U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-26740
AMERICAN HEALTHCHOICE, INC.
(Exact name of small business issuer as specified in its charter)
New York 11-2931252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 W. Walnut Hill Lane, Suite 275, Irving, TX 75038
(Address of principal executive offices) (Zip Code)
(972) 751-1900
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
As of June 30, 2000, there were outstanding 28,144,259 shares of the
issuer's Common Stock, par value $.001 per share.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [ X ]
<PAGE>
AMERICAN HEALTHCHOICE, INC.
INDEX TO FORM 10-QSB
For the Quarter Ended June 30, 2000
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet ..................... 2
Consolidated Statement of Operations ........... 3
Consolidated Statement of Cash Flows ........... 4
Notes to Consolidated Financial Statements ..... 5
Item 2. Management's Discussion and Analysis or
Plan of Operation .............................. 6
Part II Other Information
Item 1. Legal Proceedings........................ 8
Item 2. Changes in Securities and Use of Proceeds 8
Item 3. Defaults upon Senior Securities.......... 8
Item 4. Submission of Matters to a Vote of
Security Holders....................... 8
Item 5. Other Information........................ 8
Item 6. Exhibits and Reports on Form 8-K......... 8
Signatures ......................................... 9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
JUNE 30, 2000
ASSETS
<S> <C>
Current Assets:
Cash $ 34,780
Accounts receivable, less allowance for
doubtful accounts of $7,920,735 5,425,914
Advances and notes receivable 74,524
Other current assets 54,266
----------
Total current assets 5,589,484
Property and equipment, net 632,502
Other assets 23,868
----------
Total assets $ 6,245,854
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to related parties $ 412,715
Current portion of capital lease obligations 245,914
Accrued payroll and payroll taxes 347,817
Accounts payable and accrued expenses 1,360,735
----------
Total current liabilities 2,367,181
Convertible debentures 3,385,000
Capital lease obligations, less current portion 35,663
----------
Total liabilities 5,787,844
Commitments
Stockholders' Equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; none issued -
Common stock, $.001 par value; 115,000,000 shares
authorized; 28,144,259 shares issued and outstanding 28,144
Options to acquire common stock 200,104
Additional paid-in capital 13,363,290
Accumulated deficit (13,133,528)
----------
Total stockholders' equity 458,010
----------
Total liabilities and stockholders' equity $ 6,245,854
==========
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1999 2000 1999 2000
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Patient Revenues $ 1,045,422 $ 906,089 $ 3,744,103 $ 2,828,318
Operating Expenses:
Compensation and benefits 818,356 529,632 2,855,495 1,742,036
Allowance for doubtful accounts
at closed clinics 275,000 - 655,000 -
Depreciation and amortization 38,505 27,114 149,667 84,902
General and administrative 349,918 239,561 1,082,143 680,325
Rent expense 95,376 67,293 343,022 227,232
---------- --------- ---------- ----------
Total operating expenses 1,577,155 863,600 5,085,327 2,734,495
Other Income (Expense):
Gain on disposition of clinics - - 272,350 43,233
Interest expense and other
costs of borrowing (9,542) - (32,991) (20,562)
Other income (expense) (8,450) - (14,783) -
---------- --------- ---------- ----------
Total other income (17,992) - 224,576 22,671
---------- --------- ---------- ----------
Net Income (Loss) $ (549,725) $ 42,489 $(1,116,648) $ 116,494
========== ========= ========== ==========
Basic and Diluted Net Income
(Loss) Per Share $ (0.02) $ - $ (0.05) $ -
Weighted Average Common
Shares Outstanding 23,801,964 28,144,259 20,696,351 28,144,259
See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
1999 2000
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(1,116,648) $ 116,494
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Allowance for doubtful accounts 2,162,477 1,208,654
Gain on disposition of clinic assets (272,350) (43,233)
Depreciation and amortization 149,667 84,902
Change in operating assets and liabilities, net:
Accounts receivable-trade (1,355,614) (1,559,396
Other current assets - (14,300)
Accounts payable and accrued expenses (169,555) 69,462
---------- ----------
Net cash used in operating activities (602,023) (137,417)
Cash Flows From Investing Activities:
Advances and notes receivable, net 57,967 125,000
Property and equipment, net (7,901) (5,000)
Proceeds from sale of clinic assets 950,000 67,500
---------- ----------
Net cash provided by investing activities 1,000,066 187,500
Cash Flows From Financing Activities:
Proceeds from notes payable 172,500 25,000
Payment on debentures (665,000) -
Payments on notes payable and capital leases (63,108) (69,165)
---------- ----------
Net cash used in financing activities (555,608) (44,165)
---------- ----------
Net Increase (Decrease) In Cash (157,565) 5,918
---------- ----------
Cash At Beginning Of Year 169,895 28,862
---------- ----------
Cash At End Of Period $ 12,330 $ 34,780
========== ==========
Supplemental Disclosure Of Cash Flow Information:
Income taxes paid $ - $ -
Interest paid 33,000 2,500
Supplemental Disclosure Of Non-Cash Transactions:
Offset notes payable against accounts receivable,
equipment and goodwill - 289,534
Note received from purchaser of Norcross
clinic assets 125,000 -
Offset accounts payable against accounts receivable 152,000 -
Conversion of debenture and accrued interest
into stock 16,523 -
Issuance of stock as partial payment on notes
payable to directors 187,570 -
See accompanying notes to these consolidated financial statement
</TABLE>
<PAGE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
American HealthChoice, Inc. and subsidiaries (the Company) consists of a
parent company and nine clinics, owned and operated by wholly-owned
subsidiaries, providing medical, physical therapy, and chiropractic services
in San Antonio, McAllen, and Houston, Texas, and New Orleans, Louisiana.
Substantially all of the Company's revenues are derived from chiropractic,
physical therapy and medical services provided to individuals living in the
vicinity of the clinics.
2. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of the
Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information in footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to these rules and regulations. The accompanying unaudited interim
consolidated financial statements reflect all adjustments which the Company
considers necessary for a fair presentation of the results of operations for
the interim periods covered and for the financial condition of the Company
at the date of the interim balance sheet. All such adjustments (except as
otherwise disclosed herein) are of a normal recurring nature.
The results of operations for the nine months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year. It
is suggested that the June 30, 2000 financial information be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-KSB dated September 30, 1999.
3. Summary of Significant Accounting Policies
Consolidation policy - The accompanying condensed consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All material inter-company accounts and transactions have
been eliminated in consolidation.
Net patient revenues - Revenue is recognized upon performance of services.
Substantially all of the Company's revenues are derived from patient
insurance settlements, claims filed on major medical policies, worker's
compensation policies, Medicare, and Medicaid. Allowances for discounts on
services provided are recognized in the periods the related revenue is
earned. Allowances are maintained at levels considered appropriate by
management based upon historical charge-off experience and other factors
deemed pertinent by management.
Property and equipment, net - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided over the estimated
useful lives of the related assets, primarily using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful lives of the improvements.
<PAGE>
Earnings per share - Basic earnings per share are computed using the
weighted-average number of common shares outstanding. Diluted earnings per
share are computed using the weighted-average common shares outstanding
after giving effect to potential common stock from stock options based on
the treasury stock method, plus other potentially dilutive securities
outstanding. If the result of assumed conversions is dilutive, net earnings
are adjusted for the interest expense on the convertible debt, while the
average shares of common stock outstanding are increased.
Recent Accounting Pronouncements - In December 1999, the Securities and
Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101
summarizes certain of the SEC's staff's views in applying generally accepted
accounting principles to revenue recognition in the financial statements.
The Company believes that the impact of SAB No. 101 will not have a material
effect on the Company's consolidated financial position, results of
operations or disclosures.
Year 2000 Compliance - The Company's computer systems and products
successfully transitioned to the Year 200 with no significant problems. The
Company will continue to monitor latent problems that could surface at key
dates in the future. It is not anticipated that there will be any
significant problems related to these dates or events. To date, the Company
has not incurred material losses associated with Year 2000 compliance or any
disruption with vendors or operations.
4. Reorganization
On October 19, 1999, American HealthChoice, Inc., the parent company, and
AHC Physicians Corporation, Inc., a subsidiary that owns the Georgia
clinics, filed Chapter 11 Bankruptcy Petitions with the United States
Bankruptcy Court, Northern District of Texas, Dallas Division (Case No. 99-
37314). The Company elected to file the petitions for two primary reasons.
First, it was unable to restructure terms of the September 1997 and August
1998 Debenture Agreements, which would have allowed for new funding to
acquire profitable clinics. Second, in early October 1999, the Company
received an adverse ruling on a lawsuit. The Company filed a Disclosure
Statement and Plan of Reorganization on February 16, 2000. An important
provision of the Plan is the acquisition of three established clinics with
expected gross annual revenue of $5,000,000 and expected EBITDA of
approximately $1,500,000. The purchase price is approximately $6,000,000
with $900,000 in cash and $2,100,000 in common stock at closing and the
remainder of $3,000,000 in common stock, which will be held in escrow until
annual cash flow targets are achieved over a three year period. In
addition, the Plan allows the debenture holders, who are owed $3,385,000
face amount, to convert their debentures into approximately 20,000,000
shares of common stock. The acquisition and future working capital
requirements will be funded through an infusion of approximately $1,500,000
in new capital. The debt conversion and the acquisition of the clinics will
increase the number of outstanding shares of common stock to approximately
80 million. The Company anticipates the Plan of Reorganization to be
effective on or before August 31, 2000.
<PAGE>
The August 1998 Convertible Debenture in the principal amount of $3,385,000
accrues interest at an 8% rate, which is payable in shares of common stock.
Since the proposed restructuring agreement provides for the issuance of a
fixed number of shares of common stock for the debenture obligation,
including interest, the Company ceased accruing additional interest expense
on October 19, 1999.
5. Disposition of Clinics
On December 3, 1999 an order was entered by the Bankruptcy Court to return
the Conyers, Georgia clinic to the previous owner in settlement of a
lawsuit. In compliance with the order, the Company recorded an asset
writeoff of accounts receivable and equipment of $125,000, and un-amortized
goodwill of $130,000. In return, the previous owner agreed to cancellation
of a note payable in the amount of $290,000. As a result, the Company
recognized a gain on disposition of $35,000. On February 4, 2000, the
Bankruptcy Court approved the sale of the McDonough, Georgia clinic assets,
excluding accounts receivable, for a $67,500 cash payment. The sales price
approximates the book value of the clinic equipment.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and is qualified in its
entirety by the foregoing and by other more detailed financial information
appearing elsewhere.
Three Months Ended June 30,2000 Compared to Three Months Ended June 30, 1999
Net Patient Revenues. For the three months ended June 30, 2000, net
patient revenues decreased from $1,045,000 for the same period in 1999 to
$906,000 in 2000. Approximately $283,000 of the decrease was attributable
to net patient revenue for the sold Georgia clinics in the 1999 period. Net
patient revenue at the remaining clinics increased $144,000 in 2000 compared
to 1999.
Compensation and Benefits. For the three months ended June 30, 2000,
compensation and benefits decreased from $818,000 in 1999 to $530,000 in
2000. Approximately $216,000 of the decrease was attributable to
compensation and benefits for the Georgia clinics in the 1999 period. The
remainder of the decrease was due to fewer clinic employees and salary
reductions taken by clinic physicians and executive officers in 2000.
General and Administrative. For the three months ended June 30, 2000,
general and administrative decreased from $350,000 for fiscal year 1999 to
$240,000 in 2000. Approximately $100,000 of the decrease was attributable
to general and administrative expenses for the Georgia clinics in the 1999
period. The remainder is due to overall reductions at the clinics and
corporate office. The 2000 period includes approximately $12,000 in legal
fees related to bankruptcy matters.
Rent. For the three months ended June 30, 2000, rent decreased $28,000
from $95,000 in 1999 to $67,000 in 2000. The decrease was primarily due to
rent for the Georgia clinics in the 1999 period.
<PAGE>
Nine Months Ended June 30,2000 Compared to Nine Months Ended June 30, 1999
Net Patient Revenues. For the nine months ended June 30, 2000, net
patient revenues decreased from $3,744,000 for the same period in 1999 to
$2,828,000 in 2000. Approximately $1,040,000 of the decrease was
attributable to net patient revenue for the sold Georgia clinics in the 1999
period. Net patient revenue at the remaining clinics increased $124,000 in
2000 compared to 1999.
Compensation and Benefits. For the nine months ended June 30, 2000,
compensation and benefits decreased from $2,855,000 in 1999 to $1,742,000 in
2000. Approximately $935,000 of the decrease was attributable to
compensation and benefits for the Georgia clinics in the 1999 period. The
remainder of the decrease was due to fewer clinic employees and salary
reductions taken by clinic physicians and executive officers in 2000.
General and Administrative. For the nine months ended June 30, 2000,
general and administrative decreased from $1,082,000 for fiscal year 1999 to
$680,000 in 2000. Approximately $371,000 of the decrease was attributable
to general and administrative expenses for the Georgia clinics in the 1999
period. The remainder is due to overall reductions at the clinics and
corporate office. The remainder is due to overall reductions at the clinics
and corporate office. The 2000 period includes approximately $72,000 in
legal fees related to bankruptcy matters.
Rent. For the nine months ended June 30, 2000, rent decreased $116,000
from $343,000 in 1999 to $227,000 in 2000. The decrease was primarily due
to rent for the Georgia clinics in the 1999 period.
Through the closure of unprofitable clinics and an overall reduction in
operating expenses, the Company has achieved profitability for the nine
months ended June 30, 2000 compared to a loss of $1,117,000 for the nine
months ended June 30, 1999.
Liquidity and Capital Resources
For the nine months ended June 30, 2000, net cash used in operating
activities was $137,000 compared to $602,000 for the nine months ended June
30, 1999. The decrease of $465,000 is attributable to net income of
$116,000 in 2000 compared to a $1,117,000 loss in the 1999 period offset by
a $351,000 increase in accounts receivable in 2000 compared to a $807,000
decrease in the 1999 period.
<PAGE>
During the last six months of fiscal year 1999, the Company was able to
reduce its monthly cash loss to approximately $40,000 and had identified
profitable acquisitions, which would have been funded by an equity infusion.
However, the Company was unable to restructure terms of the September 1997
and August 1998 debenture agreements, which would have allowed for new
funding under terms satisfactory to the Company and the prospective seller.
Also, in early October 1999, the Company received an adverse ruling on a
lawsuit. As a result of these two events, the Board of Directors elected on
October 19, 1999 to file individual voluntary bankruptcy petitions under
Chapter 11 of the United States Bankruptcy Code for American HealthChoice,
Inc., the parent company, and its subsidiary, AHC Physicians Corporation
Inc., the owner of the Georgia medical clinics. The Company filed a
Disclosure Statement and Plan of Reorganization on February 16, 2000. The
Company anticipates the Plan of Reorganization to be effective on or before
August 31, 2000.
Since the bankruptcy petition filing on October 19, 1999, the Company has
been operating under a cash receipts and disbursements budget approved by
the Bankruptcy Court. Cash receipts from collection of accounts receivable
should be sufficient to satisfy all financial obligations incurred through
the confirmation date. The Plan of Reorganization contemplates a capital
infusion of approximately $1,500,000 with $600,000 of the funding allocated
to working capital.
Forward-Looking Information
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently
available to the Company's management. When used in the report, words such
as "anticipate," "believe," "estimate," "expect," "intend," "should," and
similar expressions, as they relate to the Company or its management,
identify forward-looking statements. Such statements reflect the current
views of the Company with respect to future events and are subject to
certain risks, uncertainties, and assumptions relating to the operations,
results of operations, liquidity, and growth strategy of the Company,
including competitive factors and pricing pressures, changes in legal and
regulatory requirements, interest rate fluctuations, and general economic
conditions, as well as other factors described in this report. Should one
or more of the risks materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those
described herein as anticipated, believed, estimated, expected, or intended.
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 19, 1999, American HealthChoice, Inc., the parent company, and
AHC Physicians Corporation, Inc., a subsidiary that owns the Georgia
clinics, filed Chapter 11 Bankruptcy Petitions with the United States
Bankruptcy Court, Northern District of Texas, Dallas Division (Case No. 99-
37314).
The Company was served a complaint on December 7, 1999 alleging unspecified
damages arising from an alleged contract breach concerning the purchase of
the McAllen Texas clinic in 1996. Since all causes of action arose before
October 19, 1999 bankruptcy filing, the Company will assert the automatic
stay provision of the Bankruptcy Code. The case is filed in the 16th
District Court, of Denton County, Texas.
Any further actions in the legal proceedings disclosed in the 1999 Form
10-KSB filed January 13, 2000, have been stayed by the Chapter 11
Bankruptcy Petition filed by the Company on October 19, 1999.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
The Chapter 11 Bankruptcy Petitions have created technical defaults under
various notes and other contractual obligations.
Item 4. Submission of matters to a vote of security holders
None to report
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial data schedule
(b) No Form 8-K Report were filed during the quarter ended June 30, 2000.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN HEALTHCHOICE, INC.
Date: August 14, 2000 By: /s/ Dr. J.W. Stucki
------------------------------------
Dr. J.W. Stucki, Chief Executive
Officer and President
Date: August 14, 2000 By: /s/John C. Stuecheli
------------------------------------
John C. Stuecheli, Chief Financial
Officer and Vice President - Finance
(Principal Financial and Accounting
Officer)
