SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------------
Commission file number 0-18160
4HEALTH, INC.
(Exact name of registrant as specified in its charter)
----------------
Utah 87-0468225
(State of incorporation) (I.R.S. Employer Identification No.)
5485 Conestoga Court
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 546-6306
----------------
Indicate by check mark whether the registrant (1) 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:
The number of shares of the registrant's Common Stock,
par value $.01 per share, outstanding as of June 30,
1997 was 11,405,920.
4Health, Inc.
Index to Form 10-Q
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Condensed Balance Sheets as of June 30, 1997
and December 31, 1996 3
Condensed Statement of Operations for Three and
Six Months Ended June 30, 1997 and 1996 4
Condensed Statements of Cash Flows for Six
Months Ended June 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 16
</TABLE>
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts
included in this Quarterly Report, including, without limitation,
those regarding the Company's financial position, business,
marketing and product introduction and development plans and
objectives of management for future operations, are forward-
looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed under "Risks
Related to the Business of 4Health" and elsewhere in the
Company's Annual Report on Form 10-K dated March 27, 1997 and in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in the Annual Report. All
subsequent written and oral forward-looking statements
attributable to the Company or persons acting on behalf of the
Company, are expressly qualified in their entirety by the
Cautionary Statements.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
4Health, Inc.
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 318,656 $ 1,086,168
Accounts receivable, net 986,375 1,105,207
Inventories 1,717,320 2,534,881
Deferred tax asset 336,509 313,872
Prepaid expenses 698,923 171,138
Notes receivable 178,684 265,820
Total current assets 4,236,467 5,477,086
PROPERTY AND EQUIPMENT, NET 2,543,286 2,559,629
PREPAID EXPENSES 700,000 0
OTHER ASSETS, NET 1,068,444 1,136,531
NOTES RECEIVABLE 97,185 116,308
Total assets $8,645,382 $9,289,553
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $1,483,691 $484,079
Accrued liabilities 579,701 878,025
Taxes payable 49,385 113,833
Notes payable 28,268 20,555
Capital leases 1,389 3,733
Total current liabilities 2,142,434 1,500,225
DEFERRED TAXES 33,271 152,112
NOTES PAYABLE 1,312,753 1,275,716
STOCKHOLDERS' EQUITY
Common stock 114,059 113,695
Additional paid in capital-common stock 8,357,436 8,227,752
Additional paid in capital-common warrants 86,507 0
Treasury stock (50,000) (50,000)
Accumulated deficit (3,351,078) (1,929,947)
Total stockholders' equity 5,156,924 6,361,500
Total liabilities & stockholders' equity$8,645,382 $ 9,289,553
========== ============
</TABLE>
See notes to condensed financial statements
4Health, Inc.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<C> <C> <C> <C>
Net Sales $3,424,393 $8,007,026 $7,220,347 $11,480,425
Cost of goods sold 1,832,400 3,238,201 3,547,728 4,495,657
Gross margin 1,591,993 4,768,825 3,672,619 6,984,768
Operating Expenses
Sales 596,265 899,335 1,137,853 1,427,163
Marketing 1,116,379 3,097,806 2,302,717 4,095,506
Research and
development 124,604 94,213 298,406 153,700
General and
administrative 731,343 650,800 1,500,427 1,247,475
Total operating
expenses 2,568,591 4,742,154 5,239,403 6,923,844
Net income from
operations (976,598) 26,671 (1,566,784) 60,924
Other income
(expense) (18,042) (13,823) 4,275 (24,252)
Net income (loss)
before income
taxes (994,640) 12,848 (1,562,509) 36,672
Income tax benefit
(provision) 0 86,801 141,378 74,639
NET INCOME (LOSS) $(994,640) $99,649 $(1,421,131) $111,311
========== ======== ========== ========
Net income (loss)
per common share (0.087) 0.012 (0.125) .013
========== ======= ========== =========
Weighted average
shares
outstanding 11,388,326 8,633,825 11,380,483 8,674,276
========== ========= ========== =========
</TABLE>
See notes to condensed financial statements.
4Health, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,421,131) $ 111,311
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 168,894 90,413
Bad debt expense 263 0
Loss on disposal of assets 3,683 4,501
Issuance of Warrants 86,507 0
(Increase) decrease in:
Accounts receivable 118,570 (2,757,494)
Inventory 817,561 (822,794)
Prepaid expenses and other (1,204,009) (336,412)
Deferred income tax assets (22,637) (32,604)
(Increase) decrease in:
Accounts payable 999,612 2,916,951
Accrued interest payable 0 (22,399)
Accrued liabilities (298,325) 486,429
Taxes payable (64,448) (14,416)
Deferred income tax liability (118,841) 17,992
Net cash (used in) from operating
activities (934,303) (358,521)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (111,923) (267,266)
Proceeds from note receivable 106,258 0
Net cash from (used in) investing
activities (5,665) (267,266)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock 130,049 0
Borrowings on long-term debt 1,350,000 0
Repayments on borrowings (1,305,250) (71,198)
Repayments on capital leases (2,344) (3,210)
Net cash used in financing activities 172,455 (74,408)
NET (DECREASE) INCREASE IN CASH (767,512) (700,195)
CASH AND CASH EQUIVALENTS, at
beginning of period 1,086,168 919,935
CASH AND CASH EQUIVALENTS, at
end of period $ 318,656 $ 219,741
========== ==========
</TABLE>
See notes to condensed financial statements.
4Health, Inc.
Notes to Condensed Financial Statements
June 30, 1997
(Unaudited)
Note 1:
Basis of Presentation
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1997
are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Form 10-K dated March 31, 1997
and the Company's Proxy Statement dated April 25, 1997.
Note 2:
Certain Sales Transactions
In February 1997, the Company entered into a negotiated
settlement with General Nutrition Corporation, Inc. ("GNC") to
settle all pending litigation between the two parties. The terms
of the settlement include the Company supplying GNC with certain
4Health products free of charge and taking back certain other
4Health products. The execution of this settlement agreement was
completed during the first and second quarters of 1997.
On February 25, 1997, 4Health entered into a barter
agreement with Active Media Services, Inc. Under the terms of
the agreement, the Company sold to Active Media Services, Inc.
certain inventory with a cost of $780,308 for which the Company
received $2,300,000 in barter credits. These barter credits can
be used in lieu of cash to purchase goods and services available
through Active Media Services, Inc. 4Health intends to use these
barter credits for advertising, printing, travel, and other
normal operating expenditures. This transaction was recorded at
the cost of the product sold to Active Media Services, Inc.
($758,308) and the unused portion of the barter credits is
reflected in the balance sheet as a prepaid expense. As of June
30, 1997, none of the barter credits had been used. Product
costing $424,149 was shipped to Active Media Services, Inc.
during the first quarter with the balance of $334,159 shipped in
the second quarter 1997.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
See the disclosure regarding forward looking statements
above.
Results of Operations
Comparison of Second Quarter 1997 to 1996
Net sales for the three months ended June 30, 1997 decreased to
$3.4 million from $8 million or 57 % compared to the same period
a year ago. Net sales during the quarter ended June 30, 1996
included a large sale to a major customer in the amount of
approximately $5 million. Net sales during the quarter ended
June 30, 1997 included a sale of $334 thousand to Active Media
Services, Inc., a barter company. Net sales related to core
business activities decreased by $.9 million or 24% to $2.7
million in the second quarter of 1997 from $3.6 million in the
second quarter of 1996. Net sales in the Nature's Secret
division decreased by $1.3 million while sales in the other
divisions of the company increased by $411 thousand, $335
thousand of which can be attributed to the Mass Market division.
Management attributes the decrease in Nature's Secret sales to
increased competition and ineffective marketing and sales
promotions.
The gross margin percentage for the quarter ended June 30, 1997
decreased by 13% to 46% down from 59% for the same period in
1996. Management attributes 10% of the 13% margin percent
decrease to a sale to Active Media Services, Inc. of $334
thousand which was recorded at the cost of the product and to an
inventory write-off in the amount of $114 thousand, the majority
of which was related to packaging which became obsolete due to
graphics changes. During the second quarter of 1997, the core
business gross margin percentage decreased by 3% to 56% from 59%
compared to the same period in 1996, due to a shift in sales to
products with lower profit margins and increased discounting.
The gross margin of $1.6 million for the quarter ended June 30,
1997 represented a $3.2 million or 67% decrease from a gross
margin of $4.8 million compared to the same period in 1996. The
majority of this difference was due to a combination of $3
million of gross margin related to a large sale to a major
customer in 1996, a decrease in normal gross margin to the same
major customer of $173 thousand of gross margin, decreased
product sales to other customers in 1997 which caused a margin
reduction of $436 thousand, and an inventory write off of $114
thousand in 1997.
Marketing expenses decreased $2 million or 64% from $3.1 million
to $1.1 million in the second quarter ended June 30, 1997 as
compared to the same period in 1996 due mainly to a reduction in
media advertising costs related to a large sale to a major
customer in 1996. Sales costs decreased $303 thousand or 34%
from $899 thousand to $596 thousand for the quarter ended June
30, 1997, as compared to the same quarter of 1996, due mainly to
decreased personnel costs and decreased special sales promotional
costs which again related to a large sale to a major customer in
1996. These and other expense reductions were the result of cost
cutting measures implemented by management. Research and
development costs increased by $30 thousand from $94 thousand to
$124 thousand in the quarter ended June 30, 1997, as compared to
the same quarter in 1996 due to new clinical studies personnel
and product trial costs. General and administrative expenses
increased $80 thousand or 12% to $731 thousand in the second
quarter ended June 30, 1997 from $651 thousand during the same
period in 1996 mainly due to new costs related to being a public
company, such as investment banker fees, SEC reporting, transfer
agent fees and investor relations costs. In total, operating
costs decreased $2.1 million or 46% from $4.7 million to $2.6
million during the quarter ended June 30, 1997 as compared to the
same quarter in 1996.
Comparison of Year-to-Date 1997 to 1996
Net sales for the six months ended June 30, 1997 decreased by
$4.3 million or 37% to $7.2 million from $11.5 million compared
to the same period a year ago. The decrease in net sales for the
six months ended June 30, 1997 compared to the same period in
1996 is due in part to a drop in sales to a major customer of
$5.8 million which included a large sale in the amount of $5
million included in 1996 net sales. The six months ending June
30, 1997 included a $758 thousand sale to Active Media Services,
Inc., a barter company. Net sales related to core business
activities during the six months ended June 30, 1997 decreased by
$1.2 million or 17% to $5.9 million from $7.1 million during the
same period in 1996. For the six months ended June 30, 1997
compared to the same period in 1996, net sales in the Nature's
Secret division decreased by $2.1 million or 32% from $6.5
million to $4.4 million, while the Mass Market division increased
by $873 thousand. Management attributes the decrease in Nature's
Secret to increased competition and ineffective marketing and
sales promotions.
The gross margin percent for the six months ended June 30, 1997
decreased by 10% to 51% from 61% during the same period in 1996.
Management attributes 7% of the difference to a sale to Active
Media Services, Inc. of $758 thousand which was recorded at the
cost of the product sold and to an inventory write-off in the
amount of $114 thousand, the majority of which was related to
packaging which became obsolete due to graphics changes. For the
six months ended June 30, 1997, the core business gross margin
percentage decreased by 3% to 58% from 61% for the same period in
1996 due to a shift in sales to products with lower profit
margins and increased discounting. The gross profit for the six
months ended June 30, 1997 decreased by $3.3 million or 47% to
$3.7 million from $7 million during the same period in 1996.
Management attributes the majority of this difference to a large
sale to a major customer in 1996 with a gross profit of $3
million, $456 thousand in decreased margin to that same major
customer exclusive of the large sale, a drop in product sales to
other customers resulting in a decreased margin of $472 thousand
and a write off of inventory of $114 thousand in 1997.
For the six months ended June 30, 1997, marketing expenses
decreased $1.8 million or 44% to $2.3 million from $4.1 million
in the same period in 1996 due mainly to a reduction in media
advertising costs, which, as a percent of sales, was a 4%
decrease. For the six months ended June 30, 1997, sales costs
decreased $290 thousand or 20% to $1.1 million from $1.4 million
in the same period in 1996 due to decreased personnel related
costs and special sales promotional costs. Research and
development costs increased $144 thousand from $154 thousand to
$298 thousand for the six months ended June 30, 1997 as compared
to the same period in 1996 due to new clinical studies personnel
and product trial costs. General and administrative expenses
increased $253 thousand or 20% to $1.5 million for the six months
ended June 30, 1997 as compared to $1.2 million in the same
period in 1996, primarily due to new costs related to being a
public company such as investment banker fees, SEC reporting,
transfer agent fees and investor relations costs. For the six
months ended June 30, 1997, total operating costs decreased by
$1.7 million or 24% to $5.2 million from $6.9 million in the same
period in 1996.
Interest income increased 42% to $35 thousand for the six months
ended June 30, 1997 from $25 thousand during the same period in
1996 due to a higher average balance of cash and cash equivalents
invested in 1997 than in the same period in 1996.
Liquidity and Capital Resources
The Company's cash and cash equivalents position at June 30, 1997
was $318 thousand as compared to $1.1 million on December 31,
1996, a decrease of $767 thousand. The decrease in cash and cash
equivalents position was a result of these resources being used
to fund ongoing operations. The Company has a working capital
ratio of 2.0 to 1.
The company invests it's cash in an interest bearing money market
account.
Accounts receivable totaled $1.0 million at June 30, 1997 as
compared to $1.1 million at December 31, 1996, a decrease of $118
thousand or 11%. The accounts receivable decrease was due
primarily to the receipt of the final payment related to a large
sale to a major customer in 1996.
A decrease of $818 thousand or 32% in inventory valued at $1.7
million at June 30, 1997 as compared to $2.5 million at December
31, 1996 was due to a sale to Active Media Services, Inc. of $758
thousand of product.
Prepaid expenses increased by $1.2 million or 717% to $1.4
million at June 30, 1997 from $171 thousand at December 31, 1996.
The reasons for this increase were the expenditures related to
the prepayment of advertising and promotion costs for the UnDo
product, the expenses associated with the introduction of new
products and packaging and the value of barter credits arising
from the sale to Active Media Services, Inc., a barter company.
Capital expenditures for the six months ended June 30, 1997 were
$83 thousand as compared to $272 thousand for the same period in
1996.
Accounts payable and accrued liabilities increased to $2.1
million at June 30, 1997 from $1.4 million as of December 31,
1996, an increase of $701 thousand or 34 %. The majority of the
increase in accounts payable and accrued liabilities is
attributable to new product materials, packaging and marketing
costs and prepaid advertising and promotion costs related to the
UnDo product.
The deferred tax liability at June 30, 1997 was $33 thousand, a
decrease of $119 thousand from $152 thousand at December 31, 1996
which was the result of interim tax estimates by management.
Additional paid in capital related to warrants as of June 30,
1997 was $87 thousand as compared to $0 at December 31, 1996.
These warrant costs relate to warrant certificates issued on
April 15, 1997 in which warrants are to be exchanged for
investment banking and consulting services.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 10, 1997, 4Health, Inc. was served notice of a law
suit filed against the company by the Richard's Group, Inc. The
action, Richard's Group, Inc. vs. 4Health, Inc. (97-05669-L), was
filed in the District Courts of Dallas County, Texas on June 20,
1997. The action requests judgment be made by the Court against
4Health, Inc. regarding outstanding fees in the amount of
$61,839.92, interest, and legal expenses incurred by the
plaintiff in this matter. The action alleges that these fees
were incurred by the Company for advertising services provided by
the plaintiff. On August 4, 1997, the Company answered the
complaint denying all charges. The Company does not believe a
judgment against 4Health, Inc. in this case would have a negative
material effect.
Item 4. Submission of Matters to a Vote of Security Holders
On June 6, 1997, the Company held the 1997 Annual Meeting of
Shareholders. The total number of shares present, in person or
by proxy, and entitled to vote at the meeting was 9,537,116. The
following proposals were submitted to shareholders for approval:
1. Approval of election of Steven B. Beckman as a director of
the 4Health, Inc. Board of Directors and to serve a three year
term.
For: 9,560,318
Withhold: 30,798
2. Appointment of Arthur Andersen LLP as auditors for the
fiscal year ending December 31, 1997.
For: 9,530,511
Against: 4,053
Abstain: 2,552
Item 5. Other Information
No other relevant matters occurred during the first quarter
ended June 30, 1997.
Item 6. Exhibits and Reports on Form 8-K
Exhibit Index
Item 2. Plan of Acquisition, Reorganization, Liquidation, or
Succession
2.01 Agreement and Plan of Merger dated April 10, 1996, by
and between 4health, Inc., and Surgical Technologies, Inc. as
amended June 4, 1996. Incorporated by Reference (4).
2.02 Asset Purchase Agreement dated November 30, 1995, by
and between Microtek Medical, Inc., and Surgical Technologies,
Inc. Incorporated by Reference (3).
2.03 Acquisition Agreement dated effective January 1, 1996,
by and between Rex Industries Acquisition Corporation and Rex
Industries, Inc. Incorporated by Reference (3).
Item 3. Articles of Incorporation and Bylaws
3.01 Articles of Incorporation of Surgical Subsidiary, Inc.,
a Utah Corporation now known as Surgical Technologies, Inc.
Incorporated by Reference (6).
3.02 Articles of Merger and related Plan of Merger.
Incorporated by
Reference (6).
3.03 Bylaws. Incorporated by Reference (6).
3.04 Articles of Merger and related Plan of Merger.
Incorporated by Reference (4).
Item 4. Instruments Defining the Rights of Security Holders
4.01 Form of Warrant Agreement between 4Health, Inc. and
Zions First National Bank with related form of Warrant.
Incorporated by Reference (4).
4.02 Form of Sale Restriction Agreement respecting
shareholders of both Surgical Technologies, Inc., and 4Health,
Inc. Incorporated by Reference (4).
4.03 Form of Consent, Approval, and Irrevocable Proxy
respecting certain Surgical stockholders with related schedule.
Incorporated by Reference (4).
4.04 Form of Consent, Approval, and Irrevocable Proxy
respecting certain 4Health stockholders with related schedule.
Incorporated by Reference (4).
4.05 Specimen Common Stock Certificate. Incorporated by
Reference (4).
4.06 Specimen Warrant Certificate. Incorporated by
Reference (4).
4.07 Warrant certificates between 4Health and Allen &
Company Incorporated dated April 15, 1997. Incorporated by
Reference (8).
Item 10. Material Contracts
10.01 Form of Directors' Options. Incorporated by
Reference (3).*
10.02 Stock Option and Stock Award Plan. Incorporated by
Reference (3).*
10.03 1991 Directors' Stock Option Plan. Incorporated by
Reference (3).*
10.04 Directors' Stock Option Plan. Incorporated by
Reference (5).*
10.05 Technology Purchase Agreement between Ellis E.
Williams, Professional Medical, Inc., and Surgical Technologies,
Inc., dated February 4, 1993. Incorporated by Reference (6).
10.06 Patent Cross-License Agreement between Utah
Medical Products, Inc., and Professional Medical, Inc., dated
February 9, 1993. Incorporated by Reference (7).
10.07 Form of Promissory Note in the amount of
$1,000,000 payable to First Interstate Bank, dated August 16,
1994. Incorporated by Reference (7).
10.08 Deed of Trust Note and related Deed of Trust,
Assignment of Rents, Security Agreement, and Fixture Filing,
dated April 8, 1994, in the principal amount of $1,000,000 due
Standard Insurance Company. Incorporated by Reference (6).
10.09 Stock Purchase Agreement dated May 6, 1994,
between Surgical Technologies, Inc., and Benitex, A.G.
Incorporated by Reference (6).
10.10 Real Estate Contract dated February 2, 1994,
between Surgical Technologies, Inc. and Rex Crosland related to
the facilities at 2801 South Decker Lake Lane, Salt Lake City,
Utah. Incorporated by Reference (6).
10.11 Asset Purchase Agreement between Milwaukee
Acquisition Company, Insulation Distributors, Inc., and Surgical
Technologies, Inc., effective September 30, 1993. Incorporated by
Reference (6).
10.12 All-Inclusive Promissory Note and related All-
Inclusive Trust Deed, relating to sale of building and property,
dated March 31, 1995, in the principal amount of $981,375.32.
Incorporated by Reference (7).
10.13 1996 Long-Term Stock Incentive Plan. Incorporated
by Reference (4).
10.14 Form of $2.00 option granted to Surgical
directors, officers, and employees with related schedule.
Incorporated by Reference (4).*
10.15 Form of Option granted to Todd B. Crosland.
Incorporated by Reference (4).*
10.16 Form of Option granted to Rockwell D. Schutjer.
Incorporated by Reference (4).*
10.17 Form of Proprietary Information, Inventions, and
Non-Competition Agreement between 4Health and R. Lindsey Duncan.
Incorporated by Reference (4).
10.18 Form of Employment Agreement between the Surviving
Corporation and Rockwell D. Schutjer. Incorporated by
Reference (4).*
10.19 Deed of Trust Note and related Deed of Trust,
Assignment of Rents, Security Agreement, and Fixture Filing,
dated February 20, 1997, in the principal amount of $1,350,000
due Standard Insurance Company. Incorporated by
Reference (2).
Item 20. Other Documents or Statements to Security Holders
20.01 Notice of change of transfer and warrant agent.
Incorporated by Reference (1).
Item 27. Financial Data Schedule
27.01 Financial Data Schedule. This Filing.
(1) Incorporated by reference from 4Health's report on Form 10-Q
for the quarter ended March 31, 1997.
(2) Incorporated by reference from 4Health's report on Form 10-K
for the year ended December 31, 1996.
(3) Incorporated by reference from Surgical's registration
statement on Form S-1 filed with the Commission, SEC file number
33-31863.
(4) Incorporate by reference from Surgical's registration
statement on Form S-4 filed with the Commission, SEC file number
33-03243.
(5) Incorporated by reference from Surgical's report on Form 10-
K for the year ended March 31, 1992.
(6) Incorporated by reference from Surgical's report on Form 10-
K for the year ended March 31, 1994.
(7) Incorporated by reference from Surgical's report on Form 10-
Q for the quarter ended December 31, 1995.
(8) Incorporated by reference from Schedule 13D filed with the
Commission by Allen & Company Incorporated on April 18, 1997.
* Represents a management contract, compensatory plan, or
arrangement required to be filed as an exhibit.
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
4Health, Inc.
Dated: August 12, 1997
By: /s/ R. LINDSEY DUNCAN
R. Lindsey Duncan
President and Chief Executive Officer
Dated: August 12, 1997
By: /s/ SCOTT W. LUSK
Scott W. Lusk
Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
27.01 Financial Data Sheet
This schedule contains summary financial information extracted
from the consolidated financial statements and is qualified in
its entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<C> <S>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Apr-01-1997
<PERIOD-END> Jun-30-1996
<CASH> 319
<SECURITIES> 0
<RECEIVABLES> 986
<ALLOWANCES> 0
<INVENTORY> 1,717
<CURRENT-ASSETS> 4,236
<PP&E> 2,543
<DEPRECIATION> (63)
<TOTAL-ASSETS> 8,645
<CURRENT-LIABILITIES> 2,142
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,645
<SALES> 3,424
<TOTAL-REVENUES> 3,424
<CGS> 1,832
<TOTAL-COSTS> 4,161
<OTHER-EXPENSES> 18
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> (995)
<INCOME-TAX> 0
<INCOME-CONTINUING> (995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (995)
<EPS-PRIMARY> (.087)
<EPS-DILUTED> (.087)
</TABLE>
