CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From __________ To __________
IATROS HEALTH NETWORK, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20345 23-2596710
(State of Incorporation) (Commission File No.) (IRS
Employer
Identification
No.)
10 Piedmont Center, Suite 400
Atlanta, Georgia, 30305
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (404) 266-3643
Indicate by (X) whether 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 and has been subject to
such filing requirements for the past 90 days.
Yes X No
As of November 13, 1996, there were 15,842,242 shares of Common
Stock issued or to be issued and outstanding and 533,333 shares
of Series A Senior Convertible Preferred Stock.
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM l: FINANCIAL STATEMENTS
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $676,582 $682,505
Accounts receivable, net of allowance for doubtful
accounts of $711,322 and $143,400 in 1996 and
1995, respectively 7,197,568 4,237,452
Notes receivable 1,200,000 1,000,000
Inventory 433,683 460,344
Deferred tax asset 369,995 1,520,000
Prepaid expenses and other current assets 1,928,929 1,579,186
------------- ------------
Total current assets 11,806,757 9,479,487
PROPERTY AND EQUIPMENT, net 1,261,493 965,289
OTHER ASSETS
Cash and cash equivalents, restricted 200,000 375,000
Deposits 1,088,388 368,762
Contract rights, net of accumulated
amortization of $31,981 and $7,995 in 1996 and
1995, respectively 849,363 631,710
Excess of cost over net assets acquired, net
of accumulated amortization of $640,406 and
$310,582 in 1996 and 1995, respectively 8,618,353 8,418,078
Notes receivable 6,777,220 2,110,295
Organization costs, net of accumulated
amortization of $215,897 and $112,396 in
1996 and 1995, respectively 2,841,471 1,002,301
Loans receivable and other assets 5,630,057 675,526
------------- ------------
26,004,852 13,581,672
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$39,073,102 $24,026,448
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, banks $805,670 $879,811
Current portion of long-term debt 243,604 1,052,017
Current portion of capital lease obligations 187,048 127,001
Accounts payable 2,277,950 1,188,650
Accrued payroll and related liabilities 505,384 353,017
Accrued expenses and other current liabilities 669,288 1,857,661
Preferred stock dividends payable 350,000 230,000
Net current liabilities of discontinued operations 500,000 500,000
------------- ------------
Total current liabilities 5,538,944 6,188,157
LONG-TERM DEBT 75,378 545,041
SUBORDINATED CONVERTIBLE DEBENTURES 750,000 -
CAPITAL LEASE OBLIGATIONS 255,500 209,329
COMMITTMENTS AND CONTINGENCIES
------------- ------------
6,619,822 6,942,527
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value, 5,000,000 shares
authorized;
Series A, 533,333 shares issued and outstanding
in 1996 and 1995, respectively 533 533
Series B, 100,000 shares issued and outstanding
in 1996 and 1995, respectively 100 100
Common Stock, $.001 par value, 25,000,000 shares
authorized; 15,842,242 and 11,351,745 shares issued
or to be issued and outstanding in 1996 and 1995,
respectively 15,842 11,351
Additional Paid-In Capital 34,093,767 20,441,130
Deficit (1,656,962) (3,369,193)
------------- ------------
32,453,280 17,083,921
------------- ------------
$39,073,102 $24,026,448
============= ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30, Nine months ended September
1996 1995 1996 19
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Ancillary services $2,454,570 $2,052,951 $6,645,326 $4,795,325
Management services 3,232,666 760,132 7,764,758 2,741,762
Development services 1,557,399 1,520,103 6,580,119 3,323,228
------------- ------------ ------------ ------------
7,244,635 4,333,186 20,990,203 10,860,315
Operating expenses
Ancillary services 2,285,167 1,714,789 6,328,304 4,418,319
Management services 2,994,387 589,680 7,607,367 2,149,123
General and administrative 1,238,971 542,487 2,879,289 1,604,519
------------- ------------ ------------ ------------
6,518,525 2,846,956 16,814,960 8,171,961
------------- ------------ ------------ ------------
Income/(loss) from operations before
other income (expense) and income
tax benefit (expense) 726,110 1,486,230 4,175,243 2,688,354
Other income (expense)
Interest income 97,636 32,195 308,268 54,575
Interest expense (84,918) (100,061) (593,264) (212,310)
Depreciation and amortization (240,418) (81,265) (795,736) (268,644)
Other income (expense) (29,287) (12,278) (9,282)
------------- ------------ ------------ ------------
(256,987) (149,131) (1,093,010) (435,661)
------------- ------------ ------------ ------------
Income/(loss) from operations
before income tax benefit (expense) 469,123 1,337,099 3,082,233 2,252,693
Income tax benefit (expense) (187,600) 600,000 (1,250,005) 950,000
------------- ------------ ------------ ------------
Net Income (loss) $281,523 $1,937,099 $1,832,228 $3,202,693
============= ============ ============ ============
Primary earnings (loss) per common
and common equivalent share $0.01 $0.15 $0.11 $0.25
------------- ------------ ------------ ------------
Net Income (loss) $0.01 $0.15 $0.11 $0.25
============= ============ ============ ============
Weighted average number of shares of
common stock and equivalents outstanding 17,323,757 12,575,726 16,196,818 12,690,531
============= ============ ============ ============
Fully diluted earnings per common
and common equivalent share N/A N/A N/A N/A
------------- ------------ ------------ ------------
Net Income (loss) N/A N/A N/A N/A
============= ============ ============ ============
Weighted average number of shares of
common stock and equivalents outstanding N/A N/A N/A N/A
============= ============ ============ ============
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
(UNAUDITED) (UNAUDITED
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income / (loss) $1,832,228 $3,202,693
Adjustments to reconcile net income (loss) to
net cash utilized by operating activities:
Net cash utilized by discontinued
operations - (169,659)
Depreciation and amortization 795,736 82,584
Deferred taxes 1,150,005 (950,000)
Changes in (net of disposals):
Accounts receivable (2,960,114) (1,825,518)
Notes and loans receivable (9,821,456)
Inventory 26,661 (328,152)
Prepaid expenses and other current assets (349,743) (545,040)
Accounts payable 1,089,300 971,101
Accrued expenses and other current 1,353,616
liabilities (1,036,005) 51,322
------------- -------------
Net cash utilized by operating activities (9,273,388) 1,842,946
------------- -------------
INVESTING ACTIVITIES
Purchase of property and equipment (484,629) (206,262)
Acquisition of businesses (530,099) -
Acquisition of contract rights (241,639) -
Deposits, net (719,626) 703,319
Restricted cash and cash equivalents 175,000 25,000
Organization costs (1,942,671) (489,843)
------------- -------------
Net cash utilized by investing activities (3,743,664) 32,214
------------- -------------
FINANCING ACTIVITIES
Net proceeds from issuance of capital
stock and other capital contributions 2,407,128
Proceeds from issuance of subordinated
convertible debentures, net 12,000,000
Short term borrowings (payments), net (74,141) 1,391,571
Payments of long-term debt (1,278,076) (2,001,383)
Payments of capital lease obligations (43,782)
------------- -------------
Net cash provided by financing activities 13,011,129 (609,812)
------------- -------------
INCREASE (DECREASE) IN CASH (5,923) 1,265,348
Cash and cash equivalents, beginning of period 682,505 847,403
------------- -------------
Cash and cash equivalents, end of period 676,582 2,112,751
============= =============
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Iatros Health Network, Inc. and Subsidiaries (the "Company")
is a Delaware Corporation organized in June 1988. The
Company is engaged in providing services to the long-term
care industry. The Company's principal markets include
Pennsylvania, Maryland, California and New England.
A summary of the Company's significant accounting policies
consistently applied in the preparation of the accompanying
consolidated financial statements is as follows:
Principles of consolidation
The consolidated financial statements include the
accounts of Iatros Health Network, Inc. and its wholly-
owned subsidiaries. All intercompany transactions and
accounts have been eliminated in consolidation.
Cash and cash equivalents
The Company considers all highly liquid debt
instruments purchased with an original maturity of
three months or less to be cash equivalents.
Revenue and accounts receivable
Ancillary services revenue is reported at the estimated
net realizable amounts due from residents, third party
payors, and others. Management services revenue is
reported pursuant to the terms and amounts provided by
the associated management service contracts.
Development services revenue is generally realized on a
fee for service basis recognized upon completion of the
service transaction.
The allowance for doubtful accounts is maintained at a
level determined by management to be adequate to
provide for potential losses based upon an evaluation
of the accounts receivable. This evaluation considers
such factors as the age of receivables, the contract
terms and the nature of the contracted services.
Inventory
Inventory is principally comprised of pharmaceutical
and medical supplies and is valued at the lower of cost
(first-in, first-out method) or market.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Property and equipment
Property and equipment is stated at cost. The cost of
property and equipment is depreciated over the
estimated useful lives of the respective assets using
primarily the straight-line method. Property and
equipment under capital leases is amortized over the
lives of the respective leases or over the service
lives of the assets for those leases which
substantially transfer ownership. Leasehold
improvements are amortized over the lesser of the term
of the related lease or the estimated useful lives of
the assets.
Normal maintenance and repair costs are charged against
income. Major expenditures for renewals and betterment
which extend useful lives are capitalized. When
property and equipment is sold or otherwise disposed
of, the asset accounts and related accumulated
depreciation or amortization accounts are relieved, and
any gain or loss is included in operations.
The useful lives of property and equipment for purposes
of computing depreciation and amortization are:
Leasehold improvements 3 - 10 Years
Property and equipment
held under capital leases 5 - 7 Years
Equipment 5 Years
Furniture and fixtures 3 - 7 Years
Contract rights
Contract rights represent the value assigned to
management contracts obtained by the Company. The
contracts are with third party owners of long-term care
facilities and provide for management fees in exchange
for services to the facilities. Contract rights are
being amortized over the term of the related contracts.
Excess of cost over net assets acquired
The excess of cost over net assets acquired relates to
the acquisition of the Company's operating
subsidiaries. The excess of cost over net assets
acquired is being amortized over a twenty year life.
The Company analyzes the value of its recorded excess
of cost over net assets acquired on an ongoing basis to
determine that the recorded amounts are reasonable and
are not impaired. The review includes an assessment of
environmental factors, contract retentions, cash flow
projections and other factors the Company believes are
relevant.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income taxes
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income
Taxes," as of January 1, 1993. The adoption of this
standard did not have a material effect on the
Company's financial position or results of operations.
Under SFAS No. 109, the asset and liability method is
used in accounting for income taxes.
Under this method, deferred tax assets and liabilities
are determined based on temporary differences between
the financial reporting and tax bases of assets and
liabilities and net operating loss carryforwards, and
are measured using enacted tax rates and laws that are
expected to be in effect when the differences are
reversed.
Organization costs
Organization costs incurred in connection with the
acquisition or formation of new business activities for
the Company are being amortized using the straight-line
method over five years.
Earnings per share
Primary earnings per common and common equivalent share
is computed based on the weighted average number of
shares of common stock and common stock equivalents
outstanding. In 1996 and 1995, common stock
equivalents include additional shares assuming the
exercise of stock options and common stock purchase
warrants, convertible debt, and Convertible Series A
Preferred Stock when their effect is dilutive. The
inclusion of additional shares for conversion of
Preferred Series A Stock, in primary earnings per share
calculations, would have been antidilutive for 1996 and
1995.
Fully diluted earnings per common and common equivalent
share has not been computed because the results would
have been antidilutive for 1996 and 1995. For 1996,
such antidilution results from net earnings used in the
computation of fully diluted earnings per common and
common equivalent share being increased by interest
expense incurred on its 10% Subordinated Convertible
Debentures. For 1995, primary and fully diluted
earnings per common and common equivalent share are the
same.
Net earnings used in the computation of primary
earnings per common and common equivalent share for
1996 and 1995 are reduced by Preferred Stock dividend
requirements.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported
amounts of revenue and expenses during the reporting
periods. Actual results could differ from those
estimates.
Reclassifications
Certain amounts have been reclassified in 1995 to
conform to the current period's presentation.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section I - Business Description
Iatros Health Network, Inc., a Delaware Corporation
organized in June 1988 and its subsidiaries (together
referred to as the "Company") provide services and products
to the long-term care industry. The Company's principal
market areas currently are Pennsylvania, Maryland,
California and New England.
Management Services
The Company provides a full range of management services to
the long-term care facilities it serves. These include
financial as well as operational management services,
quality assurance services, and special consulting services.
The Company currently provides management and related
services to fifty-two facilities representing approximately
7,350 beds located in its principal market areas of
Pennsylvania, Maryland, California and New England.
Management services provided by the Company are generally
subject to contract terms and renewal provisions. Among
these, several facility management contracts relating to
facilities in the Pennsylvania market are due to expire in
March 1997. Such contracts include nine facilities
representing annual management services revenue
approximating $3,000,000. At this time the likelihood of
related contracts being renewed is not determinable by the
Company.
Ancillary Services
The Company provides a full range of ancillary services to
long-term care facilities operating in its market areas.
These include institutional pharmacy services, durable
medical equipment, wound care management, infusion therapy,
respiratory therapy services and rehabilitation therapy
services. The Company currently provides ancillary services
to in excess of eighty facilities representing nearly 10,000
beds located in its principal market areas.
Development Services
The Company provides a full range of development services on
behalf of owners and operators as well as lenders and
investors who are active in the long-term care industry.
The Company engages in a development, consulting or
financial advisory capacity on a fee for service basis,
particularly where opportunities exist to realize
development income while securing new management and
ancillary services business. The Company's current
development activities include long-term care facilities
representing in excess of 2,500 beds located in the
Pennsylvania, Maryland, Midwest and New England market
areas. These transactions, upon completion, will provide
opportunities for new management and ancillary services
business for the Company.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Significant Development Transactions
During the quarter ended September 30, 1996, the Company was
actively engaged in numerous property transactions which
contributed to development services revenue totaling
$1,557,399 for the quarter. Significant transactions
included the following:
The Company agreed to purchase the assets of two
nursing homes in Massachusetts, one representing 120
beds and the other representing 102 beds. The purchase
price of these facilities is $10,000,000. The Company
intends to assign this purchase to a third party while
retaining management rights for these two facilities.
In connection with this transaction, the Company has
recognized development services revenue totaling
$170,000.
The Company secured acquisition and development
opportunities involving four additional long-term care
properties representing an aggregate of 311 beds
located in the state of Massachusetts. In connection
with these transactions, the Company has recognized
development services revenue totaling $500,000.
The Company secured an acquisition and development
opportunity involving three long-term care properties
representing an aggregate of 194 beds located in the
state of Missouri. This transaction represents a
significant addition for the Company's newly
established Midwest region. In connection with this
transaction, the Company has recognized development
services revenue totaling $500,000.
The Company secured acquisition and development
opportunities involving two long-term care properties
representing an aggregate of 349 beds located in the
state of New Jersey. These facilities are located in
relatively close proximity to and planned to be
operated by the Company's Philadelphia region. In
connection with these transactions, the Company has
recognized development services revenue totaling
$300,000.
Section II - Results of Operations
The Company's consolidated financial statements reflect net
income of $281,523 for the quarter ended September 30, 1996,
compared with a net income of $1,937,099 for the quarter
ended September 30, 1995. For the nine months ended
September 30, 1996, the consolidated financial statements
reflect net income of $1,832,228, compared with a net income
of $3,202,693 for the nine months ended September 30, 1995.
The decrease in reported net income of $1,655,576 for the
quarter ended September 30, 1996 and $1,370,465 for the nine
months ended September 30, 1996 results largely from
increased overhead associated with new management contracts
involving high cost turn-around projects. The Company
anticipates improved income associated with continuing
operations in future quarters. Such improvement is expected
to result from completing cost reductions while continued
growth of regional service volume is expected to restore
more normative operating margins.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section II - Results of Operations (Continued)
Management's expectation of regional operating performance
is to routinely sustain net operating margins from
management and ancillary service revenue in keeping with
industry norms. Development service revenue is expected to
be recognized regionally as the company continues its growth
and development of principal market areas. Such revenue is
expected to contribute further to the Company's operating
margins.
Consolidated operating revenue reported for the quarter
ended September 30, 1996 totaling $7,244,635 compares with
$4,333,186 reported for the quarter ended September 30, 1995
and represents an increase of $2,911,449 or 67%. Of the
reported increase in third quarter 1996 revenue, $401,619 or
14% relates to ancillary services, $2,472,534 or 85% relates
to management services, and $37,296 or 1% relates to
development services.
Consolidated operating revenue reported for the nine months
ended September 30, 1996 totaling $20,990,203 compares with
$10,860,315 reported for the nine months ended September 30,
1995 and represents an increase of $10,129,888 or 93%. Of
the reported increase in year-to-date 1996 revenue,
$1,850,001 or 18% relates to ancillary services, $5,022,996
or 50% relates to management services, and $3,256,891 or 32%
relates to development services.
Increases in reported revenue during 1996 result principally
from the Company having secured management and ancillary
service contracts in the Pennsylvania market area through
recent business acquisitions as well as having developed
expanded market presence in Maryland, California and New
England.
The components of ancillary services revenue reported for
the quarter and nine months ended September 30, 1996 include
medical supplies and pharmacy revenue totaling $1,662,761
and $4,438,043, respectively, and therapy services revenue
totaling $791,809 and $2,207,283, respectively. During the
prior year quarter and nine months, the Company reported
medical supplies and pharmacy revenue of $1,392,576 and
$3,129,076, respectively, and therapy services revenue of
$660,375 and $1,666,249, respectively.
Increases in ancillary service revenue generally relate to
the Company having secured new or expanded service
relationships with facilities for which management services
are also provided.
Management services revenue reported by the Company for the
quarter and nine months ended September 30, 1996 relates
exclusively to long-term care facilities for which the
Company provides both financial and operational management
services under contractual arrangements. Management services
revenue reported for the quarter and nine months ended
September 30, 1996 totaling $3,232,666 and $7,764,758,
respectively, has increased by approximately $2,472,534 and
$5,022,996, respectively, compared with prior year periods.
For the year-to-date, this represents an increase of 183%
over the prior period. Increases in management services
revenue reflect increased revenue resulting from new
management service contracts secured by the Company.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section II - Results of Operations (Continued)
For the nine months ended September 30, 1995, the Company
operated an assisted living facility under a lease
arrangement and had reported related management services
revenue of $943,977. During 1995, this lease arrangement
was terminated and substituted by a management services
contract.
For the quarter and nine months ended September 30, 1996,
the Company recognized development services revenue totaling
$1,557,399 and $6,580,119, respectively, which was
associated with securing purchase and finance arrangements
for eleven long-term care facilities. The Company intends
to provide continuing marketing, management and ancillary
services to these facilities as well as expand its service
presence in the market areas represented by these
transactions. Development services revenue recorded by the
Company for the current year-to-date represents an increase
of nearly 100% over the prior year period.
Consolidated operating expenses reported for the quarter
ended September 30, 1996 total $6,518,525 or 90% of reported
revenue compared with the same period during 1995 totaling
$2,846,956 or 66% of reported revenue. Total operating
expenses for the quarter ended September 30, 1996 increased
$3,671,569 or 129% compared with 1995. This increase is
comprised of $570,378 or 16% relating to ancillary services,
$2,404,707 or 65% relating to management services, and,
$696,484 or 19% relating to general and administrative
expenses.
Consolidated operating expenses reported for the nine months
ended September 30, 1996 total $16,814,960 or 80% of
reported revenue compared with the same period during 1995
totaling $8,171,961 or 75% of reported revenue. Total
operating expenses for the nine months ended September 30,
1996 increased $8,642,999 or 106% compared with 1995. This
increase is comprised of $1,909,985 or 22% relating to
ancillary services, $5,458,244 or 63% relating to management
services, and, $1,274,770 or 15% relating to general and
administrative expenses.
The reported increases in operating expenses for the current
periods are primarily associated with management services
and general and administrative costs. Increased costs
result generally from business growth, as well as costs
incurred to secure and position regional resources necessary
to effectively support anticipated increases both in
management and ancillary service volume within existing
market areas. In addition, the Company has incurred
increases in general and administrative costs associated
with developing its corporate resources necessary to support
regional operations and conduct requisite oversight for
continuing operations.
Management expects operating expenses as a percentage of
reported revenue to decrease in future periods. This is
anticipated to result from management's continuing
initiatives to further develop and effectively position
regional organizational resources while achieving greater
economies of scale and improved operating margins from
existing business and continued growth.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section II - Results of Operations (Continued)
Ancillary services operating expenses for the quarter ended
September 30, 1996 total $2,285,167 and include $1,407,544
relating to medical supplies and pharmacy services and
$877,623 relating to therapy services. For the prior year
quarter, ancillary services operating expenses total
$1,714,789 and include $1,073,910 relating to medical
supplies and pharmacy services and $640,879 relating to
therapy services. Total ancillary services operating
expenses for the quarter ended September 30, 1996 represent
an increase of 33% over the prior year period.
Ancillary services operating expenses for the nine months
ended September 30, 1996 total $6,328,304 and include
$3,976,583 relating to medical supplies and pharmacy
services and $2,351,721 relating to therapy services. For
the prior year nine months, ancillary services operating
expenses total $4,418,319 and include $2,826,247 relating to
medical supplies and pharmacy services and $1,592,072
relating to therapy services. Total ancillary services
operating expenses for the nine months ended September 30,
1996 represent an increase of 43% over the prior year
period.
Management services operating expenses reported for the
quarter and nine months ended September 30, 1996 total
$2,994,387 and $7,607,367, respectively, and relate to the
long-term care facilities for which the Company provides
financial and operational management services. For the
quarter and nine months ended September 30, 1996, management
services reported operating profit of $238,279 and $157,391,
respectively. Management services operating expenses for
the quarter and nine months ended September 30, 1995 totaled
$589,680 and $2,149,123, respectively, resulting in
operating profits of $170,452 and $592,639, respectively.
Operating profits resulting from management services during
1996 reflect overhead costs associated with recent business
acquisitions which management is in the process of reducing
and realigning. Further, increased operating costs have
been incurred in connection with establishing regional
management resources anticipating an increase in the number
of management services contracts secured by the Company.
General and administrative expenses for the quarter and nine
months ended September 30, 1996 total $1,238,971 and
$2,879,289, respectively. Significant components of general
and administrative expenses for the nine months ended
September 30, 1996 include contracted services of $465,219;
professional fees of $301,821; salaries of $911,323; and,
travel and related expenses of $238,873. Other general and
administrative expenses aggregating $962,053 for the nine
months relate to corporate overhead.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section II - Results of Operations (Continued)
For the quarter ended September 30, 1996, the Company
reported an operating profit from total services revenue of
$726,110 compared to an operating profit in the prior year
quarter of $1,486,230 representing a decrease of $760,120 or
51%. This decrease results principally from the Company's
growth and expansion achieved during 1995 and to date
wherein the Company has incurred increasing overhead
required to effectively support anticipated business volume.
Operating profit margins from management and ancillary
services are expected to increase as the Company continues
to reduce and realign costs, and achieve full implementation
of its service programs in its local service networks within
each market area.
The operating profitability reported by the Company for the
quarter and to date results largely from development
services revenue recognized and resulting from new business
transactions. All such development initiatives are designed
to secure a source of service opportunities for the
provision of management and ancillary services.
Other income (expense) for the quarter and nine months ended
September 30, 1996 total ($256,987) and ($1,093,010),
respectively. Principal components of other income (expense)
for the nine months ended September 30, 1996 include net
interest expense of $284,996 associated with the Company's
debt capital and $795,736 for depreciation and amortization
expense. Depreciation and amortization expense includes
approximately $194,649 associated with depreciation,
$466,087 associated with the amortization of goodwill and
organizational costs relating to the Company's recent
business acquisitions, and approximately $135,000 associated
with the amortization of loan origination costs relating to
the Company's 10% subordinated convertible Debentures.
Section III - Liquidity and Capital Resources
In January 1996, the Company completed the sale of
$12,900,000 of its 10% subordinated convertible Debentures.
The Debentures pay interest in quarterly installments at the
rate of 10% per annum. The Debentures are convertible into
shares of the Company's Common Stock, with the conversion
rate determined by a formula based upon the share price of
the Company's Common Stock. At September 30, 1996,
$12,150,000 had been converted into a total of 3,725,877
common shares. As of October 31, 1996, $750,000 in 10%
subordinated convertible Debentures remained outstanding
which the Company believes is likely to be converted by
December 31, 1996.
The Company realized $12,000,000, net of costs associated
with the issuance of the 10% subordinated convertible
Debentures. Through September 30, 1996, the funds realized
were utilized to fund recent acquisitions and other
corporate development and operating obligations of the
Company. Uses of the 10% subordinated convertible Debenture
proceeds included the following: (1) Corporate overhead -
$900,000; (2) Working capital advances to Company
subsidiaries - $4,750,000; (3) Development capital advances
for various transactions - $3,965,000; and (4) Operating
deficit agreement and project working capital advances -
$2,385,000.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section III - Liquidity and Capital Resources (Continued)
The Company is presently seeking debt financing necessary to
support current operating working capital requirements and
to fund its continued growth and development plans. Among
these, the Company is negotiating lines of credit and asset
based financing with various financial institutions. The
Company is currently engaged in discussions with several
funding sources but no definitive arrangements have been
concluded to date.
As of September 30, 1996 the Company had advanced
approximately $2,385,000 relating to nursing facilities
managed by the Company and for which the Company is
obligated under various operating deficits agreements. Such
advances are expected to be recovered by the Company from
sources of working capital financing being established by
the respective facilities. Absent securing such working
capital financing, the Company's advances are recoverable
from the facilities' operating cash flows which are
generally subordinated to other obligations of the
facilities.
Cash and cash equivalents at September 30, 1996 totaled
$876,582 which is comprised of unrestricted amounts of
$676,582 and restricted amounts of $200,000. Restricted
cash of $200,000 represents funds received from a third
party as security for future payment obligations pursuant to
a management subcontract agreement. On a quarterly basis,
the Company may utilize such funds for its own corporate
purposes in increments of $25,000. Accordingly, amounts not
available to the Company during the current operating period
have been classified as long term.
At September 30, 1996, cash and cash equivalents included a
certificate of deposit held by a financial institution in
the approximate amount of $523,000. This certificate
matures in November 1996 and serves as collateral for an
outstanding line of credit obligation totaling approximately
$516,000 which is included in current notes payable, bank at
September 30, 1996.
At September 30, 1996, the Company reports a working capital
surplus of $6,267,813 compared with $3,291,330 as of
December 31, 1995.
Accounts receivable at September 30, 1996, of $7,197,568 is
net of allowance for doubtful accounts of $711,322 and is
comprised of $3,475,057 relating to management services and
$3,722,511 relating to ancillary services. Accounts
receivable at September 30, 1995 of $3,102,710 is net of
allowance for doubtful accounts of $143,400 and is comprised
of $843,731 relating to management services, and $2,258,979
relating to ancillary services.
The current portion of notes receivable reported by the
Company at September 30, 1996 totaled $1,200,000 and relates
principally to development and marketing services provided
to third party corporations for which the Company had
reported development services revenue of approximately
$1,000,000 during 1995. Payment for such services was made
in the form of an unsecured promissory note. The note
accrues simple interest at 8% per annum and is due on
demand. The additional amount of $200,000 relates to a
refundable transaction deposit involving a third party
purchase acquisition of three long-term care properties
located in the state of New Hampshire.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section III - Liquidity and Capital Resources (Continued)
Prepaid expenses and other current assets reported by the
Company at September 30, 1996 totaled $1,928,929.
Approximately $1,600,000 of prepaid expenses and other
current assets represent project costs advanced in
connection with transactions involving the Company in a
development capacity. These include legal and professional
as well as financing issue costs which are recoverable upon
completion of the property acquisition and project financing
or development activity for which such costs were advanced.
The Company routinely advances project costs associated
with its development services as it deems necessary to
secure business prospects and complete transactions. In
addition to project costs, prepaid expenses and other
current assets include approximately $200,000 relating to
prepayment of a consulting contract with a former officer
and stockholder of the Company.
Deposits reported at September 30, 1996 totaled $1,088,388
and include a refundable earnest money deposit of $1,000,000
in connection with a purchase agreement for a nursing
facility located in New Jersey. The Company intends to
assign this purchase to a third party, as provided for in
the agreement, and retain rights to provide management and
ancillary services. In connection therewith, the purchase
deposit is to be refunded to the Company. In addition,
deposits include office lease related deposits of $58,388.
Notes receivable reported by the Company at September 30,
1996 totaled $6,777,220 which relate to the following:
$1,500,000 in development services revenue involving a
long-term care facility in the Kansas City market area
wherein the Company served as a financial advisor to a
third party corporation completing a purchase
acquisition and financing of the facility. The Company
provides continuing marketing, management and ancillary
services to this facility and intends to expand its
service presence in this new market area.
$1,032,000 in development services revenue relating to
completing the transaction involving a third party
purchase acquisition of three long-term care properties
totaling approximately 500 beds/units located in the
state of New Hampshire. In connection with this
transaction, and as a part of securing the associated
project financing, the Company received note
instruments which are expected to be realized from
operations of the facilities.
$500,000 in development services revenue relating to
completing the transaction involving a third party
purchase acquisition of three long-term care property
totaling approximately 200 beds/units located in the
state of Pennsylvania. In connection with this
transaction, and as a part of securing the associated
project financing, the Company received note
instruments which are expected to be realized from
operations of the facilities.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section III - Liquidity and Capital Resources (Continued)
Approximately $3,745,000 in development services
revenue relating to twenty long-term care properties
representing approximately 2,436 beds for which the
Company has secured transactions and recognized fee
income for which payment has been formalized by note
agreements. The notes are expected to be realized in
the form of cash and subordinated notes in connection
with the permanent financing of the properties. All
such financing activities are expected to be completed
within a one year period.
Loans receivable and other assets reported by the Company at
September 30, 1996 totaled $5,630,057 and relate to the
following:
$358,500 of loans receivable due from officers of the
Company and its subsidiaries in connection with
acquisitions. These notes include market rates and
terms.
$1,030,000 relating to three assisted living facilities
located in the state of Maryland for which the Company
provides development, marketing and management
services. Such loans extend for periods approximating
ten years and are payable from operations of the
facilities.
Approximately $1,015,000 representing a working capital
loan in connection with the acquisition of management
contract rights associated with three long-term care
properties located in the New England market area.
$315,000 relating to one long-term care facility
located in the state of Maryland for which the Company
provides development, marketing and management
services. Such loan extends for a period approximating
ten years and is payable from operations of the
facility.
$500,000 relating to a long-term care management and
ancillary service provider located in the state of
Connecticut. The promissory note is payable 120 days
after demand.
Working capital advances aggregating approximately
$2,385,000 and relating to seven long-term care
properties for which the Company provides management
services and is committed under the terms of various
operating deficits agreements. The Company is in the
process of securing accounts receivable financing on
behalf of these properties which is expected to provide
the source of repayment to the Company. The Company is
currently obligated under such operating deficit
agreements for additional amounts approximating
$1,700,000.
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
None
Pursuant to the requirements of Section 13 or 15(d) 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.
IATROS HEALTH NETWORK, INC.
Dated: November 13, 1996 By: /s/ Joseph L. Rzepka
Joseph L. Rzepka
Executive Vice President
Chief Financial Officer
