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, 1997
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
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(State of Incorporation)(Commission File No.)(IRS Employer Identification) No.)
10 Piedmont Center, Suite 400
Atlanta, Georgia, 30305
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(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____ No__X__
As of November 7, 1997, there were 16,869,958 shares of Common
Stock issued or to be issued and outstanding and 533,333 shares
of Series A Senior Convertible Preferred Stock.
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PART I- FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 265,107 $ 1,134,125
Accounts receivable, net of allowance
for doubtful accounts of $1,773,690 and
$1,774,300 in 1997 and 1996, respectively 7,639,478 5,888,205
Notes Receivable - 200,000
Supplies Inventory 566,910 453,119
Prepaid expenses and other assets 1,332,365 1,940,114
Deferred tax asset - 2,700,000
----------- -----------
Total current assets 9,803,860 12,315,563
PROPERTY AND EQUIPMENT, net 9,242,981 1,249,763
OTHER ASSETS
Deposits 50,779 1,208,849
Restricted cash 435,750 -
Contract rights, net of accumulated
amortization of $225,673 and $187,234 in
1997 and 1996, respectively 788,880 1,346,052
Excess of costs over net assets acquired,
net of accumulated amortization of
$263,802 and $372,128 in 1997 and 1996,
respectively 1,324,480 3,885,767
Notes Receivable 2,573,904 4,423,324
Organization costs, net of accumulated
amortization of $78,398 and $37,066
in 1997 and 1996, respectively 179,096 221,843
Loans receivable and other assets 1,072,048 3,344,070
Deferred tax asset 2,700,000 -
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9,124,937 14,429,905
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Total Assets $28,171,778 $27,995,231
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<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS EQUITY
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
CURRENT LIABILITIES
Notes payable, banks and other $ 4,057,171 $ 792,663
Current portion of long-term debt 333,613 374,881
Current portion of capital lease
obligations 191,688 230,761
Accounts Payable 2,134,326 2,690,260
Accrued payroll and related
liabilities 413,287 685,505
Accrued expenses and other current
liabilities 628,870 854,522
Preferred stock dividends payable 510,000 390,000
Net current liabilities of
discontinued operations 650,000 500,000
----------- -----------
Total current liabilities 8,918,955 6,518,592
LONG-TERM DEBT 8,857,151 328,138
SUBORDINATED CONVERTIBLE
DEBENTURES - 600,000
CAPITAL LEASE OBLIGATIONS 144,605 232,721
COMMITMENT AND CONTINGENCIES
17,920,711 7,679,451
STOCKHOLDERS EQUITY
Preferred Stock, $.001 par value,
5,000,000 shares authorized;
Series A, 533,333 shares issued
and outstanding 530 533
Series B, 100,000 shares issued
and outstanding 100 100
Common Stock, $.001 par value,
25,000,000 shares authorized; 16,869,958
and 15,931,500 shares issued or to be
issued and outstanding in 1997 and
1996, respectively 16,870 15,931
Additional Paid-In Capital 34,966,867 34,142,970
Accumulated deficit (24,733,303) (13,843,754)
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10,251,067 20,315,780
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Total Liabilities and Stockholders
Equity $28,171,778 $27,995,231
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
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<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Revenue
<S> <C> <C> <C> <C>
Nursing home operations $4,654,900 $ - $ 8,348,664 $ -
Ancillary services 3,336,517 2,454,570 8,967,693 6,645,326
Management services 836,852 3,232,666 5,195,423 7,764,758
Development services - 1,557,399 100,000 6,580,119
----------- ----------- ----------- -----------
8,828,269 7,244,635 22,611,780 20,990,203
Operating expenses
Nursing home operations 4,438,700 - 8,081,776 -
Ancillary services 2,959,506 2,285,167 8,614,538 6,328,304
Management services 567,535 2,994,387 4,290,558 7,607,367
General and
administrative 953,762 1,238,971 3,166,741 2,879,289
----------- ----------- ----------- -----------
8,919,503 6,518,525 24,153,613 16,814,960
Income/(loss) from
operations before other
income (expenses) and
income tax expenses (91,234) 726,110 (1,541,833) 4,175,243
Other income (expense)
Interest income 58,353 97,636 215,713 308,268
Interest expense (367,767) (84,918) (490,120) (593,264)
Depreciation and
Amortization (211,236) (240,418) (626,058) (795,736)
Recapture (write-down)
of assets 75,668 - (6,666,494) -
Restructuring loss (1,510,243) - (1,510,243) -
Other income (expense) 5,011 (29,287) (150,512) (12,278)
----------- ----------- ----------- -----------
(1,950,214) (256,987) (9,227,714) (1,093,010)
----------- ----------- ----------- -----------
Income/(loss) from
operations before tax
expense (2,041,448) 469,123 ($10,769,547) 3,082,233
Income tax expense - 187,600 - 1,250,005
----------- ----------- ----------- -----------
Net income (loss) ($2,041,448) $ 281,523 ($10,769,547) $1,832,228
=========== =========== ============ ===========
Earnings (loss)
per common and common
equivalent share ($0.12) $0.01 ($0.65) $0.11
----------- ----------- ----------- -----------
Net Income(loss) ($0.12) $0.01 ($0.65) $0.11
=========== =========== =========== ===========
Weighted average number
of shares of common stock
and equivalents
outstanding 16,735,984 17,323,757 16,465,901 16,196,818
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statement
</TABLE>
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<CAPTION>
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
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OPERATING ACTIVITIES
Net Income(loss) ($10,769,547) $ 1,832,228
Adjustments to reconcile net
income (loss) to net cash
utilized by operating activities:
Depreciation and amortization 626,058 795,736
Provision for doubtful accounts (642) -
Write-off of uncollectible notes,
loans and deposits receivable 5,181,423 -
Write-down of intangible assets 2,886,819 -
Loss on disposal of property and equipment 92,114 -
Deferred taxes - 1,150,005
Changes in (net of disposals):
Accounts receivable (1,750,630) (2,960,114)
Notes and loans receivable 766,018 (9,821,456)
Inventory (113,791) 26,661
Prepaid expenses and other
current assets (8,251) (349,743)
Accounts payable (555,934) 1,089,300
Accrued expenses and other
current liabilities (347,872) (1,036,005)
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Net cash utilized by operating activities (3,994,235) (9,273,388)
INVESTING ACTIVITIES
Purchase of property and equipment (8,409,158) (484,629)
Acquisition of business - (530,099)
Restructuring of business units _ -
Acquisition of contracts rights - (241,639)
Loans to third parties - -
Deposits, net 148,070 (719,626)
Restricted cash and cash equivalents (435,750) 175,000
Organization costs (27,846) (1,942,671)
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Net cash utilized by investing activities (8,724,684) (3,743,664)
FINANCING ACTIVITIES
Net proceeds from issuance of capital
stock and other capital contributions 224,836 2,407,128
Proceeds from issuance of subordinated
convertible debentures - 12,900,000
Fees paid on issuance of debentures - (876,331)
Short-term borrowings (payments), net 3,264,508 (74,141)
Long-term debt borrowings (payments), net 8,487,745 (1,301,745)
Payments of capital lease obligations (127,188) (43,782)
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Net cash provided by financing activities 11,849,901 13,011,129
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DECREASE IN CASH (869,018) (5,923)
Cash and cash equivalents,
beginning of period 1,134,125 682,505
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Cash and cash equivalents,
end of period $ 265,107 $ 676,582
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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: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated
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 three and nine month periods ending September
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 Registrant Company and
Subsidiaries' annual report on Form 10-K for the year
ended December 31, 1996.
Earnings per share
Both primary and fully diluted earnings per share of
common stock and common stock equivalents are
computed based on the weighted average number of
shares of common stock and common stock equivalents
outstanding in each period. For 1997 and 1996, fully
diluted loss per share amounts are not computed
because they are antidilutive.
In 1996, Common Stock equivalents include additional
shares assuming the exercise of stock options and
warrants 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.
Net earnings used in the computation of primary
earnings per share for 1996 are reduced by Preferred
Stock dividend requirements.
During 1997 and 1996, the Company issued Common Stock
in connection with the conversion of its 10%
Subordinated Convertible Debentures and with the
exercise of its Redeemable Common Stock Purchase
Warrants. Had all exercises and conversions occurred
on January 1, 1997, the reported primary loss per
common share would have been antidilutive.
Adoption of New Accounting Principles
The Company will be required to implement Statement
of Financial Accounting Standards No. 128, "Earnings
Per Share" ("SFAS 128") in the fourth quarter of
1997. The effects of the implementation of SFAS No.
128 have not been determined.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: BUSINESS ACQUISITION
On May 31, 1997, the Company (through its wholly
owned subsidiary OHI Corporation) purchased two long
term care facilities near Boston, Massachusetts with
a total of 171 beds for $8,550,000 financed by a
mortgage loan of $8,300,000 and a note to the seller
for $250,000. The mortgage note is for 10 years with
interest only payable monthly for the first two years
at 10.5%. Thereafter principal and interest are
payable monthly based on a 25 year amortization
schedule. The seller note is payable over 30 years
at an interest rate of 9% with monthly payments of
interest only and a balloon payment at maturity. The
Pro-Forma unaudited results of operations for the
twelve months ended December 31, 1996 and December
31, 1995, assuming the purchase, are as follows:
Twelve Months Ended December 31
(000's omitted except per share date)
1996 1995
Net Revenues $7,122 $7,592
Net Income $ (63) $ 535
Net Income per Common Share
Primary $(.004) $ .032
NOTE 3: BUSINESS DISPOSITION
Effective on July 1, 1997, the Company executed a
separation agreement with its Philadelphia based
nursing home management subsidiary. Terms of the
agreement called for the former subsidiary to assume
responsibility for 12 nursing home management
contracts and all associated operating deficit
funding obligations. In accordance with the
separation agreement, the former subsidiary has
committed to contract with the Company's ancillary
services division whenever possible.
The separation was executed as a split off with the
Company receiving stock and accounts receivable
valued at approximately $1,400,000 for the net assets
of the subsidiary. The Company has recorded a charge
to earnings of $1,592,518 in the September quarter
associated with the separation.
The operating results of the Philadelphia based
management company included in the Company's 1997
results of operations for the period from January 1,
1997 to June 30, 1997 are as follows (amounts in
thousands):
Management Fee Revenues $1,235
Costs and Expenses
General and Administrative 1,605
Rent Expense 69
Depreciation and Amortization 101
Other Income (net) (32)
Net Loss $(508)
Note 4: IMPAIRMENT CHARGES
In June 1997, the Company recorded asset impairment
charges amounting to approximately $6.7 million. The
impairment charges served to reduce notes, loans, and
advances receivable by approximately $5,181,000, and
certain intangible assets by approximately
$2,887,000.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section I - Business Description
Iatros Health Network, Inc., and its subsidiaries
(together referred to as the "Company") are involved in
the operation of long term-care facilities and provide
services and products to the long-term care industry.
These include a broad range of management, ancillary and
development services. The Company's principal market
areas currently are Pennsylvania and New England.
Business Strategy
The Company's principal business strategy is to own and
directly lease long-term care facilities in geographic
concentrations sufficient to provide a basis for their
economically efficient operation. Such facilities provide
a platform for the efficient delivery of the Company's
cost effective, quality oriented ancillary products and
services. This represents a change in emphasis from
previous development initiatives focused solely on
contract management and service engagements. Together with
ongoing operating overhead cost reductions discussed
further below, this strategy is reflective of management's
efforts to develop a stronger and more tangible balance
sheet while broadening it's revenue base and increasing
operating control over facilities managed.
The Company emphasizes the localized nature of the long-
term care industry, using its operating resources to
achieve maximum economies. Strategic alliances with local
owners, operators and health care providers in developing
area service networks are essential ingredients to the
Company's strategy.
In view of continuing health care reform initiatives, the
Company believes it is important to position itself as a
low cost, quality provider of health care services in its
respective markets. The Company seeks to provide value-
added services that promote revenue enhancement, cost
containment and quality assurance to the facilities it
operates and serves.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section I Business Description (Continued) -
Long-Term Care Facility Operations
As of September 30, 1997, the Company directly owned two
nursing homes with 171 beds and operated two nursing homes
with 222 beds under 10 year lease agreements with
associated purchase options. These four facilities
combined have historically generated annualized operating
revenues approximating $17,600,000.
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 40 facilities
representing nearly 5,000 beds located in the market areas
of Pennsylvania, Maryland 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.
As of September 30, 1997, the Company provided contractual
management or financial services to 13 long-term care
facilities representing approximately 1,523 beds located
in the market areas of Pennsylvania and New England in
addition to the two owned and two leased facilities.
The Company's operating objective is to achieve the
optimum integration of financial services and operations
management in all of the facilities it serves. Embodied
in this philosophy is the Company's priority to develop
its key people as both financial and operational managers.
The Company emphasizes the development of its financial
service capabilities to both support and enhance its
operating programs. An important ingredient to promoting
the integration of financial and operating management is
the integrity of the underlying information systems. The
Company is committed to utilizing state-of-the-art
technology to support its operating needs. This includes
the procurement and utilization of information systems
technology that is both financially and clinically
oriented.
Development Services
The Company has de-emphasized the provision of development
services to third parties consistent with its present
focus on direct leasing and ownership of long-term care
facilities.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section I Business Description (Continued)
Significant Transactions
Effective July 1, 1997, the Company executed a separation
agreement with its Philadelphia based long-term care
management subsidiary. In accordance with the agreement,
the Company conveyed assets and liabilities of the
subsidiary in exchange for stock and accounts receivable
valued at $1,400,000 and recorded a charge to earnings of
$1,592,518 in the September 1997 quarter. The subsidiary
had incurred annualized operating losses approximating
$1,000,000 prior to separation.
Section II - Results of Operations
The Company's consolidated financial statements reflect a
loss from operations of ($91,234) for the quarter ended
September 30, 1997. Additionally, the Company has recorded
charges to earnings aggregating ($1,950,214) during the
three months ended September 30, 1997 for a reported net
loss of ($2,041,448). This compares to reported net
income from operations of $726,110 for the quarter ended
September 30, 1996. The decrease in net income results
largely from no Development Service revenues associated
with the quarter ended September 30, 1997 versus
$1,557,399 which was reported during the quarter ended
September 30, 1996. Additionally, the Company recorded a
charge of ($1,510,243) related to the split off of a
business unit in 1997.
These developments are reflective of management's ongoing
initiatives to refocus efforts on direct leasing and
ownership of nursing homes. Such initiatives include the
consolidation of resources, elimination of redundant
employee positions, and reduction of associated overhead
expenses. Cost reductions associated with these
initiatives began to take effect during the second quarter
1997 and presently amount to over $5,000,000 on an
annualized basis. Management is aggressively continuing
these efforts.
Consolidated operating revenue reported for the quarter
ended September 30, 1997 totaling $8,828,269 compares with
$7,244,635 reported for the quarter ended September 30,
1996 and represents an increase of $1,583,634 or 22%. The
reported increase is the net result of an increase in
nursing home operation services revenue of $4,654,900 or
100% an increase in ancillary services revenue of $881,947
or 36%, a decrease in management services revenue of
$2,395,814 or 74%, and a decrease in development services
revenue of $1,557,399 or 100%.
Consolidated operating revenue reported for the nine
months ended September 30, 1997 totaling $22,611,780
compares with $20,990,203 reported for the nine months
ended September 30, 1996 and represents an increase of
$1,621,577 or 8%. The reported increase is the net result
of an increase in nursing home operation services revenue
of $8,348,664 or 100%, an increase in ancillary services
revenue of $2,322,367 or 35%, a decrease in management
services revenue of $2,569,335 or 33%, and a decrease in
development services revenue of $6,480,119 or 98%.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section II - Results of Operations (Continued)
The components of ancillary services revenue reported for
the quarter ended September 30, 1997 include medical
supplies and pharmacy revenue totaling $1,756,349 and
therapy services revenue totaling $1,580,168. During the
prior year quarter, the Company reported medical supplies
and pharmacy revenue of $1,662,761 and therapy services
revenue of $791,809.
The components of ancillary services revenue reported for
the nine months ended September 30, 1997 include medical
supplies and pharmacy revenue totaling $5,003,250 and
therapy services revenue totaling $3,964,443. During the
nine months ended September 30, 1996, the Company reported
medical supplies and pharmacy revenue of $4,438,043 and
therapy services revenue of $2,207,283.
The increase in reported ancillary services revenue during
1997 resulted principally from the Company having secured
additional ancillary service contracts in the Pennsylvania
market area through business acquisitions as well as
having developed an expanded market presence in New
England. Management services revenue reported by the
Company for the quarter ended September 30, 1997 relates
exclusively to long-term care facilities for which the
Company provides both financial and operational management
services under contractual arrangements.
Consolidated operating expenses reported for the quarter
ended September 30, 1997 total $8,919,503 or 101% of
reported revenue compared with the same period during 1996
totaling $6,518,525 or 90% of reported revenue. Total
operating expenses for the quarter ended September 30,
1997 increased $2,400,978 or 37% compared with 1996. This
net increase is comprised of an increase of $4,438,700 or
100% relating to nursing home operation services expenses,
an increase of $674,339 or 30% relating to ancillary
services, a decrease of $2,426,852 or 81% relating to
management services, and, a decrease of $285,209 or 23%
relating to general and administrative.
Consolidated operating expenses reported for the nine
months ended September 30, 1997 total $24,153,613 or 107%
of reported revenue compared with the same period during
1996 totaling $16,814,960 or 80% of reported revenue.
Total operating expenses for the nine months ended
September 30, 1997 increased $7,338,653 or 44% compared
with 1996. This net increase is comprised of an increase
of $8,081,776 or 100% relating to nursing home operation
services expenses, an increase of $2,286,234 or 30%
relating to ancillary services, a decrease of $3,316,809
or 45% relating to management services, and, an increase
of $287,452 or 4% relating to general and administrative.
The reported increases in operating expenses for the
current periods are primarily associated with general and
administrative and nursing home operation services 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.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section II - Results of Operations (Continued)
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.
Ancillary services operating expenses for the quarter
ended September 30, 1997 total $2,959,506 and include
$1,617,126 relating to medical supplies and pharmacy
services and $1,342,380 relating to therapy services. For
the prior year quarter, ancillary services operating
expenses total $2,285,167 and include $1,407,544 relating
to medical supplies and pharmacy services and $877,623
relating to therapy services. Total ancillary services
operating expenses for the quarter ended September 30,
1997 represent an increase of $674,339 or 30% over the
prior year period. Operating profits relating to
ancillary services for the quarters ended September 30,
1997 and 1996 were $377,011 and $169,403, respectively.
This increase reflects current period growth in ancillary
services volume in addition to expanded services in
existing market areas.
Ancillary services operating expenses for the nine months
ended September 30, 1997 total $8,614,538 and include
$4,487,665 relating to medical supplies and pharmacy
services and $4,126,873 relating to therapy services. For
the nine months ended September 30, 1996, ancillary
services operating expenses total $6,328,304 and include
$3,976,583 relating to medical supplies and pharmacy
services and $2,351,721 relating to therapy services.
Total ancillary services operating expenses for the nine
months ended September 30, 1997 represent an increase of
$2,286,234 or 30% over the prior year period. Operating
profits relating to ancillary services for the nine months
ended September 30, 1997 and 1996 were $353,155 and
$317,022, respectively.
Management services operating expenses reported for the
quarter ended September 30, 1997 total $567,535 and relate
to the long-term care facilities for which the Company
provides financial and operational management services.
For the quarter ended September 30, 1997, management
services reported an operating profit of $269,317.
Management services operating expenses for the quarter
ended September 30, 1996 totaled $2,994,387 resulting in
an operating profit of $238,279. Operating profits
resulting from management services during 1997 have been
the direct result of managements ongoing realignment and
overhead reduction efforts.
General and administrative expenses for the quarters ended
September 30, 1997 and 1996 totaled $953,762 and
$1,238,971 respectively. Significant components of
general and administrative expenses for the quarters ended
September 30, 1997 and 1996, include contracted services
of $32,143 and $147,411, respectively; professional fees
of $151,408 and $84,737, respectively; salaries of
$371,829 and $359,964, respectively; and, travel and
related expenses of $163,768 and $94,434, respectively.
Other general and administrative expenses aggregating
$234,614 and $552,425, respectively for the quarters,
relate to corporate overhead.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section II - Results of Operations (Continued)
General and administrative expenses for the nine months
ended September 30, 1997 and 1996 totaled $3,166,741 and
$2,879,289, respectively. Significant components of
general and administrative expenses for the nine months
ended September 30, 1997 and 1996 include contracted
services of $159,632 and $465,219, respectively;
professional fees of $573,070 and $301,821, respectively;
salaries of $1,333,129 and 911,323, respectively, and;
travel and related expenses of $474,942 and $238,873,
respectively. Other general and administrative expenses
aggregating $625,968 and $962,053, respectively for the
nine months ended, relate to corporate overhead.
For the quarters ended September 30, 1997, the Company
reported an operating loss from total services revenue of
($91,234) compared to an operating profit for the quarter
ended September 30, 1996 of $726,110 representing a
decrease of ($817,344) or (113%). This decrease results
principally from the Company's growth and expansion during
1996 and to date wherein the Company incurred increasing
overhead required to support business volume. Operating
profit margins from management and ancillary services are
expected to increase as the Company continues to reduce
and realign such costs, and achieve full implementation of
its service programs in its local service networks within
each market area.
Other expenses for the quarter ended September 30, 1997
and 1996 total $1,950,214 and $256,987, respectively.
Section III - Liquidity and Capital Resources
The Company during 1997 has closed or divested two nursing
home management offices in Baltimore and Philadelphia,
eliminated a financial services office outside of
Philadelphia, and significantly down-sized an over-staffed
nursing home management office in Boston. Annualized
general and administrative cost savings from these actions
approximate $5 million. Service levels to nursing homes
under management have been maintained and enhanced through
outsourcing of certain functions.
The Company also has severed various management service,
financial service and consulting engagements that
contributed significantly to negative cash flow generated
by the above operations in the prior twelve months.
As a result, associated cash demands on revenue
collections have begun to diminish. Slow progress has
been achieved in extinguishing various outstanding
obligations to certain vendors and other third parties.
Conversely, the Company continues to incur significant
professional fees, both in developing new business
ventures and settling issues associated with various
severed engagements and former officers of subsidiaries
(see Part II, Item I, Legal Proceedings).
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section III Liquidity and Capital Resources
(Continued)
Company wide, efforts are focused on the collection of
outstanding accounts receivable. The Company is also
utilizing two separate lines of credit with financial
institutions (as discussed below) to meet ongoing working
capital requirements.
During April, 1997, the Company's New England based
subsidiary secured a working capital line of credit from a
financial institution in the amount of $1,500,000. The
line is secured by various notes receivable and management
contract rights associated with one of the Company's
subsidiaries. The line is due on demand and accrues
interest at the bank's base rate plus 1% on amounts drawn
and outstanding. As of September 30, 1997, the Company has
utilized $1,481,500 of this financing to support working
capital and development activities of its operating
subsidiaries.
During May 1997, the Company's Philadelphia based
ancillary service subsidiaries secured a working line of
credit of up to $4,000,000 of which availability
approximated $2,000,000 as of September 30, 1997. This
line of credit is secured by the subsidiaries' accounts
receivable. The line of credit is due on demand and
accrues interest at the rate of prime plus 2.25% on
amounts drawn and outstanding. As of September 30, 1997
the Company has utilized $1,775,671 of this financing to
support working capital and development activities of its
operating subsidiaries.
During August 1997, the Company agreed to pursue a
proposed private equity offering and in connection
therewith secured a bridge loan in the amount of $300,000.
There can be no assurance that the proposed equity
offering will proceed as contemplated. The Bridge Loan
bears interest at the rate of 10% per annum and matures
upon the earlier of (i) December 5, 1997 or (ii) the
successful consummation by the Company of any financing
raising at least $500,000. In addition, in consideration
of the Bridge Loan, the Company issued to the lender a 5-
year Warrant to purchase 325,000 shares of the Company's
Common Stock at an exercise price of $0.50 per share. In
the event of a default under the Bridge Loan, the
principal thereof and all accrued, unpaid interest thereon
are convertible into shares of the Company's Common Stock
at a price of $0.25 per share; and, in such event, the
exercise price of the Warrant is automatically reduced to
$0.25 per share.
In January of 1997, the Company obtained a $500,000 loan
from National Employer Solutions, Inc. ("NES"). This
bears interest at the rate of prime plus 1% and is secured
by a $550,000 note receivable from AHF/Gull Creek, Inc.
The loan had an original maturity date of March 31, 1997.
This loan has been extended to August 21, 1997 and is
currently past due.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section III - Liquidity and Capital Resources (Continued)
The Company has been involved in a number of project
financings wherein the Company was contracted to provide
development, marketing and management services. In
connection therewith, the Company committed to loan
working capital as may be required in the form of
operating deficit agreements. Commitments outstanding to
date approximate $550,000. No additional advances under
these agreements are contemplated by management. Advances
to date 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, 1997 and
December 31, 1996 totaled $265,107 and $1,134,125
respectively. Cash and cash equivalents at September
30,1997 are composed of unrestricted amounts of $265,107
and restricted amounts of $435,750.
At September 30, 1997 the Company reports a working
capital surplus of $884,905 compared with $5,796,971 as of
December 31,1996.
At September 30, 1997 and December 31, 1996, notes
receivable total $2,573,904 and $4,423,324 respectfully
and result from development, financial advisory and
consulting services which the Company has provided to
several long-term care properties. The notes, which are
generally formalized as long-term, mature over a period
not to exceed ten years, bear simple interest ranging
between eight and ten percent per annum and are secured by
a mortgage position on the properties to which they
relate. Further, the notes are generally subordinated to
senior debt and other priority operating obligations
associated with the properties.
At September 30, 1997 and December 31, 1996, loans
receivable and other assets totaled $1,072,048 and
$3,344,070, respectively. As of September 30, 1997,
$360,000 represents currently realizable cash originally
advanced by the Company pursuant to the terms of operating
deficits agreements for the operating needs of properties
managed by the Company. Such advances generally accrue
interest at market rates and are recoverable from
permanent financing proceeds anticipated from the
properties.
In addition, as of September 30, 1997 other assets include
approximately $540,000 representing a loan receivable due
from an officer in connection with the merger transaction
with King Care Respiratory Services, Inc. The loan
accrues interest at 9% and matures in January 2000.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Section III - Liquidity and Capital Resources (Continued)
PART II - OTHER INFORMATION
Forward-looking Statements
This form 10-Q contains forward-looking statements within
the meaning of Securities Act of 1933, as amended, and
made purchase to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks, uncertainties
and other factors described herein and in other documents
that could cause the actual results of the Company to
differ materially from the results expressed or implied by
such statements. Readers should carefully review the risk
factors and other information contained herein and in
other documents the Company files from time to time with
the Securities and Exchange Commission, specifically the
form 10-K filed by the Company for its fiscal year ended
December 31, 1996, the Quarterly Reports on Form 10-Q ,
including the Form 10-Q for its fiscal quarters ended
March 31, 1997 and June 30, 1997 and the Current Reports
on Form 8-K. Accordingly, although the Company believes
that the expectations reflected in such forward-looking
statements are reasonable, there can be no assurance that
such expectations will prove correct.
ITEM 1. LEGAL PROCEEDINGS
1. NPFII-W, Inc. V Iatros Health network, Inc. (Case No.
CS-95-122, Southern Dist. Of Ohio)
This litigation was described in the Company's 10K for the
year ended December 31, 1996. This action was the result
of NPFII-W, Inc.'s claim that the Company owed it more in
1994 than the approximately $500,000 reserved on the
Company's books. The action was settled as of September
1, 1997 with the Company agreeing to pay NPFII-W, Inc.
%500,000 over 5 years, with the unpaid balance accruing
interest at the rate of 10% per annum, together with
50,000 shares of the Company's Common Stock.
2. Scott Schuster and Heidi L. Schuster as she is the
Trustee of the Schuster Children's Irrevocable Trusts
f/b/o Jessica B. Schuster, Alexandra Schuster and Carly R,
Schuster v. Iatros Health Network, Inc. And OHI
Corporation, (Civil Action No. 97-11304-DPW, Dist. Of
Massachusetts)
This litigation was described in the Company's 10Q for the
quarter ended June 30, 1997. On July 3, 1997 the Court
denied Schuster's motion for an order to prevent the
Company from consolidating the subsidiary's financial
functions and the Company's termination of Schuster's
employment. Also during the quarter, Schuster specified
the amount of his claim as being 3,616,283 shares of
Iatros' common stock and $980,235.00. The parties are
now conducting discovery.
Iatros is vigorously prosecuting its claims and defending
against all allegations made by Plaintiffs. Management
does not believe that the outcome of this matter will
materially, adversely affect the Company's financial
position, results of operations, or cash flows.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS (Continued)
3. Maryland Health and higher Education Facilities
Authority v. Iatros Health Network, Inc., (Civil Action
No. MJG-97-2826, Dist. Of Maryland)
In July, 1997 Maryland Health and Higher Educational
Facilities Authority filed suit against the Company
seeking at least $200,000 for an alleged breach of an
operating deficits guaranty contract. Defendant answered,
denying the allegations. The case is in the discovery
stage.
Iatros is vigorously defending against all allegations
made by Plaintiff. Management does not believe that the
outcome of this matter will materially, adversely affect
the Company's financial position, results of operations,
or cash flows.
3. Other Litigation.
In addition to the foregoing pending actions, Iatros and
its subsidiaries (collectively, the "Defendants") have
outstanding a number of other routine actions, as well as
a number of threatened actions, involving their respective
creditors, vendors, customers, and/or former employees.
Some of them are in the process of being settled, and the
remainder of them are being vigorously defended by the
Defendants. Management does not believe
that the outcome of any of these matters will materially,
adversely affect the Company's financial position, results
of operations, or cash flows.
IATROS HEALTH NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 14, 1997 By: /s/ Joseph L. Rzepka
Joseph L. Rzepka
Executive Vice President
Chief Financial Officer
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