UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10Q
-----------------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
-- Exchange Act of 1934
For the quarterly period ended September 30, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-19370
Curative Health Services, Inc.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1503914
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14 Research Way, Box 9052
East Setauket, NY 11733-9052
(Address of principal executive offices)
Telephone Number (516)689-7000
-------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
As of November 1, 1996 there were 12,188,527 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
<PAGE>
Curative Health Services, Inc.
INDEX
Part I Financial Information Page No.
- ------ ---------------------
Item 1 Condensed Consolidated Financial Statements:
Condensed Consolidated Statements of Operations 3
Three and Nine Months ended September 30, 1996 and 1995
Condensed Consolidated Balance Sheets 4
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash Flows 5
Nine Months ended September 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II Other Information Page No.
- ------- -----------------
Item 6 Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
Part I. Financial Information
- ------- ---------------------
Item 1. Condensed Consolidated Financial Statements
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30, Sept 30,
------------------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $17,462 $13,322 $48,767 $38,251
Costs and operating expenses:
Cost of product sales and services 9,862 6,587 27,221 19,081
Selling, general and administrative 4,702 4,636 14,315 13,513
Research and development - 921 - 3,315
----- --- ----- -----
Total costs and operating expenses 14,564 12,144 41,536 35,909
====== ====== ====== ======
Income from operations 2,898 1,178 7,231 2,342
Interest income 387 141 754 354
--- --- --- ---
Income before income taxes 3,285 1,319 7,985 2,696
Income taxes 296 35 680 104
--- -- --- ---
Net income $ 2,989 $ 1,284 $ 7,305 $ 2,592
===== ===== ===== =====
Net income per common share and
equivalent shares $ .24 $ .12 $ .62 $ .24
== == == ==
Weighted average common shares 12,256 11,065 11,754 10,598
outstanding ====== ====== ====== ======
</TABLE>
See accompanying notes
3
<PAGE>
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
(unaudited)
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 21,248 $ 2,835
Marketable securities held-to-maturity 19,125 9,365
Accounts receivable, net 10,881 7,776
Prepaids and other current assets 912 820
--- ---
Total current assets 52,166 20,796
Property and equipment, net 3,936 3,383
Other assets 813 851
--- ---
Total assets $ 56,915 $ 25,030
====== ======
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts payable $ 5,964 $ 5,066
Accrued liabilities 3,073 2,992
Capital lease obligations 163 163
--- ---
Total current liabilities 9,200 8,221
Long term debt 1,000 1,000
Capital lease obligations 63 198
Stockholders' equity
Common stock 122 104
Additional paid in capital 69,192 45,474
Deficit (22,620) (29,925)
------- -------
46,694 15,653
Subscription receivable (42) (42)
------ ------
Total stockholders' equity 46,652 15,611
------ ------
Total liabilities and stockholders' equity $ 56,915 $ 25,030
====== ======
</TABLE>
See accompanying notes
4
<PAGE>
Curative Health Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,305 $ 2,592
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation & amortization 750 794
Changes in operating assets and liabilities (2,218) 57
----- --
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,837 3,443
INVESTING ACTIVITIES:
Sale of German subsidiary - (174)
Purchases of property and equipment (1,265) (1,409)
Purchases of marketable securities (9,760) (3,943)
----- -----
NET CASH USED IN INVESTING ACTIVITIES (11,025) (5,526)
FINANCING ACTIVITIES:
Proceeds from loans and revolving line of credit - 140
Proceeds from exercise of stock options 1,098 1,240
Proceeds from common stock offering 22,638
Principal payments on loans, revolving line of credit
and capital lease obligations (135) (105)
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,601 1,275
Effect of exchange rate changes on cash and cash equivalents - 31
------ --
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,413 (777)
Cash and cash equivalents at beginning of period 2,835 4,459
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD $21,248 $3,682
====== =====
SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid $ 19 $ 66
== ==
</TABLE>
See accompanying notes
5
<PAGE>
Curative Health Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1995 and
notes thereto contained in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission. The results of operations for
the three and nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 1996.
Note 2. Income per Common Share
Income per common share is computed by dividing the net income by the
weighted average number of common shares outstanding plus dilutive common
share equivalents.
Note 3. Reclassification
The Company has reclassified the presentation of certain prior year
information to conform with the current year presentation format. This
included the reclassification of $246,000 to cost of product sales and
services for the third quarter and $679,000 for the first nine months of
1995. These costs were associated with the Company's laboratory operations in
the 1995 period and were previously presented as selling, general and
administrative expenses. Additionally, the Company has classified as costs of
product sales and services $420,000 for the third quarter and $1,416,000 for
the first nine months of 1996 as those costs related to technical services
dedicated to the support of its platelet releasate technology. These costs
were classified as research and development in previous years since such
costs were related to new product development and drug discovery. In the
Company's continuing effort to focus on its wound care service business,
during the second half of 1995 the Company instituted a realignment of its
business activities which included the discontinuance of further product
research and development.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues. The Company's revenues for the third quarter of fiscal year 1996
increased 31% to $17,462,000, compared to $13,322,000 for the third quarter of
the prior fiscal year. For the quarter the revenue increase is attributable to
the operation of 109 wound care facilities at the end of the third quarter of
1996 compared to 77 at the end of the third quarter of 1995 and a 13% increase
in revenues at existing centers related to higher patient volumes. Total new
patients increased 31% from 7,730 in the third quarter of 1995 to 10,146 for the
same period in 1996. The total number of new patients receiving Procuren(R)
therapy increased 17% from 1,779 in the third quarter of 1995 to 2,083 in the
third quarter of 1996. The percentage of patients receiving Procuren(R) therapy
decreased during the third quarter of 1996 to 21% from 23% for the same period
in 1995. For the first nine months of 1996 revenues totalled $48,767,000, an
increase of 27% compared to $38,251,000 for the same period in 1995. The
increased revenue is attributable to the operation of 109 wound care facilities
at the end of the third quarter of 1996 compared to 77 at the end of the third
quarter of 1995 and a 13% increase in revenues at existing wound care facilities
related to higher patient volumes. Total new patients to the wound care
facilities increased 29% to 28,572 in the first nine months of 1996 compared to
22,086 in the first nine months of 1995. The total number of new patients
receiving Procuren(R) therapy increased 14% to 5,871 in the first nine months of
1996 from 5,139 in the first nine months of 1995. However, the percentage of
patients receiving Procuren(R) decreased from 23% in the first nine months of
1995 to 21% during the first nine months of 1996. The Company believes that this
decrease is attributable primarily to an increase in the percentage of less
severe chronic wounds being treated at the Company's Wound Care Centers(R), for
which physicians are less likely to prescribe Procuren(R), as well as a lack of
available reimbursement for Medicare patients. The Company believes that this
shift in the severity of the wounds treated at a Wound Care Center(R) occurs as
the local medical community becomes familiar with the services offered by the
Wound Care Center(R) and refers a broader range of chronic wound patients to the
Wound Care Center(R) for treatment. The Company anticipates that the percentage
of patients receiving Procuren(R) will continue to decline gradually in the
future.
Costs of product sales and services. Costs of product sales and services for the
third quarter increased from $6,587,000 in 1995 to $9,862,000 in 1996, an
increase of 50%, and for the first nine months of 1996 totalled $27,221,000
compared to $19,081,000 for the same period in 1995. The third quarter of 1996
includes $420,000 of technical service costs which were reported as research and
development expenses for the same period of 1995. Excluding technical service
costs, the increase in cost of product sales and services from the third quarter
of 1995 to the third quarter of 1996 was 35%. The increase is attributable to
additional staffing and operating expenses of approximately $1,127,000
associated with the operation of 32 additional wound care facilities at the end
of the third quarter of 1996, as well as increased volume at existing wound care
facilities. Additionally, these 32 facilities included four free standing Wound
Care Centers(R) and nine additional under arrangement Wound Care Centers(R) at
which the services component of costs is higher than at the Company's other
facilities due to the additional clinical staffing and expense that these models
require. As compared with the third quarter of 1995, the higher services
components at these facilities accounted for an additional $677,000 of the
increase in product costs and services for the third quarter of 1996. As a
percentage of revenues, costs of product sales and services (excluding technical
service) for the third quarter of 1996 was 52% compared to 49% the same period
in 1995. For the first nine months of 1996 costs of product sales and services
increased 43%. The first nine months of 1996 includes $1,416,000 of technical
service costs which were reported as research and development costs in the same
period in 1995. Excluding technical service costs, the increase in cost of
product sales and services from the first nine months of 1995 compared to the
first nine months of 1996 was 35%. The increase is attributed to additional
staffing and operating expenses of approximately $3,200,000 associated with the
operation of 32 additional wound care facilities at the end of the third quarter
of 1996 as well as increased volume of existing wound care facilities.
Additionally these 32 facilities included seven free standing Wound Care
Centers(R) and nine additional under arrangement Wound Care
7
<PAGE>
Centers at which the services components of costs is higher than at the
Company's other facilities due to the additional staffing and expense that these
models require. As compared with the first nine months of 1995, the higher
services components at these facilities accounted for an additional $1,377,000
of the increase in product costs and services for the first nine months of 1996.
As a percentage of revenues, costs of product sales and services (excluding
technical service) for the nine months of 1996 was 53% as compared to 50% in the
same period in 1995. The increase is attributable to new Wound Care Centers(R)
which include a higher service component.
Selling, General and Administrative. Selling, general and administrative
expenses for the third quarter increased from $4,636,000 in 1995 to $4,702,000
in 1996, an increase of 1%, and for the nine months of 1996 increased to
$14,315,000 compared to $13,513,000 for the same period in 1995, an increase of
6%. For the quarter the increase is attributable to the staffing and operating
expenses associated with the growth in the wound care business particularly
related to field support departments. For the nine months the increase is
primarily attributable to staffing and operating expenses of $1,469,000
associated with the growth in the wound care business particularly related to
field support departments, offset by a $495,000 decrease in expenses related to
European operations which were discontinued in the third quarter of 1995. As a
percentage of revenues, selling, general and administrative, expenses were 35%
in the third quarter of 1995 compared with 27% in the third quarter of 1996, and
for the nine months decreased to 29% in 1996 compared to 35% for the same period
in 1995. The decrease is attributable to the discontinuance of the European
operations as well as the ability of the Company to obtain leverage by spreading
the costs of its overhead structure over a broader revenue base.
Research and Development. Research and development was $921,000 for the third
quarter of 1995 and $3,315,000 for the first nine months of 1995. The Company
did not incur research and development expenses in 1996 since it discontinued
all new product research and development in the second quarter of 1995.
Technical service costs associated with the support of Procuren(R) are
classified as a cost of product sales.
Net Income. Net income improved from $1,284,000 or $.12 per share in the third
quarter of 1995 to $2,989,000 or $.24 per share in the third quarter of 1996 and
for the nine months improved from $2,592,000 of $.24 per share in 1995 to
$7,305,000 or $.62 per share for the first nine months of 1996. The increase in
earnings of $4,713,000 for the nine months ended September 30, 1996 as compared
to September 30, 1995 is primarily attributable to savings of $1,899,000 related
to the discontinuance of new product research and development, an improvement in
operating margins associated with the revenue growth and economies of scale
achieved from market growth and the termination of European operations.
Liquidity and Capital Resources. Working Capital was $43 million at September
30, 1996 compared to $12.6 million at December 31, 1995. Total cash, cash
equivalents and marketable securities held- to-maturity as of September 30, 1996
was $40.4 million and was invested primarily in highly liquid money market
funds, commercial paper and government securities. The ratio of current assets
to current liabilities increased from 2.5:1 at December 31, 1995 to 5.7:1 at
September 30, 1996. The Company's increase in working capital and improvement in
the ratio of current assets to current liabilities reflect the proceeds of the
public offering of 1,437,500 shares of common stock completed in the third
quarter of 1996.
Cash flows provided by operations for the first nine months of 1996 totalled
$5,837,000 primarily attributable to the net income for the period. Cash flows
used in investing activities totalled $11,025,000 primarily attributable to
purchase of marketable securities. Cash flows provided by financing activities
totalled $23,601,000 primarily attributable to proceeds from the common stock
offering and the exercise of stock options.
For the first nine months of 1996, the Company experienced a $3,105,000 net
increase in accounts
8
<PAGE>
receivable primarily due to the increase in revenues. The average number of days
receivables outstanding increased to 56 days as of September 30, 1996 compared
to 53 as of December 31, 1995. Further, the Company's accounts payable and
accrued expenses increased $979,000 as of September 30, 1996 compared to
December 31, 1995.
The Company's longer term cash requirements include working capital for the
further expansion of its wound care business. Other cash requirements are
anticipated for capital expenditures in the normal course of business. The
Company expects that based on its current business plan, its existing cash
equivalents and marketable securities will be sufficient to satisfy its current
working capital needs. The effects of inflation and foreign currency translation
risks are considered immaterial.
9
<PAGE>
Curative Health Services, Inc. and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are filed as part of this report
(b) Reports on Form 8-K filed during the quarter ended September 30, 1996
(i) Form 8-K dated July 31, 1996
Item 5. Other events.
1. The Company issued a press release on July 16, 1996 announcing
second quarter financial results ended June 30, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1996
Curative Health Services, Inc.
(Registrant)
John Vakoutis
President and Chief Executive Officer
John C. Prior
Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 1996
Curative Health Services, Inc.
(Registrant)
/s/ John Vakoutis
John Vakoutis
President and Chief Executive Officer
/s/ John C. Prior
John C. Prior
Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 21,248
<SECURITIES> 19,125
<RECEIVABLES> 10,881
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,166
<PP&E> 8,398
<DEPRECIATION> 4,462
<TOTAL-ASSETS> 56,195
<CURRENT-LIABILITIES> 9,200
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 46,530
<TOTAL-LIABILITY-AND-EQUITY> 56,915
<SALES> 48,767
<TOTAL-REVENUES> 48,767
<CGS> 27,221
<TOTAL-COSTS> 41,536
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,985
<INCOME-TAX> 680
<INCOME-CONTINUING> 7,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,305
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
