NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.AND SUBSIDIARY
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 December 31, 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 February 10, 2000 was 6,912,496 shares.
<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS: 3
CONSOLIDATED BALANCE SHEETS as of June 30, 1999 3
and December 31, 1999 (unaudited)
CONSOLIDATED STATEMENTS OF INCOME (unaudited) 4
for the three months and six months
ended December 31, 1998 and 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) 5
for the six months ended December 31, 1998 and 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11
CONDITION AND RESULTS OF OPERATIONS
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 15
MARKET RISK
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS 16
Item 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 16
Item 3 - DEFAULTS UPON SENIOR SECURITIES 16
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
Item 5 - OTHER INFORMATION 16
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K 16
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
June 30, December 31,
1999 1999
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,815,863 $ 10,823,938
Accounts receivable,
less allowance for possible losses of $846,344 and $76,721 13,233,760 14,066,648
Rebates receivable 5,303,786 5,746,873
Deferred income tax 530,000 75,000
Other current assets 283,694 661,518
Total Current Assets 22,167,103 31,373,977
Property, equipment and software development costs, net 2,754,522 3,543,753
Due from affiliates 4,579,280 3,854,440
Other assets 15,728 15,728
Deferred income tax 166,000 ---
Deferred offering costs 1,163,378 ---
$ 30,846,011 $ 38,787,898
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
Accounts payable and accrued expenses $ 26,883,745 $ 24,211,105
Current portion of long-term debt 1,950 38,940
Due to officer/stockholder 390,000 420,000
Due to affiliates 750,968 90,285
Income taxes payable 704,489 ---
Other current liabilities 116,544 148,034
Total Current Liabilities 28,847,696 24,908,364
Long-term debt, less current portion --- 108,040
Deferred tax liability --- 120,000
Total Liabilities 28,847,696 25,136,404
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' 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
6,912,496 shares issued and outstanding 5,313 6,913
Additional paid-in capital 2,868,573 12,405,010
Retained earnings 480,529 1,565,921
Notes receivable - stockholders (1,356,100) (326,350)
Total Stockholders' Equity 1,998,315 13,651,494
$ 30,846,011 $ 38,787,898
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
December 31, December 31,
1998 1999 1998 1999
REVENUES $32,760,690 $45,746,710 $63,283,082 $85,273,760
Cost of claims 29,857,711 42,564,492 56,863,649 78,741,665
GROSS PROFIT 2,902,979 3,182,218 6,419,433 6,532,095
Selling, general and administrative expenses * 2,730,080 2,558,916 4,976,489 5,132,406
Operating income 172,899 623,302 1,442,944 1,399,689
Other income (expense):
Other income, net 187,018 269,081 351,804 488,704
Public Offering costs 190,492 --- (36,904) ---
Income before income taxes 550,409 892,383 1,757,844 1,888,393
Provision for income taxes 124,000 360,772 626,000 803,000
NET INCOME $426,409 $531,611 $1,131,844 $1,085,393
Earnings per common shares:
Basic $0.08 $0.08 $0.22 $0.16
Diluted $0.08 $0.08 $0.22 $0.16
Weighted average number of common shares outstanding:
Basic 5,227,267 6,912,496 5,099,423 6,634,235
Diluted 5,227,267 6,912,496 5,099,423 6,634,235
* Includes amounts charged by affiliates aggregating: $705,815 $622,262 $1,364,381 $1,298,244
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
Six months ended
December 31,
1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,131,844 $1,085,393
Depreciation and amortization 332,353 535,422
Bad debt expense 683,943 ---
Bonus accrued to officers/stockholders 170,850 ---
Compensation expenses accrued to officer/stockholder 180,000 30,000
Deferred income taxes 19,000 741,000
Interest accrued on stockholders' loans (56,950) (6,375)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,673,917) (832,888)
Other current assets (65,515) (377,824)
Rebates receivable (256,950) (443,087)
Due to/from affiliates (309,136) 64,157
Increase (decrease) in:
Accounts payable and accrued expenses 258,872 (2,672,640)
Income taxes payable 481,194 (704,489)
Other liabilities 114,477 31,490
Net cash provided by (used in) operating activities 10,065 (2,549,841)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (882,585) (1,173,816)
Loans to stockholders (90,100) ---
Repayment of note by stockholder --- 1,036,125
Net cash used in investing activities (972,685) (137,691)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 2,000,000 10,701,415
Repayment of debt (4,198) (5,808)
Net cash provided by financing activities 1,995,802 10,695,607
Net increase in cash and cash equivalents 1,033,182 8,008,075
Cash and cash equivalents, beginning of period 1,305,792 2,815,863
Cash and cash equivalents, end of period $2,338,974 $10,823,938
Non cash investing activities:
During the six months ended December 31, 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 SUBSIDIARIES
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 subsidiaries, National
Medical Health Card IPA, Inc. and Specialty Pharmacy Care, 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 December
31, 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
and six month periods ended December 31, 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
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 December 31, 1999,
139,700 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 are excluded from
the calculation of diluted earnings per share for the three months and six
months ended December 31, 1999 as they are antidilutive. Options issued by
the majority stockholder that were outstanding for the three and six months
ended December 31, 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, December 31,
1999 1999
Claims payable $17,553,036 $17,912,709
Rebates payable to sponsors 7,062,159 5,308,786
Other payables 2,268,550 989,610
$26,883,745 $24,211,105
During September 1999 rebates payable were reduced by $736,000 when the
Company reevaluated its liability to a plan sponsor. Cost of claims were
decreased by the same amount.
7. RELATED PARTY TRANSACTIONS
Certain costs paid to the affiliates were capitalized as software
development costs. For the six months ended December 31, 1999 the amount
charged by affiliates and capitalized was $281,890.
The Company purchased furniture and fixtures from an affiliate during the
six months ended December 31, 1999 for approximately $111,864. 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:
Three months ended December 31,
1998 1999
Software maintenance and related services $ 176,290 $ 230,252
Management and consulting fees 446,484 215,834
Administrative and bookkeeping services 28,052 83,176
Rent and utilities 54,989 93,000
$ 705,815 $ 622,262
Six months ended December 31,
1998 1999
Software maintenance and related services $ 339,904 $ 457,000
Management and consulting fees 797,271 524,644
Administrative and bookkeeping services 119,935 130,600
Rent and utilities 107,271 186,000
$ 1,364,381 $ 1,298,244
<PAGE>
8. MAJOR CUSTOMERS AND PHARMACIES
For the three months ended December 31, 1998 and 1999, approximately 68%
and 49%, respectively, of the revenues were from three plan sponsors
administering multiple plans. For the six months ended December 31, 1998
and 1999, approximately 68% and 51%, respectively, of the revenues were
from three plan sponsors administering multiple plans. Amounts due from
these three customers at December 31, 1999 approximated $2,820,000.
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 September 1999.
For the three months ended December 31, 1998 and 1999, approximately 28%
and 42% of the cost of claims were from two pharmacy chains. For the six
months ended December 31, 1998 and 1999, approximately 28% and 42% of the
cost of claims were from the same two pharmacy chains. Amounts payable to
these two pharmacy chains at December 31, 1999 were approximately
$7,855,000.
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
As of January 1, 2000 the Company will no longer be providing the employees
of Suffolk County, a major customer, with pharmacy benefits. Final contract
settlement with the County is being negotiated.
This customer accounted for 12.55% and 12.28% of total revenues for the
three months ended December 31, 1998 and 1999, respectively, and 14.17% and
12.01% of total revenues for the six months ended December 31, 1998 and
1999, respectively.
<PAGE>
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Revenues increased $12.9 million, or approximately 39%, from $32.8 million for
the three months ended December 31, 1998 to $45.7 million for the three months
ended December 31, 1999. The increase resulted primarily from $10.9 million in
fees related to new sponsors. The remaining increase of approximately $2 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.
Cost of claims increased $12.7 million, or approximately 42%, from $29.9 million
for the three months ended December 31, 1998 to $42.6 million for the three
months ended December 31, 1999. As a percentage of revenues, cost of claims
increased from 91% for the three months ended December 31, 1998 to 93% for the
three months ended December 31, 1999, as a result of higher drug costs.
Gross profit increased approximately $300,000, from $2.9 million for the three
months ended December 31, 1998 to $3.2 million for the three months ended
December 31, 1999, primarily as a result of the increase in revenues, offset by
the increase in the cost of claims.
Selling, general and administrative expenses, which include amounts charged by
affiliates, decreased $100,000, or approximately 4%, from $2.7 million for the
three months ended December 31, 1998 to $2.6 million for the three months ended
December 31, 1999. The decrease resulted primarily from a decrease of $684,000
of bad debt expense, offset by 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 decreased $84,000, or
approximately 12%, from $706,000 for the three months ended December 31, 1998 to
$622,000 for the three months ended December 31, 1999.
Other income decreased $109,000, from $378,000 for the three months ended
December 31, 1998 to of $269,000 for the three months ended December 31, 1999,
due to a $190,000 decrease in the overaccrual of Public Offering costs, a
$42,000 decrease in shareholder and affiliate interest income, offset by a
$123,000 increase in interest income earned on short-term investments.
The provision for income taxes increased $237,000, from $124,000 for the three
months ended December 31, 1998 to $361,000 for the three months ended December
31, 1999, as a result of increased taxable income.
Six Months Ended December 31, 1999 Compared to Six Months Ended
December 31, 1998
Revenues increased $22 million, or approximately 35%, from $63.3 million
for the six months ended December 31, 1998 to $85.3 million for the six months
ended December 31, 1999. The increase resulted primarily from $18.7 million in
fees related to new sponsors. The remaining increase of approximately $4.1
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
six months ended December 31, 1998 included a one-time rate increase of $500,000
from a major client. The revenue for the six months ended December 31, 1999 was
net of an $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 $21.8 million, or approximately 38%, from $56.9 million
for the six months ended December 31, 1998 to $78.7 million for the six months
ended December 31, 1999. As a percentage of revenues, cost of claims increased
from 90% for the six months ended December 31, 1998 to 92% for the six months
ended December 31, 1999, as a result of higher drug costs. During the six months
ended December 31, 1999 rebates payable were reduced by $736,000 when the
Company reevaluated its liability to a plan sponsor. Cost of claims for the six
months were decreased by the same amount.
Gross profit increased approximately $100,000, from $6.4 million for the six
months ended December 31, 1998 to $6.5 million for the six months ended December
31, 1999, primarily as a result of the increase in revenues, offset by the
increase in the cost of claims.
Selling, general and administrative expenses, which include amounts charged by
affiliates, increased $100,000, or approximately 2%, from $5 million for the six
months ended December 31, 1998 to $5.1 million for the six months ended December
31, 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, offset by a $684,000 decrease in bad debt expense.
General and administrative expenses charged by affiliates decreased $100,000, or
approximately 7%, from $1.4 million for the six months ended December 31, 1998
to $1.3 million for the six months ended December 31, 1999.
Other income increased $174,000, from $315,000 for the six months ended December
31, 1998 to $489,000 for the six months ended December 31, 1999, due to a
$207,000 increase in interest income earned on short-term investments and a
$37,000 decrease in Public Offering costs offset by a $70,000 decrease in
shareholder and affiliate interest income.
The provision for income taxes increased $177,000, from $626,000 for the six
months ended December 31, 1998 to $803,000 for the six months ended December 31,
1999, as a result of increased 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 December 31, 1999, the
Company had working capital of $6.5 million. Net cash used in operating
activities was $2.5 million for the six months ended December 31, 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 used by investing
activities was $138,000 for the six months ended December 31, 1999 resulting
primarily from a repayment of a note by stockholder offset by capital
expenditures associated with the expansion of the Company's computer 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
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 anticipates that the net proceeds of the 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. Alternatively, revolving credit lines and debt financing are
being evaluated as backups to anticipated cash needs. 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
By December 1999, the Company had carefully reviewed and upgraded all of its
management and information systems, using internal staff and outside firms
specializing in computer systems, networking, telecommunications, accounting
software and associated products, in an effort to minimize any impact of the
year 2000. While the Company's project to assess and correct Y2K related issues
regarding the year 2000 has been completed, and the Company has not experienced
any Y2K related events, interactions with other companies' systems make it
difficult to conclude there will not be future effects. The Company is
monitoring the situation carefully and at this time, management believes that
the impact of the year 2000 will have no material effect on its operations or
financial results.
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 SUBSIDIARIES
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 December 31, 1999
139,700 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: February 14, 2000 By: /s/ Bert E. Brodsky
Bert E. Brodsky
Chairman of the Board
and Chief Executive Officer
<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: February 14, 2000 By:
Bert E. Brodsky
Chairman of the Board
and Chief Executive Officer
<PAGE>
February 14, 2000
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 December 31, 1999 for National Medical Health Card Systems, Inc. If you
have any questions or comments, please contact me at (516) 484-4400, extension
215.
Very truly yours,
Linda Scarpantonio
Legal Coordinator
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