SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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 SEPTEMBER 30, 1999
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.
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(Exact name of registrant as specified in its charter)
New York 13-3176233
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1575 Bronx River Avenue
Bronx, New York 10460
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(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 OCTOBER 29, 1999
Common stock, par value $.01 per share 5,136,754 Shares
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ACCUHEALTH, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
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Item 1. Condensed Consolidated Financial Statements.
Condensed Consolidated Balance Sheets at
September 30, 1999 and March 31, 1999..............................................3
Condensed Consolidated Statements of Operations and Comprehensive Gain
for the three and six months ended September 30, 1999 and 1998.....................4
Condensed Consolidated Statements of Cash Flows
for the six months ended September 30, 1999 and 1998...............................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................6-8
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.....................................................................8
PART II. OTHER INFORMATION..................................................................9
SIGNATURES......................................................................................9
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ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
September 30, March 31,
1999 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash ............................................................. $ 48 $ 85
Marketable securities ............................................ -- 2,372
Accounts receivable, net ......................................... 15,142 14,499
Inventories ...................................................... 1,441 1,653
Prepaid expenses and other current assets ........................ 238 267
-------- --------
Total Current Assets ............................................. 16,869 18,876
Revenue producing equipment, net .................................... 962 901
Fixed assets, net ................................................... 2,270 2,100
Other ............................................................... 171 93
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Total Assets ..................................................... $ 20,272 $ 21,970
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LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
Current Liabilities:
Notes payable - revolving credit facility ........................ $ 9,152 $ 7,765
Current portion of notes payable - other ......................... 742 857
Margin payable ................................................... -- 1,281
Accounts payable ................................................. 6,096 5,517
Accrued expenses and other current liabilities ................... 2,372 2,245
Current portion of capital lease - Facility ...................... 249 232
Current portion of other capital lease obligations ............... 386 430
-------- --------
Total Current Liabilities ...................................... 18,997 18,327
12% Subordinated Debentures ......................................... 6,250 6,250
Notes payable - term loan ........................................... 688 750
Notes payable - other, less current portion ......................... -- 109
Other capital lease obligations, less current portion ............... 329 388
-------- --------
Total Liabilities .............................................. 26,264 25,824
Stockholders' Deficiency:
Preferred Stock, $.01 par value: authorized 3,650,000 shares; no
shares issued and outstanding ..................................
Preferred stock, $.01 par value; 6% cumulative convertible, $213 and
liquidation preference, authorized 1,350,000 shares; issued
and outstanding 105,000 shares ................................ 1 1
Common stock $0.1 par value; authorized 15,000,000 shares;
5,136,754, and 5,127,593 shares issued and outstanding,
respectively .................................................. 51 51
Additional paid-in capital ....................................... 7,612 7,606
Accumulated other comprehensive income (loss) .................... -- (42)
Accumulated deficit .............................................. (13,032) (10,846)
-------- --------
(5,368) (3,230)
Less treasury stock (308,004 shares) at cost ..................... (624) (624)
-------- --------
Total Stockholders' Deficiency ...................................... (5,992) (3,854)
-------- --------
Total Liabilities and Stockholders' Deficiency ...................... $ 20,272 $ 21,970
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3
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ACCUHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE GAIN
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net sales .............................................. $ 9,164 $ 8,941 $ 18,111 $ 17,564
Cost of goods sold ..................................... 6,895 5,146 12,517 10,285
----------- ----------- ----------- -----------
Gross profit ........................................... 2,269 3,795 5,594 7,279
Selling, general and administrative expenses ........... 3,703 4,299 6,730 7,280
----------- ----------- ----------- -----------
Operating income (loss) ................................ (1,434) (504) (1,136) (1)
Interest expense ....................................... 563 392 1,050 649
----------- ----------- ----------- -----------
Net income (loss) ...................................... $ (1,997) $ (896) (2,186) (650)
=========== =========== =========== ===========
Net income (loss) per common share applicable to common shareholders:
Basic .............................................. $ (.39) $ (.27) $ (.43) $ (.20)
Diluted ............................................ $ (.39) $ (.27) $ (.43) $ (.20)
Weighted number of common shares and equivalents outstanding:
Basic .............................................. 5,136,754 3,336,496 5,133,684 3,254,814
Diluted ............................................ 5,136,754 3,340,308 5,133,684 3,258,626
Net income (loss) .................................. (1,997) (896) (2,186) (650)
Other comprehensive income, net of tax: unrealized
gain on marketable securities, net .................... -- -- -- --
----------- ----------- ----------- -----------
Total comprehensive income (loss) .................. $ (1,997) $ (896) $ (2,186) $ (650)
=========== =========== =========== ===========
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4
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ACCUHEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
Six Months Ended September 30,
------------------------------
1999 1998
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OPERATING ACTIVITIES
Net income (loss) .......................................................... $ (2,186) $ (650)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization .......................................... 163 308
Changes in operating assets and liabilities:
Accounts receivable ................................................. (643) (3,909)
Inventories ......................................................... 212 (109)
Prepaid expenses and other current assets ........................... 29 (125)
Other assets ........................................................ (78) 429
Accounts payable .................................................... 714 (380)
Accrued expenses and other current liabilities ...................... 129 37
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Cash used in operating activities ................................... (1,660) (4,399)
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INVESTING ACTIVITIES
Purchase of fixed assets ............................................... (486) (186)
Net change in goodwill ................................................. -- (68)
Proceeds from sales of marketable securities ........................... 1095 (4,300)
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Cash provided by (used in) investing activities ........................ 609 (4,554)
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FINANCING ACTIVITIES
Proceeds from note payable - revolving credit facility ................. 1,387 15,990
Proceed from notes payable - other ..................................... -- 5,750
Proceeds from term loan ................................................ -- 250
Payments on notes payable - revolving credit facility .................. (62) (12,839)
Payments on notes payable - other ...................................... (224) (287)
Principal payments on capital lease - Facility ......................... 16 (36)
Proceeds from issuance of capital stock ................................ -- 74
Payments on other capital lease obligations ............................ (103) (147)
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Cash provided by financing activities .................................. 1,014 8,755
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Net increase (decrease) in cash ........................................ (37) (198)
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Cash at beginning of period ............................................ 85 249
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Cash at end of period .................................................. $ 48 $ 51
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid .......................................................... $ 632 $ 415
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NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital leases ............................................ $ -- $ 121
Accrued dividends and accretion on redeemable preferred stock .......... $ 6 $ 27
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5
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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 included elsewhere in
this Form 10-Q.
Results of Operations
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Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------
NET REVENUES. Net revenues increased approximately $223,000 or 2% from the
comparable 1998 quarter to approximately $9.2 million for the three months ended
September 30, 1999. The increase was primarily the result of increases in the
Company's institutional pharmacy business mostly offset by decreases in the
infusion therapy revenues and decreases in the sale and rental of durable
medical equipment.
GROSS PROFIT. Gross profit for the three months ended September 30, 1999 and
1998 was approximately $2.3 and $3.8 million, respectively, representing
approximately 25% of net sales for the three months ended September 30, 1999 as
compared to 42% for the comparable prior year period. Gross profit decreased
primarily due to write off of unusable revenue producing equipment and the
Company also experienced revenue growth in the institutional pharmacy business,
which generates lower gross margin as compared to the other lines of business.
Further, decreased revenues from the durable medical equipment, which generates
the Company's highest gross margin, also contributed to the decline in overall
gross profit. Moreover, declines in margins in the higher margin infusion
therapies were incurred due to changes in the customer base. Compounding this
downward pressure on reimbursement rates has been a change in our managed care
patient mix to lower margin modalities as a result of the prolonged, reduced
availability of intravenous immune gamma globulin - a higher margin medication
frequently administered to our patients.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $3.7 and $4.3 million or
approximately 41% and 48% of net sales for the three months ended September 30,
1999 and 1998, respectively. There were decreases due to the elimination of
certain duplicate overhead costs resulting from the merger with Healix
Healthcare, Inc. on April 9, 1998. Offsetting these decreases were increases in
bad debt expense ($400,000). The industry in which the Company operates is
experiencing difficulty in collecting from customers who include hospitals,
HMO's, and private institutions. There is a growing number within the
aforementioned customer group who are experiencing significant lack of working
capital resulting in tremendous payment delays and disputes on billing claims.
INTEREST EXPENSE. Interest increased by $171,000 for the three months ended
September 30, 1999, to approximately $563,000. This increase was due to
increased net borrowings under our revolving line of credit and additional
interest on the $6,250,000, 12% Subordinated Debentures due to the receipt of
additional funds in August, 1998 and additional interest accrued on unpaid
interest per the terms of the agreement.
PROVISION FOR INCOME TAXES. No provision of income taxes has been reflected due
to the Company's federal and state net operating loss credits.
Six Months Ended September 30, 1999
- -----------------------------------
NET REVENUES. Net revenues increased approximately $547,000 or 3% from the
comparable 1998 quarter to approximately $18.1 million for the six months ended
September 30, 1999. The increase was primarily was primarily the result of
increases in the Company's institutional pharmacy business mostly offset by
decreases in the infusion therapy revenues and decreases in the sale and rental
of durable medical equipment.
GROSS PROFIT. Gross profit for the six months ended September 30, 1999 and 1998
was approximately $5.6 and $7.3 million, respectively, representing
approximately 31% of net sales for the three months ended September 30, 1999 as
compared to 41% for the comparable prior year period. Gross profit decreased
primarily due to the Company's growth in sales in the institutional pharmacy
business, which generates a lower gross margin, continued downward pressure on
its fees within the infusion therapy business, decreases in the durable medical
equipment business, which generates high gross, margins and write off of
unusable revenue producing equipment. Compounding this downward pressure on
reimbursement rates has been a change in our managed care patient mix to lower
margin modalities as a result of the prolonged, reduced availability of
intravenous immune gamma globulin- a higher margin dedication frequently
administered to patients.
6
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $6.7 and $7.3 million or
approximately 38% and 41% of net sales for the three months ended September 30,
1999 and 1998, respectively. There were decreases due to the elimination of
certain duplicate overhead costs resulting from the merger with Healix
Healthcare, Inc. on April 9, 1998. Offsetting these decreases were increases in
bad debt expense ($500,000). The industry in which the Company operates is
experiencing difficulty in collecting from customers who include hospitals,
HMO's and private institutions. There is a growing number within the
aforementioned customer group who are experiencing a significant lack of working
capital resulting in tremendous payment delays and disputes on billing claims.
INTEREST EXPENSE. Interest expenses increased by $401,000 for the six months
ended September 30, 1999, to approximately $1,050,000. This increase was
primarily due to increased net borrowings under our revolving line of credit and
additional interest on the $6,250,000 12% Subordinated Debentures due to the
receipt of additional funds in August 1998 and additional interest on unpaid
interest per the terms of the agreement.
PROVISION FOR INCOME TAXES. No provision of income taxes has been reflected due
to the Company's federal and state net operation loss credits.
Financial Condition
- -------------------
As of September 30, 1999, the Company had negative working capital of
approximately $2,128,000.
The Company's cash provided by financing activities of approximately $1 million
was primarily attributable to the net proceeds of approximately $1.4 million
under the Company's revolving credit facility and term loan offset by principal
payments on capital leases and other notes payable.
Accounts receivable includes amounts due from third party customers, primarily
governmental agencies (Medicare and Medicaid). At September 30, 1999, gross
Medicare and Medicaid receivables aggregated approximately $5.4 million.
The Company operates under cash flow pressure due to difficulty in collecting
its accounts receivable. As of March 31, 1999 the Company had accounts
receivable that were "ineligible" to borrow against per the terms of its line of
credit. Considering the amount and the issues of collecting these receivables an
increase to the bad debt expense was established of approximately $3,000,000 for
the estimated loss on these receivables and for eligible receivables deemed to
be uncollectible as of March 31, 1999. As of September 30, 1999 a further
deterioration has occurred with respect to the working capital issues facing our
customers so additional bad debt expenses were recorded. To address the
collection issues, the customer service, billing and collection department has
been reorganized into specialized teams. These teams have responsibility for a
certain number of accounts determined by the nature and type of business. This
will enable our collectors to better service and collect from our customers
because they will possess a better understanding of the issues that need to be
addressed. Moreover, an increased effort and focus is to collect the
"ineligible" receivables by conducting face to face meetings with the
appropriate customer personnel and curtailing services until the collection
issues are resolved. The collection of the "ineligible" accounts receivable will
provide immediate cash availability to the company by increasing the eligible
portion of accounts receivable available to be used for borrowings from its line
of credit.
As of September 30, 1999, the Company had borrowed the maximum allowable under
its revolving loan agreement ($9,000,000), overdraft line ($1,000,000), term
loan ($725,000) and received an advance on the sale of its building ($250,000).
The Company has recently entered into a contract for the sale of its offices and
has rented new space where it will be consolidating its operations.
Approximately $650,000 in net cash proceeds is anticipated from the sales of the
building. Further discussions with key vendors to convert a portion of accounts
payable into notes are presenting in process.
During fiscal year ended March 31, 1999, management determined that the goodwill
resulting from the acquisition of Pro Heath Care Infusion Services was impaired
and warranted write-off of the remaining balance. The impairment resulted from a
severe decline in revenue, primarily caused by the filing for liquidation of HIP
of New Jersey in February 1999.
7
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Disclosure Regarding Forward Looking Statements
- -----------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information in Items 1 and 2 of Part I
of this Form 10-Q includes information that is forward looking, such as the
Company's plans to convert accounts payable to notes payable. The matters
referred to in forward-looking statements could be affected by the risks and
uncertainties involved in the Company's business. These risks and uncertainties
include, but are not limited to; the effect of economic and market conditions,
the impact of the cost containment efforts of third-party customers and the
Company's ability to obtain and maintain required licenses. Subsequent written
and oral forward looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements in this paragraph and elsewhere in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
8
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default 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
(a) Exhibits
None
(b) Reports
None
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: November 22, 1999 By: /s/ GLENN C. DAVIS
--------------------------------------------
Glenn C. Davis, as
President and Chief Executive Officer
9
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<NAME> ACCUHEALTH, INC.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 48
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<RECEIVABLES> 17,097
<ALLOWANCES> (1,955)
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<CGS> 12,517
<TOTAL-COSTS> 12,517
<OTHER-EXPENSES> 6,730
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<INTEREST-EXPENSE> 1,050
<INCOME-PRETAX> (2,186)
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