SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------------------
FORM 10-Q
(Amendment No. 1)
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
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 10460
BRONX, NEW YORK (Zip Code)
(Address of principal executive offices)
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 FEBRUARY 16, 1997
Common stock, par value $.01 per share 2,133,154 Shares
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<TABLE>
<CAPTION>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS: December 31, March 31,
1997 1997
------------ ------------
Current Assets:
<S> <C> <C>
Cash $ 205,475 $ 31,548
Accounts receivable, net 6,083,673 5,279,369
Inventories 933,107 665,335
Prepaid expenses and other current assets 132,991 191,323
------------ ------------
Total Current Assets 7,355,246 6,167,575
Revenue producing equipment, net 462,370 485,305
Fixed assets, net 1,675,936 1,659,056
Goodwill ,net 924,085 --
Other assets 284,242 188,229
------------ ------------
Total Assets $ 10,701,879 $ 8,500,165
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable - revolving credit facility $ 3,108,492 $ 2,782,677
Notes payable - term loan 500,000 --
Notes payable - other 432,799 224,869
Accounts payable 2,204,502 1,801,120
Accrued expenses and other current liabilities 1,376,762 1,128,828
Current portion of capital lease facility 321,750 53,625
Current portion of other capital lease obligations 111,881 113,124
------------ ------------
Total Current Liabilities 8,056,186 6,104,243
Notes Payable - Term Loan -- 500,000
Notes Payable - Other 81,479 101,031
Capital lease - Facility, less current portion -- 303,875
Other capital lease obligations, less current portion 102,266 69,637
------------ ------------
Total Liabilities 8,239,931 7,078,786
------------ ------------
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 2,133,154 and 1,787,598 shares,
respectively 21,332 17,876
Additional paid-in capital 7,108,408 6,168,364
Deficit (4,056,972) (4,154,041)
------------ ------------
3,086,268 2,045,699
Less treasury stock (308,004 shares) at cost 624,320 624,320
------------ ------------
Total Stockholders' Equity 2,461,948 1,421,379
------------ ------------
Total Liabilities and Stockholders' Equity $ 10,701,879 $ 8,500,165
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 4,476,939 $ 4,221,491 $13,359,784 $12,304,599
Cost of goods sold 2,515,628 2,458,407 7,496,247 7,165,648
----------- ----------- ----------- -----------
Gross profit 1,961,311 1,763,084 5,863,537 5,138,951
Selling, general and administrative expenses 1,788,075 1,581,594 5,226,996 4,646,849
----------- ----------- ----------- -----------
Operating income 173,236 181,490 636,541 492,102
Interest expense 146,373 122,200 417,972 373,235
----------- ----------- ----------- -----------
Net income $ 26,863 $ 59,290 $ 218,569 $ 118,867
=========== =========== =========== ===========
Net primary and fully diluted income (loss)
per share:
Primary $ -- $ (.01) $ .05 $ --
Fully diluted $ -- $ (.01) $ .05 $ --
=========== =========== =========== ===========
Weighted number of common shares and
equivalents outstanding
Primary 2,458,988 1,410,300 1,969,281 1,374,513
----------- ----------- ----------- -----------
Fully diluted 2,458,988 1,410,300 1,969,281 1,374,513
----------- ----------- ----------- -----------
See notes to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31,
----------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income 218,569 $ 118,867
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 370,454 346,246
Write off of Revenue producing equipment -- 15,800
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable (804,304) (607,406)
Inventories (267,772) (128,867)
Prepaid expenses and other current assets 58,332 17,867
Other assets (110,483) (31,250)
Accounts payable 403,382 640,684
Reserve for contingencies -- (200,000)
Accrued expenses and other current liabilities 247,934 59,372
------------ ------------
Cash provided by (used in) operating activities 116,112 231,313
------------ ------------
INVESTING ACTIVITIES
Purchase of fixed assets - net (318,065) (23,740)
------------ ------------
Cash (used in) provided by investing activities (318,065) (23,740)
------------ ------------
FINANCING ACTIVITIES
Proceeds from note payable - revolving credit facility 12,760,000 443,353
Increase in principal payments on note payable - other 362,078 (271,957)
Increase in capital lease obligations - other 159,451 --
Payments on note payable - revolving credit facility (12,434,185) --
Payments on note payable - other (173,700) --
Principal payments on capital lease - Facility (35,750) (89,375)
Payment on other capital lease obligations (128,065) (290,740)
Increase in common stock 3,456 --
Increase in additional paid-in capital 940,044 --
Increase in other assets - goodwill (955,949) --
Stock dividends (121,500) --
Cash provided (used) in financing activities 375,880 (208,719)
------------ ------------
Net increase (decrease) in cash 173,927 (1,146)
Cash at beginning of period 31,548 2,694
------------ ------------
Cash at end of period $ 205,475 $ 1,548
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 417,972 $ 331,743
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital leases $ 159,451 $ 96,633
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1997
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 six-month period ended September 30, 1997 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-K for the fiscal
year ended March 31, 1997 filed with the Securities and Exchange Commission.
The balance sheet at March 31, 1997 has been derived from the audited financial
statements at that date.
ACCOUNTS RECEIVABLE
Accounts receivable are principally due from third party payers, 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.
EARNINGS PER SHARE
For the three months and nine months ended December 31, 1997 and 1996, primary
income per share has been calculated by dividing the net income applicable to
common stock by the weighted average of common stock and common stock
equivalents outstanding during the period. Dividends attributable to the
redeemable preferred stock were $40,500, and $40,500, respectively, for the
three months ended December 31, 1997 and 1996 and $121,500, and $121,500,
respectively, for the nine months ended December 31, 1997 and 1996. Net income
(loss) applicable to common stockholders for the three months ended December 31,
1997 and 1996, respectively, were $26,863 and ($59,290) and $218,569 and
($118,867) for the nine months ended December 31, 1997 and 1996, respectively.
On a fully diluted basis, both the net income (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, if applicable (See Note 4).
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."
5
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ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1997
MAJOR CUSTOMER
The Company's revenues from one customer accounted for 28% and 30% of the
Company's net sales for the three months ended December 31, 1997 and 1996,
respectively, and 30% and 26% for the nine months ended December 31, 1997 and
1996, respectively. At December 31, 1997, this customer represented
approximately 10% of the Company's gross receivables.
NOTE 2 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
NOTES PAYABLE - OTHER
The Company's notes payable outstanding are as follows:
(A) The Company converted a portion of its account payable into a note
payable to a trade creditor in the principal amount aggregating
$262,035. This note is payable in monthly installments of approximately
$21,000 plus interest at 10.5% per annum. The outstanding balance at
December 31, 1997 was $262,035.
(B) The Company converted several of its capital leases into notes to a
trade creditor in the principal amounts aggregating $310,055. These
notes are payable in monthly installments ranging from approximately
$2,000 to $8,000 with interest rates ranging from 9% to 14.5%. The
outstanding balance at December 31, 1997 was $191,650.
(C) In February 1997, the Company reached a settlement with the City of New
York relating to an audit of General Corporation and Commercial Rent
taxes for the years 1990 through 1992. In accordance with this
settlement agreement, the outstanding principal balance at December 31,
1997 of $60,614 is payable in monthly installments of $1,976 which
includes interest at 10% per annum. A final balloon payment of $18,146
is due on March 1, 2000.
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 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.
Effective February 1, 1996, the Company and Rosenthal amended the Loan and
Security Agreement ("Amendment No. 1)". Amendment No. 1 extended the Agreement
through April 28, 1997 and allowed 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%. Effective February 1, 1997,
the Company and Rosenthal amended the Loan and Security Agreement ("Amendment
No. 2") to extend the Agreement through April 1, 1998 and reduce the interest
rate to prime (8 1/2% at March 31, 1997) plus 2 7/8%. In addition, the Company
granted Rosenthal warrants to purchase an additional 30,000 shares of the
Company's common stock (see Note 11). Commencing April 28, 1996, the Company was
required to pay a facility fee of $35,000 per annum, which Amendment No. 2 has
increased to $40,000 per annum.
Amendment No. 2 also provided a $500,000 term loan to the Company due on April
1, 1998 with interest payable monthly at a rate of prime plus 5%.
6
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ACCUHEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1997
The revolving credit facility bears interest at variable market rates and as
such the carrying value approximates its fair value.
CAPITAL LEASE OBLIGATIONS
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 2000.
CAPITAL LEASE FACILITY
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 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, 1998 Since the Company has not requested nor received from Fleet a waiver of
non-compliance with such covenants occurring after April 1, 1998 the entire
balance outstanding has been classified as current on the accompanying condensed
consolidated balance sheet at December 31, 1997.
In lieu of rent, the Company pays principal on the Bonds in quarterly
installments of $17,875, plus interest at the rate of prime 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
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. On
June 18, 1996 the Court granted defendants' motion effectively dismissing the
Complaint as to the Company's current and former officers, directors and
shareholders and leaving plaintiff's claim for breach of contract and violation
of New York's Labor Law solely against the Company. The Company and plaintiff
have agreed to submit the matter to arbitration, which is scheduled for March
1988.
7
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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
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net sales increased approximately $255,000 or 6% from the comparable 1996
quarter to $4.5 million for the three months ended December 31, 1997. The
increase was the result of increases of approximately $128,000, 74,000, 29,000
and $24,000 in the Company's infusion services revenues, institutional pharmacy
business, oral medication and durable medical equipment revenues.
Gross profit for the three months ended December 31, 1997 and 1996 was
approximately $1.96 and $1.76 million, respectively, representing approximately
44% of net sales for the three months ended December 31, 1997 as compared to 42%
for the comparable prior year. Gross profit increased primarily due to increased
margins in our institutional pharmacy and infusion services businesses.
Selling, general and administrative expenses ("SG&A") were approximately $1.78
and $1.58 million or approximately 40.0% and 37% of net sales for the three
months ended December 31, 1997 and 1996, respectively. The increase was
primarily due to increases of approximately $180,000 in pharmacy marketing and
other salaries, and $27,000 in delivery, rent and other expenses.
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net sales for the nine months ended December 31, 1997 increased approximately
$1,055,000 or 9% from the comparable 1996 period to $13.4 million. The increase
was the result of an increase of approximately $871,000 and $338,000 in the
Company's institutional pharmacy business and oral medical revenue, offset by
decreases in the Company's infusion service revenues and durable medical
equipment revenues of approximately $128,000 and $26,000.
Gross profit for the nine months ended December 31, 1997 and 1996 was
approximately $5.9 and $5.1 million, respectively, representing approximately
44% of net sales for the nine months ended December 31, 1997 as compared to 42%
for the nine months ended December 31, 1996. The increase was primarily due to
increased margins in our institutional pharmacy and infusion services
businesses.
Selling, general and administrative expenses ("SG&A") were approximately $5.2
and $4.6 million or approximately 39% and 38% of net sales for the nine months
ended December 31, 1997 and 1996, respectively. The increase was primarily due
to increases of approximately $341,000 in pharmacy customer service, marketing
and other salaries and $233,000 in delivery, rent and other expenses.
FINANCIAL CONDITION
The Company's cash provided by operating activities during the nine months ended
December 31, 1997 was $116,112. As of December 31, 1997, the Company had a
working capital deficiency of $700,940 as compared to working capital of $63,332
at March 31, 1997. As described in Note 2 of the financial statements, the
entire capital lease obligation for the Company's capital lease facility of
$321,750 has been classified as a current liability at December 31, 1997. The
Company's working capital deficiency at December 31, 1997 would be $379,190 if
the capital lease were not classified as a current liability on the
8
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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: February 18, 1997 By: /s/ GLENN C. DAVIS
--------------------------------
Glenn C. Davis, as
President and Chief Executive Officer
Date: February 18, 1997 By: /s/ PRISCO J. DeMERCURIO
--------------------------------
Prisco J. DeMecurio, as
Chief Financial Officer
9
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ACCUHEALTH, INC.
INDEX TO EXHIBIT FILED
IN THE QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997
EXHIBIT NO. PAGE
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27 Financial Data Sheet 13
10
