SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form 10-Q
(Mark one)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
|_| TRANSITIONAL REPORT PURSUANT TO SECTION 13 0R 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-17292
ACCUHEALTH, INC.
(Exact name of registrant as specified in its charter)
New York 13-3176233
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1575 Bronx River Avenue
Bronx, New York 10460
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 518-9511
Indicate by check mark (X) whether the registrant has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding at August 9, 1996
Common stock, par value $.01 per share 1,375,085 Shares
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Balance Sheets as of
June 30, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
SIGNATURES 14
2
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS: June 30, 1996 March 31, 1996
------------- --------------
Current Assets:
<S> <C> <C>
Cash $ 10,911 $ 2,694
Accounts receivable, net 4,285,108 4,459,693
Inventories 626,160 621,838
Prepaid expenses and other current assets 106,101 103,114
---------- ----------
Total Current Assets 5,028,280 5,187,339
Revenue producing equipment, net 611,154 670,352
Fixed assets, net 1,729,062 1,758,646
Other assets 24,764 34,620
---------- ----------
Total Assets $7,393,260 $7,650,957
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable - revolving credit facility $2,439,299 $2,413,392
Notes payable - trade 225,592 294,598
Accounts payable 1,512,899 1,512,836
Accrued expenses and other current liabilities 852,325 1,021,422
Reserve for contingencies 200,000 200,000
Capital lease facility 429,000 71,500
Current portion of other capital lease obligations 270,347 354,209
Total Current Liabilities 5,929,462 5,867,957
Capital lease - facility, less current portion -- 375,375
Other capital lease obligations, less current portion 91,600 112,977
---------- ----------
Total Liabilities 6,021,062 6,356,309
---------- ----------
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 3,650,000
shares; no shares issued and outstanding -- --
6% Redeemable cumulative convertible preferred stock
$.01 par value; $2,713,500 liquidation preference, authorized,
issued and outstanding 1,350,000 shares 13,500 13,500
Common stock, $.01 par value; authorized 15,000,000
shares; issued 1,683,089 and 1,630,233 shares, respectively 16,831 16,302
Additional paid-in capital 6,087,232 6,007,938
(4,121,045) (4,118,772)
---------- ----------
1,996,518 1,918,968
Less treasury stock (308,004 shares) at cost 624,320 624,320
Total Stockholders' Equity 1,372,198 1,294,648
--------- ---------
Total Liabilities and Stockholders' Equity $7,393,260 $7,650,957
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
-------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 3,927,372 $ 3,806,493
Cost of goods sold 2,216,484 2,136,401
----------- -----------
Gross profit 1,710,888 1,670,092
Selling, general and administrative expenses 1,545,400 1,777,357
----------- -----------
Operating income (loss) 165,488 (107,265)
Interest expense 128,395 122,677
----------- -----------
Net income (loss) 37,093 (229,942)
Redeemable preferred stock dividends and accretion 39,366 82,118
----------- -----------
Net loss applicable to common stockholders $ (2,273) $ (312,060)
=========== ===========
Net loss per common share applicable to
common shareholders
Primary -- $ (.25)
----------- -----------
Fully diluted -- $ (.25)
----------- -----------
Weighted number of common shares
and equivalents outstanding
Primary 1,338,356 1,241,996
----------- -----------
Fully diluted 1,338,356 1,241,996
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
------------------
1996 1995
---- ----
Operating activities
<S> <C> <C>
Net income (loss) $ 37,093 $(229,942)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Amortization of financing costs 16,448 34,821
Depreciation and amortization 104,614 99,567
Changes in operating assets and liabilities
Accounts receivable 174,585 (107,992)
Inventories (4,322) (12,663)
Prepaid expenses and other assets (2,987) (8,488)
Other assets (8,770) (415,972)
Accounts payable 63 465,972
Accrued expenses and other current liabilities (128,597) (63,833)
--------- ---------
Cash provided by operating activities 188,127 170,416
--------- ---------
Investing activities
Notes receivable -- 16,400
Purchase of fixed assets (2,877) (2,165)
--------- ---------
Cash (used in) provided by investing activities (2,877) 14,235
--------- ---------
Financing activities
Proceeds from note payable - revolving credit facility 25,907 (92,832)
Notes payable - trade (69,006) (50,148)
Principal payments on capital lease - facility (17,875) (17,875)
Payments on other capital lease obligations (116,059) (82,258)
Due to prior officers -- (62,500)
--------- ---------
Cash used in financing activities (177,033) (305,613)
--------- ---------
Net increase (decrease) in cash 8,217 (120,962)
Cash at beginning of period 2,694 147,307
--------- ---------
Cash at end of period $ 10,911 $ 26,345
========= =========
Supplemental disclosure of cash flow information
Interest paid $ 115,000 $ 101,000
========= =========
Noncash investing and financing activities
Additions to capital leases $ 10,820 $ 52,758
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
Note 1 - Basis of Presentation
The condensed consolidated financial statements include the accounts of
Accuhealth, Inc. and its subsidiaries, all of which are wholly-owned (the
"Company"). Significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and principally with the instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of the periods reported have been included. Operating results for
the three- month period ended June 30, 1996 may not be indicative of the results
for the full fiscal year.
These financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Form 10-KSB for the
fiscal year ended March 31, 1996 filed with the Securities and Exchange
Commission.
The balance sheet at March 31, 1996 has been derived from the audited financial
statements at that date.
Management has formulated certain planned actions to mitigate the effects of the
Company's working capital deficiency and generate sufficient cash to meet its
operating needs through at least June 30, 1997. The plan includes, among other
matters, increasing the borrowing capacity under the revolving credit facility,
obtaining more favorable terms and financing from vendors, reducing corporate
expenses and increasing services to managed care providers. No assurances can be
made that management will be successful in achieving its plans. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Accounts Receivable
Accounts receivable are principally due from third party payors, primarily
governmental agencies (Medicare and Medicaid), managed care organizations and
private insurance companies.
Inventories
Inventories consist of over-the-counter and prescription drugs, infusion
products and supplies, and home health care equipment and supplies and are
priced at the lower of cost or market using the first-in, first-out ("FIFO")
method.
6
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
Earnings Per Share
For the quarters ended June 30, 1996 and 1995, primary loss per share has been
calculated by dividing the net loss applicable to common stock by the weighted
average of common stock and common stock equivalents outstanding during the
period. On a fully diluted basis, both the net loss and shares outstanding, if
applicable, are adjusted to assume the conversion of convertible preferred stock
from the date of issue and for the incremental option shares for fully diluted
purposes (See Note 4). For the periods ended June 30, 1996 and 1995, their
effect was anti- dilutive and therefore not included in the calculation.
Income Taxes
The Company files consolidated Federal, combined New York State and combined New
York City income tax returns. The Company's method of accounting for income
taxes is the liability method required by FASB Statement No. 109 "Accounting for
Income Taxes."
Major Customer
The Company's revenues from one customer accounted for 24% and 11% of the
Company's net sales for the three months ended June 30, 1996 and 1995,
respectively. At June 30, 1996, this customer represented approximately 15% of
the Company's gross receivables.
Note 2 - Notes Payable and Capital Lease Obligations
Notes payable - trade
The Company's trade notes outstanding which arose in connection with the
purchase of pharmaceutical inventories are as follows:
(A) In December 1995, the Company issued an unsecured note payable to a trade
creditor in the principal amount of $348,616. The outstanding balance at
June 30, 1996 was $178,643. The note is payable in ten monthly
installments of $36,808, which includes interest at 12% per annum.
(B) During the three months ended June 30, 1996, the Company converted a
portion of its accounts payable into a note payable to a trade creditor in
the principal amount aggregating $46,949. This note is payable in monthly
installments of approximately $4,200 beginning October 11, 1996 which
includes interest at 10.9% per annum. At June 30, 1996, the Company has
classified the principal balance as a current note payable-trade.
7
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
Notes payable - revolving credit facility
In April 1994, the Company entered into a Loan and Security Agreement (the
"Agreement") with Rosenthal and Rosenthal ("Rosenthal") to borrow, under certain
conditions and terms, up to $2,500,000 at an interest rate of prime (8-1/4% at
June 30, 1996) plus 4-7/8%. Borrowings under the Agreement are collateralized by
certain assets of the Company, including accounts receivables, inventories,
equipment and fixtures. The Company's ability to use this revolving credit
facility is dependent upon the level of its eligible receivables, as defined in
the Agreement. In addition, the Company granted Rosenthal warrants to purchase
70,000 shares of the Company's common stock at $2.00 per share.
Effective February 1, 1996, the Company and Rosenthal amended the Loan and
Security Agreement (the "Amendment"). The Amendment extends the Agreement
through April 28, 1997 and allows the Company to borrow, under certain
conditions and terms up to $3,500,000 (based on eligible accounts receivable, as
defined) at an interest rate of prime plus 3-7/8%. The revolving credit facility
can be terminated by Rosenthal absent a default, at any time upon one
hundred-twenty days notice. The Company granted Rosenthal an extension of their
current warrants to purchase 70,000 shares of the Company's common stock, at
$2.00 per share until October 31, 1997. In addition, the Company granted
Rosenthal warrants to purchase an additional 30,000 shares of common stock at
$2.50 per share expiring on April 28, 1998. Commencing April 28, 1996, the
Company is required to pay a facility fee of $35,000 per annum.
The revolving credit facility bears interest at variable market rates and as
such the carrying value approximates its fair value.
Capital lease facility
The Company leases its principal office and warehouse facility (the "Facility")
and certain equipment, furniture and fixtures, rental equipment and leasehold
improvements under capital lease agreements which extend through April 1999.
The Facility was obtained under a ten-year lease (the "Lease Agreement") with
the New York City Industrial Development Agency (the "Agency") as lessor. The
Agency issued to National Westminster Bank, U.S.A. (now "Fleet") $1,072,500
principal amount of its Industrial Development Bonds (the "Bonds") pursuant to
an Indenture of Mortgage and Agreement dated April 1, 1989 (the "Indenture"),
which created a lien on the Facility. The Company also paid $227,500 in order
for the Agency to purchase the warehouse. This amount and other acquisition
costs are capitalized as land and building under capital lease.
At the end of the term of the lease, the Company may purchase the Facility for
one dollar so long as all terms and conditions of the lease have been met. The
Lease Agreement and Guaranty
8
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
Agreement require the Company and its subsidiaries to comply with certain
covenants, including but not limited to, maximum debt to worth ratio, maximum
allowable losses and debt service coverage ratio. The Company's non-compliance
with such covenants was waived by Fleet through April 1, 1997. Since the Company
has not requested nor received from Fleet a waiver of non-compliance with such
covenants occurring after April 1, 1997, the entire balance outstanding has been
classified as current on the accompanying condensed consolidated balance sheet
at June 30, 1996.
In lieu of rent, the Company pays principal on the Bonds in quarterly
installments of $17,875, plus interest at the rate of prime (8 1/4% at June 30,
1996) plus 1%. On April 28, 1994, in conjunction with the Rosenthal financing,
the Company made an additional principal payment of $143,000. A final balloon
payment of $232,375 plus interest thereon is due on April 1, 1999. Each of the
Company's wholly-owned subsidiaries has guaranteed the Company's obligations
under the lease. The Lease Agreement and Guaranty Agreement also restrict the
payment of cash dividends in any one year to an aggregate amount not to exceed
25% of the Company's net income for the immediately preceding year.
Other capital leases
The Company leases durable medical equipment under capital lease agreements
which extend through March 31, 2000.
Note 3 - Contingencies
The City of New York is conducting an audit relating to General Corporation and
Commercial Rent taxes for the years 1990 through 1992. The Company has been
advised verbally by the City of New York that a probable liability will be
assessed. The minimum probable liability is included in the Company's reserves
for contingencies at June 30, 1996.
The Company has a recorded liability as of June 30, 1996 of $200,000 with
respect to claims that may be asserted against the Company as a result of prior
management's financial improprieties.
An agency of New York State is conducting a review of Medicaid reimbursement
with respect to two categories of products for the years 1990 through 1993. The
Company has not been advised as to whether any claim will be made.
In June 1995, a former employee commenced an action against the Company and
certain of its former and current officers, directors and shareholders. The
action alleges that the Company breached plaintiff's employment agreement. The
Company must now serve an Answer and proceed with discovery. The Company intends
to deny the principal allegations in the Complaint and to defend this action
vigorously. Management and counsel are still assessing the legal implications at
this time but currently management believes that this action will not have any
9
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1996
material adverse financial impact on the Company. The minimum probable liability
as estimated by management is included in the Company's reserve for
contingencies at June 30, 1996.
Management believes that the above matters will be settled without any material
adverse financial impact to the Company.
Note 4 - 6% Redeemable Cumulative Convertible Preferred Stock
On December 14, 1994 and January 30, 1995, the Company completed the sale at
$2.00 per share of 1,325,000 shares of redeemable convertible preferred stock
("Preferred Stock") with a 6% per annum cumulative dividend. During the quarter
ended December 31, 1995, the Company sold at $2.50 per share 25,000 additional
shares of Preferred Stock to certain officers and directors of the Company. The
Preferred Stock is convertible at any time at the option of the holder, subject
to antidilution adjustments, into 1,350,000 shares of common stock. The Company
has reserved 1,350,000 shares of common stock for such conversion. At any time
on or after December 31, 1995, subject to certain conditions, such as the
registration of the underlying common stock under the Securities Act of 1933,
compliance with the terms of the Preferred Stock and any other agreement with
the holders of the Preferred Stock and the payment of all dividends that are
accrued and unpaid on the Preferred Stock as of the Redemption Date, the Company
may redeem all or any portion of the Preferred Stock then outstanding. For each
share that is called for redemption, the Company shall pay $3.00 per share from
December 31, 1995 through December 31, 1997 and $4.00 per share on or after
January 1, 1998. The holders of the Preferred Stock are entitled to voting
rights equivalent to that of the common stock. The Preferred Stock is senior to
the common stock in the event of a liquidation of the Company. The liquidation
preference is $2.00 per share plus accrued and unpaid dividends.
The Preferred Stock was subject to mandatory redemption requirements of up to
$4.00 per share plus accrued dividends. As of June 16, 1995, the holders of
Preferred Stock agreed to modify their stockholder agreements to negate the
mandatory redemption requirements. This modification eliminates the need for
recognition of accretion effective June 16, 1995, and results in the Preferred
Stock being classified as equity rather than debt.
The Company is obligated to pay annual dividends of $.12 per share on its
1,350,000 outstanding shares of Preferred Stock. Such dividends accrue daily,
are payable each June 1 and December 1 and, at the election of the Company, may
be paid in shares of Common Stock valued in accordance with the terms of such
stock. Dividends on the Company's Preferred Stock are payable in preference and
priority to any payment of any dividends on the common stock.
The June 1, 1996 Dividend was paid out in 54,793 shares of common stock on July
7, 1996. Accrued and unpaid dividends from June 2, 1996 to June 30, 1996 of
$13,500 are included in accrued expenses and other current liabilities at June
30, 1996.
10
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Management's Discussion and Analysis should be read in conjunction with the
condensed consolidated financial statements of the Company and related notes
included elsewhere in this Form 10-Q.
Results of Operations
Net sales increased approximately $121,000 or 3% from the comparable 1995
quarter to $3.93 million for the three months ended June 30, 1996. The increase
was the result of an increase of approximately $538,000 in the Company's
institutional pharmacy business offset by decreases in the Company's infusion
services, durable medical equipment and oral medications revenues of
approximately $297,000, $54,000 and $66,000, respectively.
Gross profit for the three months ended June 30, 1996 and 1995 was approximately
$1.72 and $1.67 million, respectively, representing approximately 44% of net
sales for the three months ended June 30, 1996 and June 30, 1995.
Selling, general and administrative expenses ("SG &A") were approximately $1.55
and $1.78 million or approximately 39.3% and 46.7% of net sales for the three
months ended June 30, 1996 and 1995, respectively. The decrease was principally
the result of reductions of approximately $100,000 and $36,000 for professional
fees and insurance, respectively.
Financial Condition
The Company's cash provided by operating activities during the three months
ended June 30, 1996 was $188,127. As of June 30, 1996, the Company had a working
capital deficiency of $901,182 as compared to $680,618 at March 31, 1996. As
described in Note 2 of the financial statements, the entire capital lease
obligation for the Company's capital lease facility of $429,000 has been
classified as a current liability at June 30, 1996. The Company's working
capital deficiency at June 30, 1996 would be $543,682 if the capital lease were
not classified as a current liability on the June 1996 balance sheet. The
Company is current in the payment of principal and interest.
Management has formulated certain planned actions to mitigate the working
capital deficiency and generate sufficient cash to meet its operating needs
through at least June 30, 1997. The plan includes, among other matters,
increasing the borrowing capacity under the revolving credit facility, obtaining
better terms and financing from vendors, reducing corporate expenses and
increasing services to managed care providers. No assurances can be made that
management will be successful in achieving its plans, however.
On April 28, 1994, the Company obtained a $2.5 million maximum commitment
working capital facility from Rosenthal and Rosenthal ("Rosenthal") and used
funds borrowed under that facility to reduce its indebtedness to Fleet under the
capital lease-facility and to trade and other creditors. Interest on the greater
of $1,250,000 or the outstanding balance is payable monthly at the rate
11
<PAGE>
of 4 7/8% over the prime rate. Effective February 1, 1996, the Company agreed to
an amendment of the Loan and Security Agreement, which allows the Company to
borrow, under certain conditions and terms up to $3,500,000 at an interest rate
of prime plus 37/8%. See, "Note 2 - Notes payable - revolving credit facility."
Accounts receivable is principally due from third party payors, primarily
governmental agencies (Medicare and Medicaid) and private insurance companies.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ACCUHEALTH, INC.
Date: August 13, 1996 By: /s/Glenn C.Davis
-----------------------------------
Glenn C. Davis, as
President and Chief Executive Officer
Date: August 13, 1996 By: /s/Gary S. LaPorta
-----------------------------------
Gary S. LaPorta, as
Treasurer, Chief Financial Officer
and Chief Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-END> Jun-30-1996
<CASH> 10,911
<SECURITIES> 0
<RECEIVABLES> 4,557,290
<ALLOWANCES> (272,182)
<INVENTORY> 626,160
<CURRENT-ASSETS> 5,028,280
<PP&E> 2,340,216
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,393,260
<CURRENT-LIABILITIES> 5,929,462
<BONDS> 0
0
13,500
<COMMON> 16,831
<OTHER-SE> 6,087,232
<TOTAL-LIABILITY-AND-EQUITY> 7,393,260
<SALES> 3,927,372
<TOTAL-REVENUES> 3,927,372
<CGS> 2,216,484
<TOTAL-COSTS> 2,216,484
<OTHER-EXPENSES> 1,545,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,395
<INCOME-PRETAX> 165,488
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,093
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
