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 March 31, 1998
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 No X
--- ---
As of May 13, 1998, there were 20,869,958 shares of Common Stock
issued or to be issued and outstanding, 533,333 shares of Series
A Senior Convertible Preferred Stock issued and outstanding, and
100,000 shares of Series B Preferred Stock issued and
outstanding.
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM I: FINANCIAL STATEMENTS
- ----------------------------
Iatros Health Network, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
ASSETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 340,217 $ 190,696
Accounts receivable, net 7,887,449 7,596,741
Subscription receivable --- 789,000
Inventory 285,981 357,409
Prepaid expenses and other current assets 735,780 712,343
----------- -----------
Total current assets 9,249,427 9,646,189
PROPERTY AND EQUIPMENT, net 9,127,766 9,108,815
OTHER ASSETS
Cash and cash equivalents, restricted 453,540 448,540
Intangible assets, net 4,225,265 2,954,677
Notes receivable 2,573,904 2,573,904
Loans receivable and other assets 420,713 414,160
Net long-term assets of
discontinued operations 90,993 90,993
----------- -----------
Total Assets $26,141,608 $25,237,278
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Notes payable, banks and other $ 5,054,816 $ 5,638,262
Accounts payable 3,863,006 3,439,953
Accrued expenses and
other current liabilities 2,074,637 2,459,197
Preferred stock dividends payable 590,000 550,000
Net current liabilities of
discontinued operations 518,904 518,904
----------- -----------
Total current liabilities 12,101,363 12,752,526
LONG-TERM DEBT 10,460,781 8,550,000
CAPITAL LEASE OBLIGATIONS 48,131 67,478
COMMITMENTS AND CONTINGENCIES --- ---
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value, 5,000,000 shares
authorized
Series A, 533,333 shares issued and outstanding 533 533
Series B, 100,000 shares issued and outstanding 100 100
Common Stock, $.001 par value, 25,000,000 shares
authorized; 20,869,958 shares issued or to
be issued and outstanding
in 1998 and 1997, respectively 20,870 20,870
Additional Paid-in Capital 36,060,353 36,059,867
Accumulated deficit (32,550,523) (32,214,096)
----------- ----------
3,531,333 3,867,274
Total Liabilities and
Stockholders' Equity $26,141,608 $25,237,278
============ ============
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)
March 31, March 31,
1998 1997
---------- ---------
<S> <C> <C>
Revenue
Nursing Home Operations $4,599,197 --
Ancillary Services 3,284,456 $2,469,490
Management Services 314,428 962,646
Development Services -- 100,000
---------- ----------
8,198,081 3,532,136
Operating expenses
Nursing Home Operations 3,908,463 --
Ancillary Services 2,875,853 2,594,461
Management Services 246,370 509,123
General and administrative 731,698 893,585
---------- ----------
7,762,384 3,997,169
Income (loss) from operations before
other income (expense) 435,697 (465,033)
Other income (expense)
Interest income 13,802 42,207
Interest expense (366,444) (33,413)
Property Lease Expense (262,500) --
Depreciation and amortization (153,495) (137,111)
Other income (expense) 36,513 (57,675)
--------- ----------
(732,124) (185,992)
Loss from operations
before discontinued operations (296,427) (651,025)
Discontinued Operations
Loss from Operations --- (330,412)
Net Loss $(296,427) $(981,437)
========== ==========
Basic Loss per share:
Continuing Operations ($0.01) ($0.04)
Discontinued Operations --- ($0.02)
--------- ----------
Net Loss per Share ($0.01) ($0.06)
========= ==========
Weighted average number of
shares of common stock
and equivalents outstanding 20,869,958 6,141,208
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
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
MARCH 31, MARCH 31,
1998 1997
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
<S> <C> <C>
Net Loss $(296,427) $(515,284)
Adjustments to reconcile net loss to
net cash utilized by operating activities:
Depreciation and amortization 153,495 136,442
Provision for doubtful accounts 27,385 9,870
Changes in (net of disposals):
Accounts and subscriptions receivable (290,708) (140,538)
Notes and loans receivable (6,553) 9,667
Inventory 71,428 47,043
Prepaid expenses and other current assets (28,437) 163,913
Accounts payable 423,053 (238,422)
Accrued expenses and other current
liabilities (1,172,327) (51,984)
----------- ----------
Net cash utilized by operating activities (1,119,091) (579,293)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (111,823) (74,794)
Change in intangible and other 204,412 ---
Deposits, net --- 96,391
Organization costs --- (2,268)
---------- ----------
Net cash provided by investing activities 92,589 19,329
---------- ----------
FINANCING ACTIVITIES
Net proceeds from issuance of capital
stock and other capital contributions 789,000 108,906
Increase in long-term debt 435,781 (37,029)
Long-term debt payments (29,411) (36,032)
Payments of capital lease obligations (19,347) 14,436
---------- ----------
Net cash provided by financing activities 1,176,023 50,281
---------- ----------
INCREASE (DECREASE) IN CASH 149,521 (509,683)
Cash and cash equivalents, beginning of period 190,696 630,742
--------- ----------
Cash and cash equivalents, end of period 340,217 121,059
========= ==========
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
-----------------------------------------------------------------
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements is as follows:
Business
--------
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 the metropolitan areas of Philadelphia,
Pennsylvania and New England.
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.
The Company maintains cash accounts which at times may exceed federally
insured limits. The Company has not experienced any losses from
maintaining cash accounts in excess of federally insured limits.
Management believes that the Company does not have significant credit
risk related to its cash accounts.
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 Company's credit risk with respect to accounts receivable is
concentrated in services related to the health care industry, which is
highly influenced by governmental regulations. This concentration of
credit risk is limited due to the number and types of entities comprising
the Company's customer base and their geographic distribution. The
Company routinely monitors its exposure to credit losses and maintains an
allowance for doubtful accounts.
The allowance for doubtful accounts is maintained at a level determined
to be adequate by management 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.
Certain ancillary revenues are recorded based on standard
charges applicable to patients. Under Medicare, Medicaid
and other cost-based reimbursement programs, the provider is
reimbursed for services rendered to covered program patients
as determined by reimbursement formulas. The differences
between established billing rates and the amounts
reimbursable by the programs and patient payments are
recorded as contractual adjustments and deducted from
revenues.
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.
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. 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:
Buildings 40 Years
Leasehold improvements 3 - 10 Years
Property and equipment
held under capital leases Life of Lease
Equipment 5 Years
Furniture and fixtures 3 - 7 Years
Intangible assets
-----------------
The Company evaluates the carrying value of its long-lived
assets and identifiable intangibles including contract
rights, leasehold rights, excess of cost over net assets
acquired and organization costs when events or changes in
circumstances indicate that the carrying amount of such
assets may not be recoverable. The review includes an
assessment of industry factors, contract retention periods,
cash flow projections and other factors the Company believes
are relevant.
Contract rights
---------------
Contract rights represent the value assigned to
management contracts obtained by the Company.
Management contracts provide for a management fee in
exchange for management, marketing and development
services provided 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
and is being amortized over the lives of 15 to 20
years.
Leasehold Rights
----------------
Leasehold rights represent costs associated with
securing leasehold interests in connection with
operating nursing facilities and are being amortized
using the straight-line method over 15 years, the
maximum lease term.
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.
Income taxes
------------
The Company employs the asset and liability method in
accounting for income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109 " 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.
Earnings per share
------------------
The Company adopted Statement of Financial Standard No. 128
Earnings per Share ``("SFAS 128") in 1997. All prior
period earnings per common share data have been restated to
conform to the provisions of this statement.
Basic earnings per share is based upon the weighted average
number of common shares outstanding during the period.
Diluted earnings per share is based upon the weighted
average number of common shares outstanding during the
period plus the number of incremental shares of common stock
contingently issuable upon exercise of stock options and
warrants.
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.
NOTE 2: - GOING CONCERN
-------------
During 1997 and 1998, the Company has been successful in
reducing levels of its corporate overhead and general and
administrative costs. Continued cost reductions are
required, however, for the Company to achieve positive cash
flow from continuing operations. In the alternative, the
Company requires a higher revenue base to support the
corporate overhead represented by its executive management
structure. In addition, the Company requires an infusion of
capital in order to satisfy its short-term obligations. The
company has to date been unsuccessful in its efforts to
secure relief from its existing creditors as well as to
raise new sources of capital.
The Company has entered into a formal letter of intent with
NewCare Health Corporation (NASDAQ: NWCA) to complete a
statutory merger transaction. Among the benefits to be
derived by the Company in consummating such a transaction
would be an immediate infusion or working capital needed to
revitalize existing operations and provide access to
additional capital resources required to meet corporate
obligations.
In light of the Company's current financial position, its
inability to independently meet its short term corporate
obligations, its need to further capitalize existing
operations and its dependency on continued cost reductions
and revenue growth to support continuing operations, its
viability to continue as a going concern is uncertain. While
the Company intends to pursue and consummate a merger with
NewCare Health Corporation, there can be no assurance that
this transaction will be completed.
NOTE 3: - DISCONTINUED OPERATIONS
-----------------------
The Company's current business strategy is to pursue the
direct ownership or lease of long-term care facilities for
its own account. Accordingly, during 1997, the Company
discontinued operations associated with certain segments of
its long-term care business. Specifically, these included
subsidiary operations providing third party development and
management services to independent owners and operators of
long-term care facilities and relating to the Company's
prior business acquisitions of Greenbrier Healthcare
Services, Inc.("Greenbrier"), and New Health Management
Systems, Inc.("New Health"). In addition, the Company
discontinued operations associated with providing
respiratory therapy services and relating to the prior
business acquisition of King Care Respiratory Services,
Inc.("King Care").
Assets and Liabilities of discontinued operations as of
March 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current Assets
Cash $12,155
Prepaid expense and other current assets 37,031
Net current liabilities of discontinued
operations 518,904
568,090
Property and Equipment, net 90,809
Deposits 6,553
97,362
--------
Total $ 665,452
=========
</TABLE>
Revenue associated with discontinued operations for the
quarter ended March 31, 1997 totaled $1,809,208. Of this
amount, $944,613 related to New Health, $751,463 related to
Greenbrier, and $113,132 related to King Care.
NOTE 4: - CONTRACT CANCELLATION
---------------------
On May 5, 1998, the Company received a management
termination notice from the owner of three nursing homes in
Massachusetts ("the facilities") that were under an at-
risk contract management arrangement pending conversion to a
lease. This cancellation resulted from the Company's
deferral in obtaining appropriate licensure to operate the
facilities from the state of Massachusetts in light of its
pending merger plans with Newcare Health Corporation
("Newcare"). The owner has engaged a subsidiary of Newcare
to assume management of the facilities.
Annual management fees represented by this management
contract approximate $666,000.
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 and ancillary services. The Company's principal
market areas currently are Pennsylvania and New England, and its
corporate offices are located in Atlanta, Georgia. During 1997,
the Company discontinued certain business activities as discussed
throughout this report.
Business Strategy
-----------------
The Company's principal business strategy is to position itself
in selected market areas, having established a network of formal
operating and service relationships involving long-term care
facilities and health care providers. Through the introduction of
its specialized operating skills and ancillary service programs,
the Company provides cost effective and efficient, quality-
oriented services to area health care facilities. The Company
emphasizes the localized nature of the long-term care industry,
attempting to utilize its operating resources to achieve maximum
economies. Strategic alliances with local owners, operators and
health care providers in developing the area network are key
ingredients to the Company's business strategy.
The Company in 1997 changed its strategy to actively pursue
opportunities involving the direct leasing and ownership of long-
term care facilities. This resulted during 1997 in the purchase
of two nursing homes and the lease of two others in New England.
This initiative represented a change in emphasis from previous
development initiatives focused solely on contract management and
service engagements. This strategy reflects management's efforts
to develop a stronger and more tangible balance sheet while
broadening its revenue base and increasing operating control over
facilities operated.
In view of continuing health care reform initiatives, the Company
believes it is important to position itself as a low cost quality
provider of heath 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 serves.
Nursing Home Operations
-----------------------
The Company provides a full range of services to the long-term
care facilities it operates. These include financial as well as
operational management services, quality assurance services, and
special consulting services.
The Company currently operates 10 nursing facilities representing
approximately 1,200 beds located in the New England market area.
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 approximately 14
facilities representing in excess of 2,200 beds located in the
market area of Philadelphia, Pennsylvania. In addition , the
Company is expanding its ancillary service business into the New
England market area.
Institutional pharmacy and medical supply service programs, which
extend beyond product delivery, emphasize operational support
services including drug consultation, resident care management,
quality assurance practices, and documentation and administrative
support.
The Company's business plan is to continue to expand upon the
array of products and services it can provide to the long-term
care networks it develops. The Company intends to accomplish
this through strategic alliances with preferred providers of
health care services and further development of its direct
service capabilities.
Significant Transactions
------------------------
Significant transactions completed by the Company or its wholly
owned subsidiaries during the quarter ended March 31, 1998
include the following:
In April, 1998, the Company entered into a formal letter of
intent agreement whereby NewCare Health Corporation (NASDAQ:
"NWCA") would, by means of a statutory merger, acquire all of
the issued and outstanding shares of all classes and series of
the Capital Stock of the Company. NWCA would acquire all of the
Company's Capital Stock other than the Series A Preferred Stock
for aggregate consideration of $7,000,000 worth of shares of NWCA
Common Stock, valued in accordance with a predetermined valuation
method. At NWCA's option, up to $3,500,000 of the consideration
may be paid in cash, rather than NWCA stock. NWCA would acquire
the Series A Preferred Stock for aggregate consideration of (a)
$500,000 cash, (b) $500,000 worth of shares of NWCA Common Stock
and (c) 250,000 five-year warrants to purchase NWCA Common Stock
at a strike price of $.75 per share above the NWCA market price.
As part of the agreement, NWCA has committed to enter into an
"at-risk" management agreement for the Company's continuing
business operations. The management agreement would commence on
the date that the parties execute a definitive merger agreement.
The merger agreement remains subject to due diligence, board
approvals, receipt of fairness opinions, regulatory approvals and
stockholder vote.
During January, 1998, the Company entered into a note purchase
and loan agreement whereby the Company purchased a note
instrument in the principal amount of $1,475,000 from a third
party lender with whom the Company has extensive business
relationships. The note purchase financing was provided by such
lender with collateral and security relating to nursing
facilities in New England financed by the lender and in which the
Company has interest. The loan agreement associated with the
purchase financing has a maturity date of April 1, 2007; requires
monthly payments of principal and interest at 10.5% per annum and
amortizes over a period of twenty-five years. The note instrument
acquired by the Company is secured by a subordinated mortgage
position on a nursing facility that was previously managed by the
Company. The prior management of this facility was provided by
one of the Company's subsidiaries whose operations were
discontinued during 1997. The note instrument acquired by the
Company is non-performing.
Section II - Results of Operations
---------------------
The following discussion relates to the Company's continuing
business operations as of March 31, 1998:
The Company's consolidated financial statements reflect a net
loss of $296,427 for the quarter ended March 31, 1998, compared
with a net loss of $651,025 for the quarter ended March 31, 1997.
The decrease in the reported net loss results largely from
positive operating results at the Company's owned and leased
nursing homes and reduced operating overhead expenses during the
1998 period.
Management's expectation of regional operating performance is to
routinely sustain net operating margins from facility operations,
facility management and ancillary service revenue in keeping with
industry norms.
Consolidated operating revenue reported for the quarter ended
March 31, 1998 totaling $8,198,081 compares with $3,532,136
reported for the quarter ended March 31, 1997 and represents an
increase of $4,665,945 or 132.1%. The reported increase is the
net result of an increase in nursing home operating revenues of
$4,599,197 or 100%, an increase in ancillary services revenue of
$814,966 or 33.0%, a decrease in management services revenue of
$648,218 or 67.3%, and a decrease in development services revenue
of $100,000 or 100%.
The increase in nursing home operating revenues in 1998 results
from the lease of two facilities in Massachusetts in March 1997
and the purchase of two Massachusetts facilities in June 1997.
The increase in reported ancillary revenues during 1998 results
principally from the Company's development of expanded market
presence in New England during the second half of 1997 and first
quarter of 1998. The decrease in management services revenue
during 1998 resulted from the termination during 1997 of certain
nursing home management contracts in New England. The reduction
in management services revenue evidences the Company's
redirection towards the direct ownership and lease of nursing
facilities.
The components of ancillary services revenue reported for the
quarter ended March 31, 1998 include medical supplies and
pharmacy revenue totaling $1,610,616 and therapy services revenue
totaling $1,673,840. During the prior year quarter, the Company
reported medical supplies and pharmacy revenue of $1,588,993 and
therapy services revenue of $880,497.
Increases in ancillary service revenue generally relate to the
Company having secured new or expanded service relationships in
the New England market area.
Management services revenue reported by the Company for the
quarter ended March 31, 1998 relates exclusively to long-term
care facilities for which the Company provides operational
management services under contractual arrangements. During the
second half of 1997 the company outsourced the provision of
financial services under these contracts.
Consolidated operating expenses reported for the quarter ended
March 31, 1998 total $7,762,384 or 94.7% of reported revenue
compared with the same period during 1997 totaling $3,997,169 or
113.2% of reported revenue. Total operating expenses for the
quarter ended March 31, 1998 increased $3,765,215 or 94.2%
compared with 1997. This net increase is comprised of $3,908,463
or 100% relating to nursing home operations; $281,392 or 10.8%
relating to ancillary services, a decrease of $262,753 or 51.6%
relating to management services, and a decrease of $161,887 or
18.1% relating to general and administrative expenses.
The reported net increase in operating expenses for the current
period is primarily associated with the Company's nursing home
operations (owned and leased), which were not fully in place
during the first quarter of 1997. Increased costs also result
from additional ancillary service volume primarily within the New
England market area. This net increase is partially offset by
reduced expenses of discontinued operations in the 1998 quarter.
Ancillary services operating expenses for the quarter ended March
31, 1998 total $2,875,853 and include $1,479,344 relating to
medical supplies and pharmacy services and $1,396,509 relating to
therapy services. For the prior year quarter, ancillary services
operating expenses total $2,594,461 and include $1,423,882
relating to medical supplies and pharmacy services and $1,170,579
relating to therapy services. Total ancillary services operating
expenses for the quarter ended March 31, 1998 represent an
increase of $281,392 or 10.8% over the prior year period.
Operating profits relating to ancillary services for the quarters
ended March 31, 1998 and 1997 were $408,603 and a loss of
$124,971, respectively. This increase in operating profit is
primarily reflective of additional therapy revenue volume in New
England.
Management services operating expenses reported for the quarter
ended March 31, 1998 total $246,370 and relate to the long-term
care facilities for which the Company provides operational
management services. For the quarter ended March 31, 1998,
management services reported operating income of $68,058.
Management services operating expenses for the quarter ended
March 31, 1997 totaled $509,123, resulting in an operating profit
of $453,523.
General and administrative expenses for the quarter ended March
31, 1998 totaled $731,698. Significant components of general and
administrative expenses for the quarter ended March 31, 1998
include professional fees of $160,639; salaries of $285,785;
insurance of $117,932; and travel and related expenses of
$73,673. Other general and administrative expenses aggregating
$93,669 for the quarter relate to corporate overhead.
Other income (expense) for the quarter ended March 31, 1998
totals ($732,124).The principal components of other income
(expense) are interest expense of $366,444; property lease
expense of $262,500; and depreciation and amortization expense of
$153,495. Depreciation and amortization expense includes
approximately $92,872 associated with depreciation and $60,623
associated with the amortization of goodwill, leasehold rights,
contract rights and organizational costs relating to the
Company's business acquisitions. Interest expense for the 1998
quarter is associated with the Company's owned nursing facilities
and its working capital lines of credit. Interest income and
expense reported for the quarter ended March 31, 1997 relates
largely to the Subordinated Convertible Debentures.
Section III - Liquidity and Capital Resources
-------------------------------
During 1997 and 1998, the Company has been successful in reducing
levels of its corporate overhead and general and administrative
costs. Continued cost reductions are required, however, for the
company to achieve positive cash flow from continuing operations.
In the alternative, the Company requires a higher revenue base to
support the corporate overhead represented by its executive
management structure. In addition, the Company requires an
infusion of capital in order to satisfy its short-term
obligations. The Company has been unsuccessful in its independent
efforts to secure financial relief from its existing creditors as
well as to raise new sources of capital.
As discussed in Note 2 to the Financial Statements, the Company's
viability as a going concern is questionable due to its inability
to satisfy currently outstanding corporate obligations. If
ongoing merger discussions with NewCare Health Corporation are
ultimately unsuccessful, the Company will need to consider all
alternatives for relief available to it, including filing
bankruptcy.
Cash and cash equivalents at March 31, 1998 and December 31, 1997
totaled $793,757 and $639,236 respectively. Cash and cash
equivalents at March 31, 1998 were comprised of unrestricted
amounts of $340,217 and restricted amounts of $453,540.
Restricted cash of $453,540 represented funds received from a
third party as security for future payment obligations pursuant
to the purchase of two nursing homes in New England in 1997.
Accounts receivable relating to the Company's continuing
operations at March 31, 1998, of $7,887,449, representing 85.3%
of total current assets, were comprised of $2,764,518 relating to
nursing home operations, $4,306,934 relating to ancillary
services, and $658,937 relating to management services, and were
net of an aggregate allowance for doubtful accounts of
$3,410,052. Accounts receivable at December 31, 1997 of
$7,596,741 was net of allowance for doubtful accounts of
$3,382,667 and was comprised of $3,958,735 relating to nursing
home operations, $2,300,151 relating to management services, and
$4,720,521 relating to ancillary services. The substantial level
of allowance relates to accounts receivable from nursing home
operations which amounts were assumed in connection with
acquiring property leasehold rights ($1,025,000) and amounts
relating to ancillary and management services for unrelated
nursing facilities associated with discontinued operations
(approximately $2,000,000).
During the March 1998 quarter the Company realized $789,000 in
collections relating to it's 1997 issuance of four million shares
of its common stock to NewCare Health Corporation (see Note 2 to
the Financial Statements).
Prepaid expenses and other current assets reported by the Company
for the periods ended March 31, 1998 and December 31, 1997
totaled $735,780 and $712,343, respectively. Approximately
$600,000 of prepaid expenses and other current assets represent
project costs advanced in connection with transactions involving
the Company in a development capacity in 1997 and 1996.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.
At March 31, 1998, the Company reports a working capital deficit
of $2,851,936 compared with a working capital deficit of
$3,106,337 as of December 31, 1997. The Company's negative
working capital position has resulted largely from having had to
subsidize during 1997 working capital associated with
discontinued operations as well as having had to utilize working
capital reserves to settle corporate obligations associated with
prior business and development activities of the Company. While
continuing operations of the Company are profitable, the limited
working capital available to the Company internally is
constraining and limits the Company's ability to effectively
support existing lines of business.
For the periods ended March 31, 1998 and December 31, 1997, notes
receivable 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.
For the periods ended March 31, 1998 and December 31, 1997, loans
receivable and other assets totaled $420,713 and $414,160,
respectively. As of March 31, 1998, $334,000 represents cash
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. The Company is
currently obligated under such operating deficit agreements for
additional amounts approximating $525,000. No additional advances
under these agreements are contemplated by management until the
Company is able to strengthen its liquid working capital
position.
PART II - OTHER INFORMATION
-----------------
ITEM 1.- LEGAL PROCEEDINGS
-----------------
Various material pending litigation matters were specifically
described in detail in the Company's Form 10-K for the year ended
December 31, 1997. There have been no material developments in any of
these pending matters since the Company filed its Form 10-K for the
year ended December 31, 1997.
In addition to the material pending litigation matters specifically
described in the Company's Form 10-K for the year ended December 31,
1997, the Company and its subsidiaries have a number of routine
pending or threatened actions involving their respective creditors,
vendors, customers, former employees, and/or other third persons. Some
of them are in the process of being settled, and the remainder of them
are being vigorously defended. Management believes that the Company
has valid defenses to such actions.
ITEM 6.- EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.
--------------------------------
None
ITEM 3(b) - ARREARAGES IN DIVIDENDS
-----------------------
As of March 31, 1998, the Company is in arrears in dividend
obligations to its Series A Preferred shareholders in an
aggregate amount of $590,000. Such dividends are undeclared
and accrued as current liabilities as of March 31, 1998.
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: May 15, 1998 By: /s/ Joseph L. Rzepka
Joseph L. Rzepka
Executive Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 340,217
<SECURITIES> 0
<RECEIVABLES> 7,887,449
<ALLOWANCES> 3,410,052
<INVENTORY> 285,981
<CURRENT-ASSETS> 9,249,427
<PP&E> 10,126,113
<DEPRECIATION> 998,347
<TOTAL-ASSETS> 26,141,608
<CURRENT-LIABILITIES> 12,101,363
<BONDS> 0
0
633
<COMMON> 20,870
<OTHER-SE> 3,509,830
<TOTAL-LIABILITY-AND-EQUITY> 26,141,608
<SALES> 1,610,616
<TOTAL-REVENUES> 8,198,081
<CGS> 1,005,964
<TOTAL-COSTS> 6,756,420
<OTHER-EXPENSES> 1,436,137
<LOSS-PROVISION> 27,685
<INTEREST-EXPENSE> 366,444
<INCOME-PRETAX> (296,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (296,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,427)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
