph.D. He was elected to the GHS board in July, 1993, and
served as President of US NeuroSurgical, Inc. until August, 1995. From 1990 to
1993 he was an independent consultant to the health care industry. Dr. Brown
18
<PAGE>
served in the US Army Medical Department from 1967 - 1990, retiring as a
Lieutenant Colonel.
William F. Leimkuhler has served as director of the Company since its
incorporation in 1984. Since January 1994, Mr. Leimkuhler has been the Vice
President of Allen & Company Incorporated, an investment banking firm. From 1984
to December, 1993, Mr. Leimkuhler was a partner with the law firm of Werbel
McMillin & Carnelutti, which has served as counsel to the Company on various
matters since the Company's formation.
Each director is elected for a one year period ending on the date of the
next annual meeting of shareholders of the Company, and until his or her
successor is duly elected and qualified. Officers serve at the will of the Board
of Directors.
ITEM 11 EXECUTIVE COMPENSATION
The information below sets forth the compensation for the year ended
December 31, 1995, for each executive officer of the Company:
Summary Compensation Table
--------------------------
Name and Annual Compensation Long Term
Principal Position Year Salary($) Bonus($) Compensation Amts.
- ------------------ ---- --------- -------- ------------------
Alan Gold,
President & Director 1995 $150,000
1994 $144,400
1993 $126,500
The Company and Mr. Gold are parties to an employment agreement giving
either the Company or Mr. Gold the option to terminate the agreement by giving
the other party 6 months written notice.
Stock Option Plan
Effective March 7, 1986, and as amended June 18, 1987, the Company adopted
a 1986 Stock Option Plan (the "Plan") pursuant to which options to purchase up
to 750,000 shares of the Company's Common Stock may be granted to directors,
19
<PAGE>
officers and other key employees of the Company. As of March 31, 1993, 308,500
options were outstanding under the Plan. The Plan is administered by the Board
of Directors. The options may be either incentive stock options conforming to
the provisions of Section 422A of the Internal Revenue Code, or non-qualified
options. The purchase price for shares under each option, incentive or
non-qualified, is determined by the Board but will not be less than 100% and
90%, respectively, of the fair market value of the Common Stock at the time the
option is granted. If an employee at the time the option is proposed to be
granted owns more than 10% of the voting stock of the Company, the option price
for incentive options will not be less than 110% of the fair market value of the
Common Stock on the date of grant and the option will continue in effect for not
more than five years. No options may be granted under the Plan after 1996. The
exercise price must be paid in full upon exercise of an option, in cash or in
shares of Common Stock of the Company. Options are nontransferable except by
will or by the laws of descent and distribution.
20
<PAGE>
Aggregate Unexercised Options & Option Values at December 31, 1995
------------------------------------------------------------------
Value of Unexercised In-The
Number of Unexercised Options Money Options at December
at December 31, 1995 (#) 31, 1995 ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
Alan Gold 112,000 / 25,000 $63,000/14,000(1)
--------- ------- -----------------
(1) Based on average of closing bid and asked prices of the Company's common
stock on December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of March 23, 1996 certain information
with respect to each beneficial owner of more than 5% of the Company's Common
Stock and each director of the Company:
Number of Shares
Name and Address Beneficially Percent of
of Beneficial Owner Owned (1) Class
- ------------------- --------- -----
Alan Gold (2) 520,500 8.0%
1350 Piccard Drive
Rockville, MD 20850
William F. Leimkuhler -- --
711 Fifth Avenue
New York, NY 10022
Jerry M. Brown, Ph.D 28,500 0.4%
1205 Stratford Drive
Anderson, SC 29621
Stanley S. Shuman (3) 1,051,250 16.4%
711 Fifth Avenue
New York, NY 10022
Allen & Company Incorporated (4) 1,932,000 30.0%
711 Fifth Avenue
New York, NY 10022
All Directors and Officers 549,000 8.5%
as a group (three persons) (2)
- -------
21
<PAGE>
(1) Unless otherwise indicated, all shares are beneficially owned and sole
voting and investment power is held by the person named above.
(2) Includes 420,500 shares held jointly by Mr. Gold and his wife, Ms.
Greenwald, as joint tenants with right of survivorship and 100,000
exercisable stock options.
(3) Includes 210,250 shares held in certain trusts for the benefit of Mr.
Shuman's children, of which shares Mr. Shuman disclaims beneficial
interest.
(4) In addition to those shares beneficially owned by Allen, certain officers
of Allen and their families, including Mr. Shuman, own 1,721,750 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The company owns 80% of the issued and outstanding shares of
USN. the remaining shares are owned by A. Hyman Kirshenbaum, M.D. and
Jerry M. Brown, Ph.D., who developed and promoted the original plan for
the business of USN. In connection with the formation of USN, such
individuals entered into an agreement with the Company, providing for,
among other things, incentives in the form of options to purchase
additional shares of the Company's Common Stock. Dr. Brown also had an
employment agreement with USN which was terminated by the Company in
August, 1995. Dr. Kirshenbaum serves as Chairman for USN.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed
as part of this report:
Page No.
--------
Financial Statements of the Company
Report of Independent Auditors F-1
Balance Sheet as of December 31, 1995 and 1994 F-2
Statements of Operations for the years ended
December 31, 1995, 1994, and 1993. F-3
Statement of Changes in Stockholders' Equity
for the period January 1, 1993 through
December 31, 1995 F-4
Statements of Cash Flows for the year ended
December 31, 1995, 1994, and 1993. F-5
Notes to Financial Statements F-6
Report of Independent Auditors with respect to
Supplementary Schedules S-1
Valuation and Qualifying Accounts S-2
All other schedules have been omitted as the conditions
requiring their filing are not present or the information required
therein has been included in the notes to the financial statements.
(b) Reports on Form 8-K
During the three months ended December 31, 1994, the Company did not
file any reports on Form 8-K with the Securities and Exchange Commission.
(c) Exhibits
3 Articles of Incorporation and By-laws
(a) Restated Certificate of Incorporation and by-laws of the Company
(incorporated by reference to exhibits 3.1 and 3.2 of the Company's
Registration Statement No. 33-4532-W on Form S-18)
(b) Certificate of Amendment dated June 18, 1987 (incorporated by
reference to exhibit 3(b) of the Company's 1987 Annual Report on
Form 10-K).
(c) Certificate of Amendment dated November 17, 1989 (pursuant to
which the Company changed its name to GHS, Inc.) (incorporated by
reference to exhibit 3(c) of the Company's 1988 Annual Report on
Form 10-K).
23
<PAGE>
10 Material Contracts
(a) Office Lease dated November 1, 1990 (incorporated by reference
to Exhibit 10.2 of the Company's Registration Statement No.
33-4532-W on form S-18).
(b) Employment Agreement dated December 14, 1984 between the Company
and Alan Gold, as amended March 7, 1986 (incorporated by reference
to Exhibit 10.3 of the Company's Registration Statement No.
33-4532-W on form S-18).
(c) Stock Option Plan dated March 7, 1986 (incorporated by reference
to Exhibit 10.4 of the Company's Registration Statement No.
33-4532-W on form S-18).
(d) Asset Purchase Agreement dated as of December 13, 1984 between
GHS Acquisition Corp., Datalab, Inc., Global Health Systems, Inc.
and GHS, Inc. (pursuant to which the Company acquired substantially
all the assets, and assumed certain liabilities, of Global Health
Systems MD) (incorporated by reference to Exhibit 10.5 of the
Company's Registration Statement No. 33-4532-W on form S-18).
(e) Assignment and Assumption Agreement dated as of November 22,
1988 between Global Health Systems, Inc. and Global Health Computer
Systems, Inc. (pursuant to which the parent transferred assets,
liabilities and current operations to the subsidiary) (Incorporated
by reference to exhibit 10(j) of the Company's 1988 Annual Report on
Form 10K)
(f) Gamma Knife Neuroradiosurgery Equipment Agreement dated August,
1993 between Research Medical Center and US NeuroSurgical
(incorporated by reference to Exhibit 10h to the Company's Quarterly
Report or Form 10-Q for the quarter ended September 30, 1993).
(g) Agreement for Issuance and Sale of Stock dated August, 1993
between Research Medical Center and GHS, Inc. (incorporated by
reference to Exhibit 10i to the Company's Quarterly Report or Form
10-Q for the quarter ended September 30, 1993).
(h) Ground Lease Agreement dated August, 1993 between Research
Medical Center and US NeuroSurgical (incorporated by reference to
Exhibit 10j to the Company's Quarterly Report or Form 10-Q for the
quarter ended September 30, 1993).
(i) LGK Agreement dated July 12, 1993 between Elekta Instruments,
Inc. and US NeuroSurgical (incorporated by reference to Exhibit 10k
24
<PAGE>
to the Company's Quarterly Report or Form 10-Q for the quarter ended
September 30, 1993).
(j) Financing for Science International Commitment dated August 16,
1993 between Financing for Science International, Inc. and US
NeuroSurgical (incorporated by reference to Exhibit 10l to the
Company's Quarterly Report or Form 10-Q for the quarter ended
September 30, 1993.)
(k) Employment Agreement dated September 1, 1993 between US
NeuroSurgical and Jerry M. Brown, Ph.D. (incorporated by reference
to Exhibit 10m to the Company's Quarterly Report or Form 10-Q for
the quarter ended September 30, 1993.)
(l) Agreement dated July 23, 1993 between GHS, Inc., and A. Hyman
Kirshenbaum, M.D., and Jerry M. Brown, Ph.D., (incorporated by
reference to Exhibit 10n to the Company's Quarterly Report or Form
10-Q/A for the quarter ended September 31, 1993.)
(m) Amendment dated October 27, 1994 to Employment Agreement between
U.S. Neurosurgical and Jerry Brown, Ph.D. (incorporated by reference
to Exhibit 10m to the Company's 1994 Annual Report on Form 10-K).
(n) Agreement dated October 28, 1994 between U.S. NeuroSurgical,
Inc. and Financing for Science and Industry, Inc. (incorporated by
reference 10n to the Company's 1994 Annual Report on Form 10-K).
(o) Agreement dated December 29, 1993, between U.S. NeuroSurgical,
Inc. and Elekta Instruments, Inc. (incorporated by reference 10o to
the Company's 1994 Annual Report on Form 10-K).
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 08, 1996
GHS, INC.
(Registrant)
By /s/ Alan Gold
-------------------------------------
Alan Gold
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
April 08, 1996 /s/ Alan Gold
-------------------------------
Alan Gold
President and Director
(Chief Executive, Financial and
Accounting Officer)
April 08, 1996 /s/ William F. Leimkuhler
-------------------------------
William F. Leimkuhler
Director
April , 1996
-------------------------------
Jerry M. Brown, Ph.D.
Director
26
<PAGE>
Richard A. Eisner & Company, LLP
- --------------------------------------------------------------------------------
Accountants and Consultants
[RAE Logo]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
GHS, Inc.
Rockville, Maryland
We have audited the accompanying consolidated balance sheets of GHS,
Inc. and subsidiaries as at December 31, 1995 and December 31, 1994, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of GHS,
Inc. and subsidiaries at December 31, 1995 and December 31, 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 14, 1996
F-1
575 Madison Avenue, New York, N.Y. 10022-2597
Member of Summit International Asssociates, Inc.
New York, NY o Melville, NY o Cambridge, MA o Florham Park,NJ
<PAGE>
<TABLE>
<CAPTION>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------------
A S S E T S 1995 1994
----------- ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................... $ 198,000 $ 153,000
Accounts receivable (net of allowance for doubtful
accounts of $14,000 in 1995 and 1994) ................................ 1,451,000 1,200,000
Unbilled accounts receivable ............................................ 576,000 111,000
Contract installments receivable ........................................ 15,000 34,000
Inventory ............................................................... 12,000 15,000
Refundable deposits ..................................................... 290,000 290,000
Other current assets .................................................... 91,000 84,000
----------- -----------
Total current assets ............................................. 2,633,000 1,887,000
Furniture and equipment .................................................... 56,000 41,000
Software development costs ................................................. 291,000 389,000
Other assets ............................................................... 98,000 100,000
Gamma Knife Venture assets:
Gamma Knife ............................................................. 2,348,000 2,762,000
Progress payments - Gamma Knife ......................................... 1,160,000
Unamortized leasehold costs ............................................. 661,000 696,000
Deposits ................................................................ 65,000 10,000
Cash held in escrow ..................................................... 27,000
----------- -----------
T O T A L ........................................................ $ 7,339,000 $ 5,885,000
=========== ===========
L I A B I L I T I E S
---------------------
Current liabilities:
Accounts payable and accrued expenses ................................... $ 1,337,000 $ 522,000
Loans payable - officer ................................................. 20,000
Notes payable - other ................................................... 100,000
Accrued costs to complete contracts ..................................... 25,000 38,000
Loan payable - Gamma Knife - current portion ............................ 55,000
Obligation under capital lease - current portion:
Gamma Knife Venture ................................................... 512,000 444,000
Equipment ............................................................. 5,000
----------- -----------
Total current liabilities ........................................ 2,054,000 1,004,000
----------- -----------
Obligation under capital lease:
Gamma Knife ............................................................. 1,724,000 2,236,000
Equipment ............................................................... 9,000
1,733,000 2,236,000
----------- -----------
Loan payable - Gamma Knife ................................................. 1,105,000
-----------
Minority interest .......................................................... 18,000 40,000
----------- -----------
Common stock - par value $.01; 500,000 shares issued with put option ....... 500,000 500,000
----------- -----------
Commitments and other matters
STOCKHOLDERS' EQUITY
Preferred stock - 1,000,000 shares authorized; none issued
Common stock - par value $.01; 25,000,000 shares authorized; 6,447,828
issued and outstanding in 1995 and 1994 ................................ 65,000 65,000
Additional paid-in capital ................................................. 3,082,000 3,082,000
(Deficit) ................................................................. (1,218,000) (1,042,000)
----------- -----------
Total stockholders' equity ....................................... 1,929,000 2,105,000
----------- -----------
T O T A L ........................................................ $ 7,339,000 $ 5,885,000
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-2
<PAGE>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Revenue:
Software systems ............ $ 1,777,000 $ 1,282,000 $ 1,799,000
Maintenance ................. 1,083,000 672,000 694,000
Claims processing ........... 302,000
Patient revenue ............. 1,283,000 381,000
Interest income ............. 1,000 23,000 19,000
----------- ----------- -----------
T o t a l ............ 4,446,000 2,358,000 2,512,000
----------- ----------- -----------
Costs and expenses:
Software systems ............ 1,651,000 847,000 1,120,000
Maintenance ................. 583,000 487,000 543,000
Claims processing expense ... 156,000
Patient expenses ............ 751,000 306,000
Selling, general and
administrative ............ 999,000 1,161,000 796,000
Interest expense ............ 504,000 308,000
----------- ----------- -----------
T o t a l ............ 4,644,000 3,109,000 2,459,000
----------- ----------- -----------
Income (loss) before minority
interest .................... (198,000) (751,000) 53,000
Minority interest .............. 22,000 85,000
----------- ----------- -----------
NET INCOME (LOSS) ............. $ (176,000) $ (666,000) $ 53,000
=========== =========== ===========
Net income (loss) per share .... $ (.03) $ (.10) $ 0.01
=========== =========== ===========
Weighted average shares
outstanding ................. 6,447,828 6,435,016 5,817,677
=========== =========== ===========
The accompanying notes to financial statements
are an integral part hereof.
F-3
<PAGE>
<TABLE>
<CAPTION>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock *
---------------------
Number Additional
of Paid-in
Shares Amount Capital (Deficit) Total
--------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance - January 1,
1993 ............. 5,185,328 $ 52,000 $1,833,000 $ (429,000) $1,456,000
Issuance of common
stock for cash .... 1,200,000 12,000 1,188,000 1,200,000
Issuance of common
stock for services
rendered .......... 39,000 1,000 38,000 39,000
Net income for the
year ended
December 31, 1993.. 53,000 53,000
---------- --------- ---------- ---------- ----------
Balance - December 31,
1993 ............. 6,424,328 65,000 3,059,000 (376,000) 2,748,000
Issuance of common
stock for services
rendered .......... 23,500 23,000 23,000
Net (loss) for the
year ended
December 31, 1994.. (666,000) (666,000)
---------- --------- ---------- ---------- ----------
Balance - December 31,
1994 ............. 6,447,828 65,000 3,082,000 (1,042,000) 2,105,000
Net (loss) for the
year ended
December 31, 1995.. (176,000) (176,000)
---------- --------- ---------- ---------- ----------
BALANCE - DECEMBER 31,
1995 ............. 6,447,828 $ 65,000 $3,082,000 $(1,218,000) $1,929,000
========== ========= ========== ========== ==========
</TABLE>
* Excluding shares with put option
The accompanying notes to financial statements
are an integral part hereof.
F-4
<PAGE>
<TABLE>
<CAPTION>
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................................... $ (176,000) $ (666,000) $ 53,000
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ........................................... 617,000 341,000 154,000
Provision for inventory obsolescence .................................... 15,000
Minority interest in net (loss) of consolidated subsidiary .............. (22,000) (85,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable - net ...................... (251,000) 84,000 (256,000)
(Increase) decrease in unbilled accounts receivable ................... (465,000) 315,000 (164,000)
Decrease in contract installments receivable .......................... 19,000 15,000 40,000
(Increase) decrease in other assets ................................... (86,000) 62,000 (69,000)
Increase (decrease) in accounts payable and accrued expenses and
accrued costs to complete contract .................................. 802,000 (159,000) 162,000
----------- ----------- -----------
Net cash provided by (used in) operating activities ............... 438,000 (93,000) (65,000)
----------- ----------- -----------
Cash flows from investing activities:
Furniture and equipment purchases ........................................... (33,000) (24,000) (14,000)
Software development costs .................................................. (50,000) (350,000) (70,000)
Investment in joint venture ................................................. (4,000) (82,000)
Refunds (deposits) on Gamma Knife ........................................... 148,000 (505,000)
Progress payments - Gamma Knife ............................................. (1,160,000)
Cost incurred with leasehold improvements ................................... (520,000)
----------- ----------- -----------
Net cash (used in) investing activities ........................... (1,243,000) (750,000) (671,000)
----------- ----------- -----------
Cash flows from financing activities:
Payments of capital lease obligations ....................................... (430,000) (220,000)
Loan payable - officer ...................................................... 20,000
Notes payable - other ....................................................... 100,000
Loan payable - Gamma Knife .................................................. 1,160,000
Proceeds from issuance of common stock ...................................... 1,200,000
Release from escrow of proceeds from sale of common shares with put option .. 500,000
----------- ----------- -----------
Net cash provided by financing activities ......................... 850,000 280,000 1,200,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 45,000 (563,000) 464,000
Cash and cash equivalents - beginning of period ................................ 153,000 716,000 252,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD ...................................... $ 198,000 $ 153,000 $ 716,000
=========== =========== ===========
Supplemental disclosures of cash flow information: Cash paid for:
Interest .................................................................. $ 510,000 $ 275,000
Income taxes .............................................................. 3,000 3,000
Supplemental schedule of noncash financing activities:
Property acquired under capital lease obligations ........................... 14,000 $ 2,900,000
Issuance of common stock for services rendered .............................. 23,000 39,000
Shares of subsidiary company for services ................................... 125,000
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-5
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
[1] Basis of preparation:
GHS, Inc. (the "Company") develops, installs and maintains
computerized processing systems for ambulatory care facilities and hospitals.
The Company's subsidiary, U.S. Neuro Surgical, Inc. ("U.S. Neuro")
owns and operates stereotactic radiosurgery centers, utilizing the Gamma Knife
technology, which commenced operations in September 1994.
During 1995, the Company formed a new subsidiary, U.S. Neurosurgical
Physics, Inc. to administer the billing and collection of the Physicist's fee
for operating the Gamma Knife.
The consolidated financial statements include the accounts of GHS,
Inc., its wholly-owned subsidiaries, Global Health Systems, Inc., GHS Management
Services, Inc., U.S. Neurosurgical Physics, Inc., and U.S. Neuro in which it
has an 80% interest.
[2] Revenue recognition:
Revenue from sales of software systems is recognized when the product
is delivered and obligations remaining after delivery are not considered to be
significant. Estimated costs in connection with installing the systems are
accrued when the revenue is recognized. Income from software maintenance
agreements is recognized ratably over the periods covered by such agreements.
Contract installments receivable arising from sales of systems with extended
payment terms are discounted to present value. Finance charges representing the
discount to present value of the contract amount are credited to income over the
term of the contract.
Unbilled accounts receivable represent revenues which have been
recognized, on delivery of the product, and will become billable at future dates
in accordance with contract provisions.
Patient revenue is recognized when the Gamma Knife procedure is
rendered.
[3] Inventories:
Inventories are stated at the lower of cost (on the first-in, first-out
method) or market and consist of computer equipment and peripheral devices.
(continued)
F-6
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[4] Depreciation:
The cost of furniture and equipment is depreciated on the straight-line
method over the estimated useful lives of such assets. Leasehold improvements
are amortized over the life of the lease.
[5] Software development:
Costs associated with product development subsequent to establishment
of technological feasibility including enhancements to software products, are
capitalized and amortized as required by Statement of Financial Accounting
Standards No. 86. Costs incurred prior to achieving technological feasibility
are expensed as incurred. Amortization is generally provided on the
straight-line method over two to five years commencing when the product is
available for general release to customers.
[6] Earnings per share:
Earnings per share is based on the net income divided by the weighted
average number of common shares outstanding during the year. Common stock
equivalents arising from the exercise of stock options and warrants and common
stock subject to put options are included when dilutive.
[7] Statement of cash flows:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
[8] Estimates and assumptions:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(continued)
F-7
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Agreements With Research Medical Center ("RMC"):
[1] Gamma Knife neuroradiosurgery equipment agreement:
U.S. Neuro entered into a neuroradiosurgery equipment agreement (the
"equipment agreement") with RMC for a period of 21 years which commenced with
the completion of the neuroradiosurgery facility (the "facility") in September
1994. The equipment agreement, among other matters, requires U.S. Neuro to
provide (i) the exclusive use of the Gamma Knife equipment (the "equipment") to
RMC, (ii) the necessary technical personnel for the proper operation of the
equipment, (iii) sufficient supplies for the equipment, (iv) the operation,
maintenance and repair of the equipment, (v) all basic hardware and software
updates to the equipment and, (vi) an uptime guarantee. In return, RMC will pay
U.S. Neuro 80% of RMC's fees for the use of the equipment and the facility. The
equipment agreement terminates automatically upon termination of the ground
lease agreement and may be terminated by mutual agreement in the sixth year of
the ground lease term.
[2] Ground Lease Agreement:
U.S. Neuro entered into a lease with RMC for the premises, defined as
land situated in Kansas City, Missouri together with the facility which the
Company was required to construct thereon. The lease term is for a period of 21
years commencing September 1994. Rent at $2.25 per square foot is payable
annually in advance. The terms of the lease include escalation clauses for
increases in certain operating expenses and for payment of real estate taxes and
utilities. Title to all improvements upon the land vest in RMC.
(NOTE C) - Furniture and Equipment:
Furniture and equipment is stated at cost and is summarized as follows:
December 31,
-------------------
1995 1994
-------- --------
Equipment. . . . . . . . . . . $181,000 $148,000
Furniture. . . . . . . . . . . 41,000 41,000
-------- --------
T o t a l. . . . . . 222,000 189,000
Less accumulated depreciation. 166,000 148,000
B a l a n c e. . . . $ 56,000 $ 41,000
========= ========
(continued)
F-8
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Furniture and Equipment: (continued)
Equipment, under a capital lease, and leasehold interest, is stated at
cost and is summarized as follows:
December 31,
---------------------------------------------
1995 1994
--------------------- ---------------------
Leasehold Leasehold
Interest Equipment Interest Equipment
-------- ---------- -------- ----------
Cost . . . . . . . . . $708,000 $2,900,000 $708,000 $2,900,000
Accumulated
depreciation and
amortization. . . . 47,000 552,000 12,000 138,000
--------- ----------- --------- ----------
T o t a l. . $661,000 $2,348,000 $696,000 $2,762,000
========= =========== ========= ==========
Depreciation aggregated approximately $467,000 for the year ended
December 31, 1995, $168,000 for the year ended December 31, 1994 and $14,000 for
the year ended December 31, 1993.
Included in the above depreciation expense is approximately $414,000
and $138,000 for the years ending December 31, 1995 and 1994 for assets acquired
under capital leases.
(NOTE D) - Software Development Costs:
Software development costs are summarized as follows:
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
Balance - beginning of
period. . . . . . . . . $ 389,000 $ 210,000 $ 280,000
Additions for the period . 50,000 350,000 70,000
Amortization . . . . . . . (148,000) (171,000) (140,000)
--------- --------- ---------
Balance - end of period. . $ 291,000 $ 389,000 $ 210,000
========= ========= =========
Research and development expense, exclusive of amortization of
capitalized software development costs, was approximately $320,000, $124,000 and
$125,000 for the years ended December 31, 1995, December 31, 1994 and December
31, 1993, respectively, and is included in software systems costs.
(continued)
F-9
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Costs Incurred In Connection With Leasehold Interest:
In a prior year, the Company granted a 20% interest in U.S. Neuro to
two related parties ("related parties") for services rendered in connection with
the leasehold interest, which it valued at $125,000 and credited to minority
interest. In 1995, the subsidiary incurred a loss of $115,000 of which $22,000
was allocated to the 20% interest. In 1994, the subsidiary incurred a loss of
$442,000 of which $85,000 was allocated to the 20% interest.
In July 1994, the Company issued 24,000 shares of its common stock to
an employee in consideration for services rendered in connection with the
leasehold interest. The Company valued the shares at fair value of $24,000 which
it has included in leasehold cost.
In connection with the grant of the 20% interest, the Company entered
into an agreement with the related parties which provided for reimbursement to
such parties, reasonable expenditures towards establishing U.S. Neuro.
The Company agreed to repay up to $250,000 of such valid documented
expenses by issuing up to 125,000 shares of GHS, Inc. common stock and up to
$125,000 in U.S. Neuro notes payable from pre- tax earnings of U.S. Neuro. One
of the parties (Dr. Brown) claims that GHS, Inc. will owe 62,500 shares of GHS,
Inc. stock and interest bearing notes totaling $62,500, when he provides
documentation to the Company. The Company has requested documentation of the
claimed expenses since August 1993. No documentation has been produced. However,
the Company acting in good faith issued 62,500 shares of GHS, Inc. common stock
during 1993 and 1994. Dr. Brown has not documented any valid expenses. The
Company has paid $30,000 for legal fees incurred prior to September 1, 1993 by
Dr. Brown. The Company may take action to recover the 62,500 shares of GHS, Inc.
stock issued to Dr. Brown.
Dr. Brown entered into a three year employment contract with the
Company in September 1993. Dr. Brown claims that his contract was unilaterally
modified by the Company in November of 1994 and he was terminated without proper
authority in August 1995. Dr. Brown also claims that he has been denied
reimbursement of legitimate expenses of more than $20,000. The Company believes
that Dr. Brown's claims are completely without merit. Upon signing his
employment agreement Dr. Brown requested a $60,000 pay advance. The advance was
granted as a loan with monthly repayment culminating in December 1995. Dr. Brown
still owes the Company $6,900 on this loan. In November 1994, the Company
negotiated an incentive compensation plan with Dr. Brown whereby he was paid a
salary of $150,000 per annum with quarterly adjustments against his salary if
the Gamma Knife operation did not meet minimum performance standards. The
agreement guaranteed Dr. Brown a minimum salary of $100,000 per annum.
(continued)
F-10
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Costs Incurred In Connection With Leasehold Interest:
(continued)
Dr. Brown was paid salary through August 1995 at which time he was terminated as
an employee and removed from the U.S. Neuro Board of Directors. During the terms
of his employment with U.S. Neuro, Dr. Brown was fully reimbursed for expenses
which he submitted as incurred in connection with his responsibilities at U.S.
Neuro; however, the Company did not reimburse him for travel and expenses that
he incurred which were for personal business or not pre-authorized by the
Company.
(NOTE F) - Obligation Under Capital Lease and Loan Payable:
Gamma Knife Venture:
U.S. Neuro has a purchase agreement with Elekta Instruments to buy one
Gamma Knife for $2,900,000. The purchase was financed by Financing for Science
International under a 5 year capital lease bearing interest at approximately 15%
per annum. Future lease payments are as follows:
Year Ending
December 31,
------------
1996. . . . . . . . . . . . $ 805,000
1997. . . . . . . . . . . . 805,000
1998. . . . . . . . . . . . 805,000
1999. . . . . . . . . . . . 472,000
----------
2,887,000
Less interest . . . . . . . 651,000
----------
Present value of net
minimum obligation . . . $2,236,000
==========
The lease is guaranteed by GHS, Inc. and Global Health Systems,
Inc.
On December 6, 1994, U.S. Neuro entered into an additional purchase
agreement with Elekta Instruments to buy another Gamma Knife for $2,900,000 for
which it made a deposit of $290,000 in 1994. The purchase is to be financed by
Financing for Science International under a 5 year capital lease. The deposit is
to be refunded on commencement of the capital lease which is anticipated to
begin September 1, 1996. The lease is guaranteed by GHS, Inc. and Global Health
Systems, Inc.
(continued)
F-11
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Obligation Under Capital Lease and Loan Payable:
(continued)
Gamma Knife Venture: (continued)
During 1995, Financing for Sciences International made a progress
payment towards the above mentioned second Gamma Knife totalling $1,160,000 to
Elekta Instruments, Inc. U.S. Neuro is being charged interest expense at 13 1/2
per annum.
(NOTE G) - Common Stock Issued With Put Option:
In a prior year the Company issued 500,000 shares of its common stock
for $1.00 per share to RMC. If the fair market value ("FMV") of the shares is
equal to or less than $1.25 per share, RMC has the right to resell the shares to
GHS, Inc. at $1.00 per share. If the FMV exceeds $1.25, GHS, Inc. has the right
of first refusal to repurchase the shares at a price equal to 80% of the FMV
("Transaction Price"). If GHS, Inc. elects not to exercise its right of first
refusal and RMC is unable to obtain a buyer for the shares at the Transaction
Price, RMC has the right to resell the shares to GHS, Inc. at a purchase price
equal to the greater of $1.00 per share or the Transaction Price.
However, in no event shall the Company be required to purchase
shares of stock after the earlier of 2003 or such time as U.S. Neuro,
Inc. no longer occupies the premises (the "facility").
(NOTE H) - Stockholders' Equity:
[1] Stock options:
The Company has a stock option plan (the "Plan") for officers and
other key personnel of the Company. The Plan authorizes the granting of
incentive and nonqualified stock options to purchase up to 750,000 shares of the
Company's common stock at a price not less than 100% (90% as to nonqualified) of
the fair market value of the common stock on the date of grant.
No part of any option granted under the Plan will be exercisable
less than one year or more than ten years after the date of grant. Options for
25,000 shares granted at an exercise price of $1.00 include stock appreciation
rights which may be issued in lieu of exercise.
(continued)
F-12
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stockholders' Equity: (continued)
[1] Stock options: (continued)
Listed below is information as to options granted and exercisable.
As of December 31, 1995 no options have been exercised.
Number of Shares Exercisable
1995 1994 1993 Price
-------- -------- -------- -----------
Outstanding January 1 . . 430,000 430,000 308,500 $1.00
Options granted . . . . . 121,500 1.00
------- -------- --------
Options outstanding . . . 430,000 430,000 430,000 1.00
======= ======== ========
Options exercisable . . . 364,875 307,750 277,375
======= ======= =======
[2] Preferred stock:
The Company has authorized 1,000,000 shares of preferred stock,
none of which is issued. The rights and preferences of preferred stock are
established at the discretion of the Board of Directors upon issuance.
[3] Issuance of warrants:
On November 30, 1993, the Company granted warrants to a
stockholder to purchase 200,000 shares of the Company's common stock at a
purchase price of $1.00 per share, which equalled fair value at the date of
grant. Such warrants were granted as consideration for services rendered in
connection with a private placement of securities. The warrants contain
registration and certain anti-dilution rights and are exercisable through
November 30, 1998.
(NOTE I) - Commitments and Other Matters:
[1] In 1995 the Company entered into a lease for office premises which
expires in 2000. The terms of the lease include escalation clauses for increases
in certain operating expenses.
The Company has a three year lease for an office facility in
Sacramento, California at a yearly rental of approximately $27,000.
(continued)
F-13
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Commitments and Other Matters: (continued)
[1] (continued)
Minimum future obligations under operating leases as described
above are as follows:
Year Ending
December 31,
------------
1996. . . . . . . . . . $ 61,000
1997. . . . . . . . . . 62,000
1998. . . . . . . . . . 38,000
1999. . . . . . . . . . 37,000
2000. . . . . . . . . . 35,000
--------
$233,000
========
Total rent expense aggregated $61,000, $33,000 and $32,000 for the
years ended December 31, 1995, December 31, 1994, and December 31, 1993,
respectively.
[2] The Company maintains the majority of its cash at one bank.
[3] The Company is contingently liable on an equipment lease of a
customer which provides for an annual rental of approximately $95,000 per year
to November 1996.
(NOTE J) - Taxes:
The Company has a net tax asset of approximately $600,000 attributable
primarily to operating loss carryforwards of approximately $2,000,000 which
expire in 2008 through 2010. Management has established a full reserve against
such asset since it cannot establish, at this time, that it is more likely than
not that the carryforwards can be utilized.
The difference between the tax provision (benefit) and the amount that
would be computed by applying the statutory Federal income tax rate to income
before taxes is attributable to the following:
Year Ended December 31,
--------------------------------
1995 1994 1993
--------- ---------- ---------
Income tax provision
(benefit) at 34%. . . . . . $(60,000) $(226,000) $ 18,000
Increase (decrease) in
valuation allowance . . . . 60,000 226,000 (18,000)
--------- ---------- ---------
$ - 0 - $ - 0 - $ - 0 -
========= ========== =========
(continued)
F-14
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - Major Customers:
For the year ended December 31, 1995, the Company earned revenues from
a municipality which accounted for 43% of revenues. Two customers represent 35%
and 27% of receivables at December 31, 1995. These sales and receivables are
from the computerized processing system segment. Also, one customer represents
72% of the unbilled accounts receivable.
For the year ended December 31, 1994, the Company earned revenues from
one customer which accounted for 21% of revenues. Two customers represent 42%
and 15% of receivables at December 31, 1994. These sales and receivables are
from the computerized processing system segment.
For the year ended December 31, 1993, the Company earned revenues from
three customers which accounted for 20%, 15% and 12%, of revenues, respectively.
(NOTE L) - Business Segments:
The Company's business segments are the development, installation and
maintenance of computerized integrated processing systems and the operation of
stereotactic radiosurgery centers, utilizing the Gamma Knife technology.
Corporate assets are principally cash and cash equivalents. The following is the
Company's business segment data:
Year Ended December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
Revenue:
Computerized processing
systems . . . . . . . $3,162,000 $1,954,000 $2,493,000
Gamma Knife . . . . . . 1,283,000 381,000
---------- ---------- ----------
T o t a l. . . . $4,445,000 $2,335,000 $2,493,000
========== ========== ==========
Operating income (loss):
Computerized processing
systems . . . . . . . $ (136,000) $ (327,000) $ 34,000
Gamma Knife . . . . . . 441,000 (139,000)
---------- ---------- ----------
Operating income (loss) 305,000 (466,000) 34,000
Interest (expense) . . . . (504,000) (308,000)
Investment income. . . . . 1,000 23,000 19,000
---------- ---------- ----------
Income (loss) from
continuing operations
before minority
interest. . . . . . . . $ (198,000) $ (751,000) $ 53,000
========== ========== ==========
(continued)
F-15
<PAGE>
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Business Segments: (continued)
December 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
Assets:
Computerized processing
systems . . . . . . . $2,505,000 $1,966,000 $3,070,000
Gamma Knife . . . . . . 4,834,000 3,889,000 3,779,000
Corporate assets. . . . 30,000 142,000
---------- ---------- ----------
T o t a l. . . . $7,339,000 $5,885,000 $6,991,000
========== ========== ==========
Capital expenditures:
Computerized processing
systems . . . . . . . $ 80,000 $ 367,000 $ 84,000
Gamma Knife . . . . . . 3,000 544,000 3,064,000
----------- ----------- ----------
T o t a l. . . . $ 83,000 $ 911,000 $3,148,000
=========== =========== ==========
Depreciation and
amortization:
Computerized
processing systems. $ 168,000 $ 191,000 $ 154,000
Gamma Knife . . . . . 449,000 150,000
----------- ----------- ----------
T o t a l. . . . $ 617,000 $ 341,000 $ 154,000
=========== =========== ==========
F-16
- --------------------------------------------------------------------------------
[RAE LOGO]
REPORT OF INDEPENDENT AUDITORS WITH RESPECT TO
SUPPLEMENTARY SCHEDULES
Board of Directors and Stockholders
GHS, Inc.
Rockville, Maryland
The audits referred to in our report dated March 14, 1996 includes
Schedule II. In our opinion, this schedule presents fairly the information set
forth therein in relation to the financial statements taken as a whole and in
compliance with the applicable accounting regulation of the Securities and
Exchange Commission.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 14, 1996
S-1
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
GHS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Balance -------------------------------
at Charged to Balance
beginning Charged to other at
of costs and accounts - Deductions - end of
Description period expenses describe (A) describe (B) period
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1995 . . . . . . . . . . . . . . . $14,000 $14,000
======= =======
1994 . . . . . . . . . . . . . . . $14,000 $14,000
======= =======
1993 . . . . . . . . . . . . . . . $14,000 $14,000
======= =======
Reserve for inventory obsolescence:
1995 . . . . . . . . . . . . . . . $15,000 $15,000
======= =======
1994 . . . . . . . . . . . . . . . $15,000 $15,000
======= =======
1993 . . . . . . . . . . . . . . . $15,000 $15,000
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from GHS, Inc.
Form 10-K for 1995 and is qualified in it's entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 198,000
<SECURITIES> 0
<RECEIVABLES> 2,056,000
<ALLOWANCES> 14,000
<INVENTORY> 12,000
<CURRENT-ASSETS> 2,633,000
<PP&E> 2,484,000 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,339,000
<CURRENT-LIABILITIES> 2,054,000
<BONDS> 3,405,000
0
0
<COMMON> 65,000
<OTHER-SE> 1,929,000
<TOTAL-LIABILITY-AND-EQUITY> 7,339,000
<SALES> 4,445,000
<TOTAL-REVENUES> 4,446,000
<CGS> 3,141,000
<TOTAL-COSTS> 4,644,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504,000
<INCOME-PRETAX> (176,000)
<INCOME-TAX> 3,000
<INCOME-CONTINUING> (176,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
<FN>
<F1> PP&E is net of depreciation.
</FN>
</TABLE>
