U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1999
OR
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 000-26749
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
(Exact name of Registrant as Specified in Its Charter)
New York 11-2581812
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization
26 Harbor Park Drive, Port Washington, NY 11050
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 626-0007
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 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
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of
common equity, as of November 10, 1999 was 6,912,496 shares.
<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS: 3
CONSOLIDATED BALANCE SHEETS as of June 30, 1999 3
and September 30, 1999 (unaudited)
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 4
for the three months ended September 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 5
for the three months ended September 30, 1998 and 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10
CONDITION AND RESULTS OF OPERATIONS
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 14
MARKET RISK
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS 15
Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 15
Item 3 - DEFAULTS UPON SENIOR SECURITIES 15
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
Item 5 - OTHER INFORMATION 15
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
<PAGE>
CONSOLIDATED BALANCE SHEETS
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<S> <C> <C>
June 30, September 30,
1999 1999
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,815,863 $ 11,122,608
Accounts receivable,
less allowance for possible losses of $846,344 and $96,291 13,233,760 15,195,751
Rebates receivable 5,303,786 5,726,027
Deferred income tax 530,000 243,000
Other current assets 283,694 291,472
Total Current Assets 22,167,103 32,578,858
Property, equipment and software development costs, net 2,754,522 3,173,741
Due from affiliates 4,579,280 3,736,193
Other assets 15,728 15,728
Deferred income tax 166,000 ---
Deferred offering costs 1,163,378 ---
$ 30,846,011 $ 39,504,520
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 26,883,745 $ 25,327,779
Current portion of long-term debt 1,950 22,673
Due to officer/stockholder 390,000 420,000
Due to affiliates 750,968 249,395
Income taxes payable 704,489 36,444
Other current liabilities 116,544 155,149
Total Current Liabilities 28,847,696 26,211,440
Long-term debt, less current portion --- 126,739
Deferred tax liability --- 6,000
Total Liabilities 28,847,696 26,344,179
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY :
Preferred stock $.10 par value;
10,000,000 shares authorized, none outstanding --- ---
Common stock, $.001 par value;
25,000,000 shares authorized, 5,312,496 and 5,313 6,913
6,912,496 shares issued and outstanding
Additional paid-in capital 2,868,573 12,439,092
Retained earnings 480,529 1,034,311
Notes receivable - stockholders (1,356,100) (319,975)
Total Stockholders' Equity 1,998,315 13,160,341
$ 30,846,011 $ 39,504,520
See accompanying notes to consolidated financial statements
</TABLE>
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CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<S> <C> <C>
Three months ended
September 30,
1998 1999
REVENUES $ 30,522,392 $ 39,527,050
Cost of claims 27,005,937 36,177,173
GROSS PROFIT 3,516,455 3,349,877
Selling, general and administrative expenses * 2,246,410 2,573,491
Operating income 1,270,045 776,386
Other income (expense):
Other income, net 164,785 219,623
Public Offering costs (227,396) ---
(62,611) 219,623
Income before income taxes 1,207,434 996,009
Provision for income taxes 502,000 442,228
NET INCOME $ 705,434 $ 553,781
Earnings per common shares:
Basic $0.14 $0.09
Diluted $0.14 $0.09
Weighted average number of common shares outstanding:
Basic 4,971,578 6,355,974
Diluted 4,971,578 6,355,974
* Includes amounts charged by affiliates aggregating: $658,566 $675,982
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
Three months ended
September 30,
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $705,434 $553,781
Depreciation and amortization 153,468 253,915
Bad debt recovery (66,795) ---
Bonus accrued to officers/stockholders 300,000 ---
Compensation expenses accrued to officer/stockholder 90,000 30,000
Deferred income taxes (71,000) 459,000
Interest accrued on stockholders' loans (28,475) ---
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,760,438) (1,961,991)
Other assets (73,937) (7,778)
Rebates receivable 116,215 (422,241)
Due to/from affiliates (352,501) 341,514
Increase (decrease) in:
Accounts payable and accrued expenses 1,351,178 (1,555,966)
Income taxes payable 573,000 (668,045)
Other liabilities 110,884 38,606
Net cash provided by (used in) operating activities 1,047,033 (2,939,205)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (385,943) (522,297)
Loans to stockholders (90,100) ---
Repayment of note by stockholder --- 1,036,125
Net cash provided by (used in) investing activities (476,043) 513,828
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock --- 10,735,497
Repayment of debt (3,406) (3,375)
Net cash provided by (used in) financing activities (3,406) 10,732,122
Net increase in cash and cash equivalents 567,584 8,306,745
Cash and cash equivalents, beginning of period 1,305,792 2,815,863
Cash and cash equivalents, end of period $1,873,376 $11,122,608
Non cash investing activities:
During the three months ended September 30, 1999, the Company incurred capital
lease obligations for equipment in the amount of $150,837.
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of National
Medical Health Card Systems, Inc. and its wholly owned subsidiary National
Medical Health Card IPA, Inc. (the "Company") and have been prepared as if the
entities had operated as a single consolidated group since inception. All
material intercompany balances and transactions have been eliminated in the
consolidation.
The accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial information and substantially in the form prescribed by the
Securities and Exchange Commission in instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the September
30, 1999 and 1998 unaudited interim financial statements include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of results for these interim periods. In the opinion of the
Company's management, the disclosures contained in this Form 10-Q are adequate
to make the information presented not misleading when read in conjunction with
the Notes to Consolidated Financial Statements included in the Company's Form
10-K for the year ended June 30, 1999. The results of operations for the three
month period ended September 30, 1999 are not necessarily indicative of the
results to be expected for the full year or for any future period.
2. PUBLIC OFFERING
The registration statement for the Company's Public Offering became
effective on July 28, 1999 ("the Public Offering"). The Company consummated the
Public Offering on August 2, 1999 and issued 1,600,000 shares of common stock at
an offering price of $7.50 per share. The Company granted the underwriters of
the Public Offering 200,000 warrants for nominal consideration. The warrants
entitle the underwriters to purchase 200,000 shares of common stock from the
Company at $9.00 per share. The warrants are exercisable for four years
commencing on July 29, 2000. In addition, the underwriters were granted an
overallotment option by the Company to buy 300,000 shares of common stock at
$7.50 per share exercisable by September 11, 1999. The underwriters did not
exercise this option. Concurrent with the Public Offering, the Selling
Stockholder sold 400,000 shares of common stock from its holding at $7.50 per
share. The Company received proceeds of $12,883,100 representing payment for the
sale of the 1,600,000 shares plus 73% of the proceeds from the sale of the
400,000 shares by the Selling Stockholder for repayment of $1,992,900 of
indebtedness owed by the Selling Stockholder and certain affiliates to the
Company. Such proceeds were net of underwriting discounts and commissions, a
non-accountable expense allowance and a financial advisory fee paid to the
underwriters plus certain fees and expenses paid by the Company.
3. STOCK OPTIONS
On August 3, 1999, and after, the Company granted incentive options to employees
under the 1999 Stock Option Plan (the "Plan") to purchase shares of common stock
at $7.50 per share. These options vest and become exercisable within a three
year period commencing upon the completion of one year of employment with the
Company. These options terminate after five years. As of September 30, 1999,
131,100 options had been granted.
On August 3, 1999, the Company granted non-statutory options to three outside
directors under the Plan to purchase an aggregate of 30,000 shares of common
stock at $7.50 per share. These options vest and become exercisable within a
three year period commencing August 3, 1999 and terminate on August 3, 2004.
4. EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with the majority stockholder
effective July 1, 1999. Pursuant to this agreement, the majority stockholder has
agreed to serve as Chairman of the Board of Directors at an annual salary of
$200,000, subject to adjustment by the Board of Directors. The agreement
commenced on July 1, 1999 and has a term of two years, unless terminated by the
Company for cause, or in the event the stockholder becomes permanently disabled.
The agreement provides for certain fringe benefits payable to or on behalf of
the majority stockholder, such as the use of an automobile. In addition, the
agreement provides for certain termination benefits payable to the majority
stockholder, which depending upon the reason for termination, can equal up to
two years salary.
5. EARNINGS PER SHARE
Outstanding options and warrants issued by the Company for the three months
ended September 30, 1999 are excluded from the calculation of diluted earnings
per share as they are antidilutive. Options issued by the majority stockholder
that were outstanding for the three months ended September 30, 1999 and 1998 are
excluded from the computation of diluted earnings per share since, upon
exercise, the underlying common stock would be issued by the majority
stockholder in accordance with the option agreements.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
June 30, September 30,
1999 1999
Claims payable $17,553,036 $16,813,432
Rebates payable to sponsors 7,062,159 7,086,760
Other payables 2,268,550 1,427,587
$26,883,745 $25,327,779
During the quarter ended September 30, 1999 rebates payable were reduced by
$736,000 when the Company reevaluated its liability to a plan sponsor. Cost
of claims for the quarter were decreased by the same amount.
7. RELATED PARTY TRANSACTIONS
Certain costs paid to the affiliates were capitalized as software
development costs. For the quarter ended September 30, 1999 the amount
charged by affiliates and capitalized was $145,719.
The Company purchased furniture and fixtures from an affiliate during the
quarter ended September 30, 1999 for approximately $45,000. The price
included a 20% purchasing and handling fee.
For the periods presented, certain general, administrative and other
expenses reflected in the financial statements include allocations of
certain corporate expenses from affiliates which take into consideration
personnel, estimates of the time spent to provide services or other
appropriate bases. These allocations include services and expenses for
general management, information systems maintenance, financial consulting,
employee benefits administration, legal communications and other
miscellaneous services.
Management believes the foregoing allocations were made on a reasonable
basis. Although these allocations do not necessarily represent the costs
which would have been or may be incurred by the Company on the stand-alone
basis, management believes that any variance in costs would not be
material.
General and administrative expenses related to transactions with
affiliates included in the statement of income are:
September 30,
1998 1999
Software maintenance and related services $ 163,614 $ 226,748
Management and consulting fees 350,787 308,810
Administrative and bookkeeping services 91,883 47,424
Rent and utilities 52,282 93,000
$658,566 $675,982
8. MAJOR CUSTOMERS AND PHARMACIES
For the three months ended September 30, 1998 and 1999, approximately 67%
and 54%, respectively, of the revenues were from three plan sponsors
administering multiple plans. Amounts due from these three sponsors at
September 30, 1998 and 1999 approximated $2,933,000 and $6,729,000,
respectively. Revenues for the quarter ended September 30, 1998 included
a one-time rate increase of $500,000 from a major plan sponsor.
For the three months ended September 30, 1998 and 1999, approximately 28%
and 41% of the cost of claims were from two pharmacy chains. Amounts
payable to these two pharmacy chains at September 30, 1998 and 1999 were
approximately $3,408,000 and $7,429,000, respectively.
9. LITIGATION
On February 9, 1999, the Company was informed by counsel that an action was
brought against it by the West Contra Costa Unified School District and an
individual plaintiff in the State of California. The case was subsequently
removed to Federal court. The complaint alleges, among other things, that
the parties entered into a contract in November 1996, for services to be
provided by the Company and, subsequently, the Company unilaterally
terminated the contract on December 16, 1996. The complaint further alleges
that this termination was in violation of the terms of the contract and one
or more statutory provisions; that the termination resulted in the school
district incurring approximately $150,000 in additional costs due to its
having to enter into a fee for service arrangement with the Company in
order to continue providing prescription benefits to its plan members; and
that, due to the wrongful termination of the contract, the school district
was forced to secure a replacement for the benefits and the services that
were to have been provided under the contract with the Company. In
connection with this last circumstance, the complaint alleges that the
school district incurred approximately $400,000 in additional expenses. The
complaint also seeks treble damages. If treble damages were allowable in
this case and a judgment were to be entered against the Company, the
Company would be liable for damages in excess of $1,500,000. The Company
denies the allegations and intends to vigorously defend this action. In the
opinion of management, the outcome of this litigation will not have a
material adverse effect on the Company's financial position or its results
of operations.
10. SUBSEQUENT EVENTS
In October 1999 the Company entered into a new two year arrangement with
one of its major sponsors. As consideration for this arrangement the
Company settled certain fees due from this sponsor and reduced revenue by
$821,000 during the quarter ended September 30, 1999.
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Revenues increased $9 million, or approximately 30%, from $30.5 million for the
three months ended September 30, 1998 to $39.5 million for the three months
ended September 30, 1999. The increase resulted primarily from $5.3 million in
fees related to new sponsors. The remaining increase of approximately $4.5
million was due primarily to other existing sponsors as a result of higher
charges relating to pharmaceuticals, new drugs, plan participant growth and an
increase in the average number of claims per plan participant. Revenues for the
quarter ended September 30, 1998 included a one-time rate increase of $500,000
from a major client. The revenue for the three months ended September 30, 1999
was net of a $821,000 reduction in revenue when the Company settled certain fees
due from a major sponsor as consideration for a new two year arrangement with
this sponsor.
Cost of claims increased $9.2 million, or approximately 34%, from $27
million for the three months ended September 30, 1998 to $36.2 million for the
three months ended September 30, 1999. As a percentage of revenues, cost of
claims increased from 89% for the three months ended September 30, 1998 to 92%
for the three months ended September 30, 1999. During the quarter ended
September 30, 1999 rebates payable were reduced by $736,000 when the Company
reevaluated its liability to a plan sponsor. Cost of claims for the quarter were
decreased by the same amount. The increase in the cost of claims as a percentage
of revenues, when removing the $500,000 rate increase noted above, was 2%. This
2% was caused by higher drug costs.
Gross profit decreased approximately $200,000, from $3.5 million for the
three months ended September 30, 1998 to $3.3 million for the three months ended
September 30, 1999, primarily as a result of the increase in revenues, offset by
the increase in the cost of claims. The gross profit percentage for the quarter
ending September 30, 1998 was affected by the one-time rate increase of $500,000
noted above. The gross profit percentage for the quarter ended September 30,
1999 was more indicative of the current trend, with the one-time items discussed
above aggregating to only a reduction in gross profit of $85,000.
Selling, general and administrative expenses, which include amounts charged by
affiliates, increased $400,000, or approximately 18%, from $2.2 million for the
three months ended September 30, 1998 to $2.6 million for the three months ended
September 30, 1999. The increase resulted primarily from increases in
compensation, benefits, sales and marketing and other expenses related to the
expansion of the Company's business.
General and administrative expenses charged by affiliates increased $17,000, or
approximately 3%, from $659,000 for the three months ended September 30, 1998 to
$676,000 for the three months ended September 30, 1999.
Other income increased $283,000, from a net expense of $63,000 for the three
months ended September 30, 1998 to income of $220,000 for the three months ended
September 30, 1999, due to $84,000 of interest income earned on proceeds from
the Public Offering and a $227,000 decrease in Public Offering costs offset by a
$28,000 decrease in shareholder and affiliate interest income.
The provision for income taxes decreased $60,000, from $502,000 for the three
months ended September 30, 1998 to $442,000 for the three months ended September
30, 1999, as a result of decreased taxable income.
Liquidity and Capital Resources
The Company's primary cash requirements are for capital expenditures and
operating expenses including cost of pharmaceuticals, software and hardware
upgrades and the funding of accounts receivable. As of September 30, 1999, the
Company had working capital of $6.4 million. Net cash used by operating
activities was $2.9 million for the three months ended September 30, 1999
resulting primarily from increases in accounts receivable due to the growth of
the Company's business, and a decrease in accounts payable and accrued expenses
due to the Company's improved working capital position. Net cash provided by
investing activities was $514,000 for the three months ended September 30, 1999
resulting primarily from a repayment of a note by stockholder offset by capital
expenditures associated with the expansion of the Company's systems. Net cash
provided by financing activities was $10.7 million and resulted primarily from
the Public Offering.
The registration statement for the Company's Public Offering became
effective on July 28, 1999 ("the Public Offering"). The Company consummated the
Public Offering on August 2, 1999 and issued 1,600,000 shares of common stock at
an offering price of $7.50 per share. The Company granted the underwriters of
the Public Offering 200,000 warrants for nominal consideration. The warrants
entitle the underwriters to purchase 200,000 shares of common stock from the
Company at $9.00 per share. The warrants are exercisable for four years
commencing on July 29, 2000. In addition, the underwriters were granted an
overallotment option by the Company to buy 300,000 shares of common stock at
$7.50 per share exercisable by September 11, 1999. The underwriters did not
exercise this option. Concurrent with the Public Offering, the Selling
Stockholder sold 400,000 shares of common stock from its holding at $7.50 per
share. The Company received proceeds of $12,883,100 representing payment for the
sale of the 1,600,000 shares plus 73% of the proceeds from the sale of the
400,000 shares by the Selling Stockholder for repayment of $1,992,900 of
indebtedness owed by the Selling Stockholder and certain affiliates to the
Company. Such proceeds were net of underwriting discounts and commissions, a
non-accountable expense allowance and a financial advisory fee paid to the
underwriters plus certain fees and expenses paid by the Company.
The Company believes that the net proceeds of its recent Public Offering
and the repayment of certain affiliate and shareholder debt, together with
anticipated cash flow from operations, will be sufficient to satisfy the
Company's contemplated cash requirements for at least 24 months. This is based
upon current levels of capital expenditures and anticipated operating results
for the next 24 months. In the event that the Company's plans change or its
assumptions prove to be inaccurate or the proceeds of the Public Offering
otherwise prove to be insufficient to fund operations, the Company could be
required to seek additional financing sooner than anticipated.
Other Matters
Inflation
Management does not believe that inflation has had a material adverse impact on
the Company's net income.
Year 2000 Readiness
The Year 2000 problem is the result of computer programs being written using two
digits, rather than four, to define the applicable year. Programs that have
time-sensitive software may recognize a date using "00" as the Year 1900 rather
than the Year 2000, which could result in miscalculations or system failures.
The Company has implemented a Year 2000 compliance review designed to ensure
that its computer systems, applications and embedded operating systems will
function properly beyond 1999. This compliance review involves assessing the
risks of the Year 2000 issue, and planning and instituting mitigation actions to
minimize those risks. The Company's standard for compliance requires that for a
computer system or business process to be Year 2000 compliant, it must be
designed to operate without error in date and date-related data prior to, on and
after January 1, 2000. The Company believes that all of its "mission critical"
systems have been identified, and has completed compliance testing.
Information Technology Systems
The Company recently completed a comprehensive review of its information
technology systems and is involved in a program to update its information
systems and applications in preparation for the Year 2000. The Company will
incur internal staff costs as well as outside consulting and other expenditures
related to this initiative. Historical and anticipated expenditures related to
remediation, testing, conversion, replacement and upgrading system applications
in connection with the Year 2000 problem are expected to total approximately
$100,000. Total expenses, including depreciation and amortization of new package
systems, are not expected to have a material impact on 's financial condition
during the conversion process. Year 2000 costs are expensed as incurred.
Non-IT Technology
An inventory and assessment of all non-IT systems (including items containing
embedded chips, such as elevators, electronic door locks, telephones) has been
completed. The great majority of these non-IT systems are not believed to be
potential sources of significant disruption, although the contingency plans
(described below) will address non-IT Year 2000 failure as well as IT systems
failure. The Company's telephone system was determined to be the only non-IT
system not Year 2000 compliant. A new system was purchased and installed and
certified to be Year 2000 compliant by the vendor.
The Company's management intends to develop a "worst-case scenario" with respect
to Year 2000 non-compliance and to develop contingency plans designed to
minimize the effects of such scenario. The contingency plans will involve
analysis of the use of alternative, non-IT methods of processing claims,
including manual processing, in the event of IT system failure on the part of
outside parties. The manual processing of claims would also be assisted, in a
worst case scenario, by the use of paper claim forms rather than the computer
formats currently being used. As to claims management, the worst case scenario
would require that another switching company be used to process claims. This
option has already been researched and contingency plans formulated. Switching
companies electronically route pharmacy claims to the appropriate prescription
benefit management company. The Company is currently testing its switching
network. One major vendor of claims management services with which The Company
does business, PHI, has certified that software licensed from it is Year 2000
compliant. All client formats have been reviewed and have been found to be
either Year 2000 compliant or very nearly so. There has also been communication
between vendors and The Company with respect to the exchange of billing tape
formats, in an effort to be certain that The Company's formats are acceptable to
the vendors, and vice versa.
The Company is attempting to contact vendors and others on whom it relies to
assure that their systems will be converted in a timely fashion. However, there
can be no assurance that the systems of other companies on which The Company's
systems rely will also be converted in a timely fashion, so that any such
failure to convert by another company would not have an adverse effect on The
Company's information systems. Furthermore, no assurance can be given that any
or all of The Company's information systems are or will be Year 2000 compliant,
or that the ultimate costs required to address Year 2000 issues or the impact of
any failure to achieve substantial Year 2000 compliance will not have a material
adverse effect on The Company's business, operating results and financial
condition.
There is still uncertainty about the broader scope of the Year 2000 issue as it
may affect The Company and third parties that are critical to its operations.
For example, lack of readiness by electrical and water utilities, financial
institutions, governmental agencies or other providers of general infrastructure
could pose significant impediments to The Company's ability to carry on its
normal operations. In the event that The Company is unable to complete its
remedial actions and is unable to implement adequate contingency plans in the
event that problems are encountered, there could be a material adverse effect on
its business, operating results and financial condition.
Forward-Looking Statements
This report contains or may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 including
statements of the Company's and management's expectations, intentions, plans and
beliefs, including those contained in or implied by "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Notes to
Consolidated Financial Statements. These forward-looking statements, as defined
in Section 21E of the Securities Exchange Act of 1934, are dependent on certain
events, risks and uncertainties that may be outside the Company's control. These
forward-looking statements may include statements of management's plans and
objectives for the Company's future operations and statements of future economic
performance; the Company's capital budget and future capital requirements, and
the Company's meeting its future capital needs; and the assumptions described in
this report underlying such forward-looking statements. Actual results and
developments could differ materially from those expressed in or implied by such
statements due to a number of factors, including, without limitation, those
described in the context of such forward-looking statements, and the factors set
forth in the Company's Form 10-K. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by this section.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
See Form 10-K for the period ended June 30, 1999.
Item 2 - Changes in Securities and Use of Proceeds
On August 3, 1999, and after, the Company granted incentive options to
employees under the 1999 Stock Option Plan (the "Plan") to purchase shares of
common stock at $7.50 per share. These options vest and become exercisable
within a three year period commencing upon the completion of one year of
employment with the Company. These options terminate after five years. As of
September 30, 1999, 131,100 options had been granted.
On August 3, 1999, the Company granted non-statutory options to three outside
directors under the Plan to purchase an aggregate of 30,000 shares of common
stock at $7.50 per share. These options vest and become exercisable within a
three year period commencing August 3, 1999 and terminate on August 3, 2004.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
None.
Exhibit 27 - Financial Data Schedule (Electronic Filing Only)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
(Registrant)
Date: November 15, 1999 By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman of the Board
and Chief Executive Officer
<PAGE>
November 15, 1999
Securities and Exchange Commission 450 5th Street, N.W.
Washington, D.C. 20549
Re: National Medical Health Card Systems, Inc.
File No: 000-26749
Dear Sir or Madam:
Transmitted herewith through the EDGAR system is Form 10-Q for the quarter
ending September 30, 1999 for National Medical Health Card Systems, Inc. If you
have any questions or comments, please contact me at (516) 484-4400, extension
303.
Very truly yours,
Barbara E. Dale
Paralegal
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