14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996 OR [ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20654
HEALTHTECH INTERNATIONAL, INC.
Nevada 36-3797495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1237 South Val Vista Drive
Mesa, Arizona 85204
(Address of principal executive offices)
602-396-0660
(Registrant's telephone number, including area code)
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____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.
Yes____ No____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: As of December 31,
1996, Registrant has a total of 6,845,470 common stock and 5,965,007 class A
warrants outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - Financial Statements
HEALTHTECH INTERNATIONAL, INC.
CONSOLDIATED BALANCE SHEETS
Unaudited
December 31, 1996 and September 30, 1996
ASSETS
12/31/96 9/30/96
Current assets:
Cash and cash equivalents $ 37,631 $ 9,018
Accounts receivable - net of allowance
for doubtful accounts 1,850,740 1,176,244
Prepaid expenses and deposits 438,890 133,573
--------- ----------
Total current assets $ 2,327,261 $ 1,318,835
Property, plant and equipment at cost, net
of accumulated depreciation of $892,179
and $736,527 at 12/31/96 and 9/30/96,
respectively 12,944,194 13,023,246
Land held for resale 60,000 60,000
Prepaid advertising expenses and barter credits 7,315,281 7,320,597
Costs in excess of net assets acquired, net of
accumulated amortization of $45,609 and
$36,717 at 12/31/96 and 9/30/96, respectively 1,377,040 1,385,932
Long-term certificate of deposit 100,000 100,000
Non-current marketable equity securities (Note 1) - -
Deferred tax asset 243,372 336,584
Notes receivable - long-term 750,000 750,000
Other assets, at cost, net 155,342 219,696
---------- ----------
Total Assets $ 25,272,490 $ 24,514,890
============= =============
The accompanying notes are an integral part of these financial statements
<PAGE>
HEALTHTECH INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
December 31, 1996 and September 30, 1996
LIABILITIES AND SHAREHOLDERS EQUITY
12/31/96 9/30/96
Current liabilities
Current portion of notes payable and
capitalized lease obligations $ 970,827 $ 1,130,640
Accounts payable trade 939,605 769,573
Accounts payable - related parties 350,898 259,981
Accrued expenses - other 58,924 135,089
Deferred revenues 927,551 871,755
Other current liabilities 802,503 429,299
---------- -----------
Total current liabilities 4,050,308 3,596,337
Notes payable and capitalized lease obligations
less current maturities 1,613,786 2,081,707
---------- ----------
Total liabilities $ 5,664,094 $ 5,678,044
Commitments and contingencies - -
Shareholders' equity
Series D Preferred stock, $.001 par value,
10,000,000 shares authorized, 21,200
shares issued and 19,200 shares outstanding $ 19 $ 19
Common Stock, $.001 par value, 500,000,000
shares authorized, 6,845,470 and
4,023,751 issued and outstanding for
12/31/96 and 9/30/96, respectively 6,845 4,024
Additional paid-in capital 26,447,855 25,860,070
Net unrealized loss on non-current
marketable equity securities (Note 1) (625,000) (625,000)
Accumulated deficit (6,221,324) (6,402,267)
------------ ------------
Total shareholders' equity 19,608,396 18,836,846
----------- -----------
$ 25,272,490 $ 24,514,890
============== ==============
The accompanying notes are an integral part of these financial statements
<PAGE>
HEALTHTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
For the periods ended December 31, 1996 and 1995
Quarter Ended Quarter Ended
12/31/96 12/31/95
Revenues
Product sales, net $ 414,957 $ 356,796
Club revenues, net 750,765 797,316
Medical sales, net 438,232 -
---------- ----------
Total revenues 1,603,953 1,154,112
Operating expenses:
Direct 351,896 296,175
Selling, general and administrative 770,357 1,054,443
Depreciation and Amortization 159,522 138,092
---------- ----------
Total operating expenses 1,281,775 1,488,710
Gain (loss) from operations 322,177 (334,598)
Other income (expenses):
Interest income 16,875 -
Interest expense (64,898) (88,710)
----------- -----------
Total other income (expense) (48,023) (88,710)
Loss before income taxes and extraordinary items 274,154 (423,308)
Benefit (provision) for income taxes (93,213) 143,925
----------- -----------
Loss before extraordinary items , net of tax 180,942 (279,383)
----------- -----------
Net income (loss) $180,942 ($279,383)
=========== ===========
Primary earnings per common share and
common share equivalents (Note 1):
Income (loss) from continuing operations $ 0.04 $ (0.08)
Weighted average number of common
shares outstanding 4,982,903 3,416,664
Fully diluted earnings per common share
and common share equivalents (Note 1):
Income from continuing operations $ 0.03 -
Weighted average number of fully diluted
common shares outstanding 6,902,903 -
The accompanying notes are an integral part of these financial statements
<PAGE>
HEALTHTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
For the periods ended December 31, 1996 and 1995
12/31/96 12/31/95
Cash flows from operating activities:
Net income (loss) $ 180,942 $(279,383)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 159,522 138,092
Provision for doubtful accounts 268,594 -
Issuance of common stock for consulting fees 55,325 159,365
Issuance of common stock for debt settlements 500,000 64,980
Change in operating assets and liabilities:
Increase(decrease) in deferred tax asset (93,212) 143,997
(Increase)decrease in accounts receivable (943,089) (120,906)
(Increase)decrease in other receivables (51,447) 110,679
(Increase)decrease in prepaid expense and other (5,807) (42,629)
(Increase)decrease in deposits (245,347) (13,891)
Increase(decrease) in accounts payable 260,949 (151,203)
Increase(decrease) in accrued expenses (105,107) (178,716)
Increase(decrease) in other current liabilities 291,289 23,987
Increase(decrease) in deferred revenues 55,796 (47,886)
Increase(decrease) in advance vendor deposits 142,837 -
---------- ----------
Net cash provided by (used in) operating activities 471,245 (193,514)
Cash flows from investing activities:
Costs in excess of net assets acquired - 109,594
Acquisition of property, plant and equipment (53,820) (217,544)
Retirement of property, plant and equipment, net 13,907 -
---------- ----------
Net cash provided by (used in) investing activities (39,913) (107,950)
The accompanying notes are an integral part of these financial statements
<PAGE>
HEALTHTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Unaudited
For the periods ended December 31, 1996 and 1995
12/31/96 12/31/95
Cash flows from financing activities:
Retirements and payments of debt (28,918) (64,980)
Proceeds from debt - 119,849
Proceeds from related party debt 90,917 -
Issuance of common stock for cash 35,282 216,250
Issuance of common stock for settlements
& debt payments (500,000) -
---------- -----------
Net cash provided by (used in) financing activities (402,719) 271,119
Net increase (decrease) in cash 28,613 (30,346)
---------- -----------
Cash and cash equivalents at beginning of year 9,018 372,836
---------- -----------
Cash and cash equivalents at end of year $ 37,631 $ 342,490
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 64,898 $ 84,531
Income tax
The accompanying notes are an integral part of these financial statements
<PAGE>
HEALTHTECH INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Unaudited
For the periods ended December 31, 1996 and 1995
1996
Supplemental schedule of non-cash and financing activities:
Issuance of 55,237 shares of common stock in exchange for
services $ 55,325
Issuance of 34,500 shares of common stock in exchange for
cash and other current assets $ 35,282
Issuance of 2,731,982 shares of restricted (R-144) common stock
in settlement of debt $500,000
1995
Issuance of 17,583 shares of restricted (R-144) common stock
and 17, 583 class A warrants in settlement of wholly owned
subsidiary's current note payable. $ 64,980
Issuance of 400 shares of restricted (R-144) common stock and
400 class A warrants in settlement of a current account payable $ 2,000
The accompanying notes are an integral part of these financial statements
<PAGE>
HEALTHTECH INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
---------------------------------------------
NOTE 1. BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Organization -
HealthTech International, Inc. (the Company), a Nevada corporation, was formed
February 8, 1995, for the purpose of being a holding company for subsidiaries
engaged in fitness, pre-employment testing, physical therapy and rehabilitation
businesses.
Currently HealthTech International, Inc. and its wholly owned subsidiaries;
Results Sports and Fitness, Inc., IFM Investments, Inc., Fitness Performance,
Inc., Results Riverbend, Inc. and Results Stark Street, Inc. (collectively "the
Company") develop and operate health and fitness clubs, provide medical services
through clinics within its clubs, and market and sell fitness equipment.
Per Share Information -
Primary earnings or loss per common share has been computed based upon the
weighted average number of common equivalent shares outstanding. Primary and
fully diluted earnings per share have been presented separately for the period
ended December 31, 1996, whereas for December 31, 1995, primary and fully
diluted earnings per share are the same since the Company experienced losses for
that period; dilutive common stock equivalents are excluded from the calculation
of loss per share as the effect would be antidilutive. The number of common and
common equivalent shares utilized in the per share computations were 4,982,903
and 3,416,664 for December 31, 1996 and 1995, respectively.
Accounting Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) 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 date of the financial
statements and the reported amounts of revenues and expenses during the reported
period.
Actual results could differ from those estimates.
Income Taxes -
The Company adopted the provisions of Financial Accounting Standards Board No.
109 (FAS 109) effective as of October 1, 1994. Under FAS 109, deferred income
taxes are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date. The application of FAS
109 did not have a material effect on the Company's consolidated financial
statements.
<PAGE>
Non-current Marketable Equity Securities -
The non-current portfolio of marketable securities is stated at the lower of
aggregate cost or market at the balance sheet date and consists of common
stocks.
Realized gains or losses are determined on the specific identification method
and are reflected in income. Net unrealized losses on non-current marketable
securities are recorded directly in a separate shareholders' equity account
except those unrealized losses that are deemed to be other than temporary, which
losses are reflected in income.
On December 2, 1994, the Company acquired 5,000,000 shares of common stock of
the Equitas Group, a related party controlled by the Chairman of the Board.
Due to the restrictive nature of these securities and unavailability of market
quotes to determine the present market value, the Company has reflected the
total carrying value of $625,000 as unrealized loss on non-current marketable
equity securities as a separate component in shareholders' equity.
NOTE 2. CHANGES IN SUBSIDIARIES BEING CONSOLIDATED
The consolidated financial statements presented for the periods ended December
31, 1995 and 1996 included the results of operations of the Company and its
wholly owned subsidiaries. The following indicates which subsidiaries were
consolidated for the appropriate periods:
December 31, 1995
Subsidiaries: Results Sports and Fitness, Inc.
Fitness Performance, Inc.
IFM Investments, Inc.
December 31, 1996
Subsidiaries: Results Sports and Fitness, Inc. (Tucson, Arizona club)
Fitness Performance, Inc. (seller of fitness equipment)
IFM Investments, Inc. (Midland, Texas club)
Results Riverbend, Inc. (Ft. Worth, Texas club)
Results Stark Street, Inc. (Portland, Oregon club)
Due to a changes in consolidated subsidiaries and their respective activities
for each of the periods reported, the consolidated financial statements are not
comparable between periods.
NOTE 3. PREPAID ADVERTISING CREDITS
The Company acquired deferred advertising and broadcast air-time credits,
primarily in exchange for common stock, from related parties aggregating
$7,300,000. The advertising and broadcast credits were recorded at net
realizable value, based upon the seller's published rate cards at the date of
acquisition or the historical founder's cost as it relates to related party
transactions, whichever was lower. These credits have expirations ranging from 5
to 10 years from date of issuance of September 29, 1995, and January 1, 1994,
respectively.
<PAGE>
These credits can be traded for various goods and services and they can be
assigned, sold or transferred. However, they are not recognized as currency in
the United States although they can be traded as such. The credits will be
amortized at the time the advertising is utilized or the exchange for goods or
services received will be recorded at the lower of fair market value of the
goods or services received.
Management also intends to enter into joint venture arrangements to market
various products. It is their intention to market these products over various
television/radio networks by utilizing a portion of these air time credits.
However, if management is not successful in implementing the above strategies to
realize the recorded values of the credits and impairment of these assets are
realized, the Company will realize a significant and material reduction in its
overall equity.
NOTE 4. INCENTIVE COMPENSATION PLANS
The Company has an Incentive Compensation Plan which provides awards to
officers, employees and consultants of the Company, who, individually or as a
group, contribute in a substantial degree to the success of the Company. The S-8
registration dated June 1, 1996, allowed for the designation of 1,000,000 units
for awards pursuant to this plan. During the quarter ended December 31, 1996,
the Company issued 89,737 shares for a value of $90,607.
NOTE 5. INCOME TAXES
The net deferred tax asset consisted of the following components as of December
31, 1996 and 1995:
1996 1995
---- ----
Deferred taxes relating to:
Timing differences:
Net operating loss carry forward $ 243,372 $ 672,881
Deferred tax liabilities - -
---------- ----------
Net deferred asset $ 243,372 $ 672,881
========== ==========
The components giving rise to the net deferred tax asset described above have
been included in the accompanying balance sheets as of December 31, 1996 and
1995 are as follows:
1996 1995
---- ----
Deferred tax benefits $ 243,372 $ 672,881
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences are expected to
be available to reduce taxable income.
Federal tax regulations allow a fifteen year carry-forward of net operating
losses. Accordingly the deferred tax benefits listed above are set to expire in
the year 2011.
<PAGE>
NOTE 6. COMMITMENTS AND CONTINGENCIES
Contingent liabilities -
IFM acquisition contingency -
On June 5, 1995, the Company entered into a purchase agreement for all of the
issued and outstanding stock of IFM, Inc. Pursuant to this agreement and a
related consulting agreement, the Company agreed to pay the former stockholder
of IFM a consulting fee of $10,000 per month and guaranteed that in conjunction
with the consulting fees and sale of the stock, after the restriction period of
24 months, he would realize a minimum of $900,000. It is estimated that the
Company's stock would have to decrease to $1.94 per unit before additional
shares and/or consulting fees are due.
Notes payable stock commitment -
Under terms of the loan agreement refinancing the Midland club, the Company
pledged, among other things, 50,000 fully paid and unrestricted shares of common
stock of HealthTech. If the value of these shares become less than $150,000 at
the end of any given calendar quarter, the Company is obligated to deposit with
the bank within 10 business days, additional fully paid and unrestricted shares
of common stock of HealthTech such that the value of all shares pledged is a
minimum of $150,000. During the second quarter of fiscal 1997, the Company
pledged an additional 51,351 shares to meet this requirement for the quarter
ended December 31, 1996. The Company is also a primary guarantor under terms of
the note which at year end was $791,000.
Results - Stark Street, Inc. Loan -
As part of the acquisition of the Stark Street Club, the Company assumed a loan
originated through a local bank and the Small Business Administration. The loan
agreements contain a "due on sale" clause if the property is transferred without
prior written approval of the lending institution. Such approval was not
obtained in conjunction with the acquisition of the club. While the Company is
currently in substantial performance with other provisions and covenants
contained in the loan agreements, should the lending institution discover the
property was transferred without approval, the remaining unpaid balance could be
accelerated and become immediately due and payable. The remaining balance at
December 31, 1996, was approximately $398,528.
NOTE 7. SUBSEQUENT EVENTS
In January, 1997, the Company entered into an agreement to acquire all of the
issued and outstanding stock of Primus HealthCare Systems, Inc. The details of
this acquisition are in the exhibits to the September 30, 1996 10-K of the
Company, incorporated herein by reference.
NOTE 8. INDUSTRY SEGMENTS
The Company classifies its sales into three areas: Health & Fitness Centers,
Medical Services, and Fitness Equipment Sales.
<PAGE>
ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
All references to the financial statements presented in Item I of this report
are incorporated by this reference. The following discussion should be read in
conjunction therewith.
Overview
During 1996 and the first quarter of fiscal 1997, the Company grew in size
(assets and revenues) and in the health care field (both health and fitness and
medical operations). The comparability of the results of operations between
periods presented is limited due to the following changes in the Company:
A. The acquisition of three health clubs during various periods of
fiscal 1995 B. The acquisition of a fourth health club during the
quarter ended June 30, 1996 C. The addition of the medical clinic
operations in the quarter ended December 31, 1996
During 1996, working capital was greatly impacted through the payment of
$500,000 towards the retirement of debt on the Midland property. Due to the new
long-term financing on the property, these demands will not continue in 1997.
The Company successfully negotiated an extension of the loan on the Fort Worth
property. As a result of the terms of the extension, the Company will retire 50%
of the debt on the property in fiscal 1997. The Company is pursuing long-term
financing on the property which will provide significant, additional working
capital. In addition, the Company continues to seek additional financing at more
favorable rates on its other properties.
The Company significantly reduced the executive compensation expense component
of corporate overhead by converting from a cash and/or stock payments plan to a
commission-based compensation plan. The Company determined the new plan was a
reasonable management incentive that allowed the Company to retain the services
of the Chairman, CEO and President in 1996.
Based upon the foregoing and the other information disclosed in this Report, the
Company believes its cash flows are sufficient to meet its short-term cash
requirements. During the past the quarter ended December 31, 1996, the Company
has satisfied some cash requirements through the issuance of the registrants
common stock in accordance with SEC regulations.
Results of Operations
The Company has recognized the continuing trend in the health and wellness
industry to alternative outpatient clinics away from traditional acute care
hospital settings. The Company's plan to capitalize on this trend is to add
outpatient medical services clinics to the four health clubs the Company
acquired in 1995 and 1996. The Company believes the two lines of operations
combined in a single facility enhance and compliment each other's profit
potential more so then if each operation were stand alone. The addition of
medical clinic operations in the clubs beginning in the first quarter of fiscal
1997 positively impacted Company revenue.
<PAGE>
Revenues generated through the clinic operations in the clubs will be
significantly reserved based on industry guidelines until the Company has
historical information with which to make adjustments. These reserves will
enable the Company to recognize adequate income from the medical operations
without the uncertainty of future write-downs. The Company has recorded gross
revenues from the operation of the clinic in Midland of approximately $700,000
in the first two and one half months of its operation. The addition of clinical
facilities in the remaining clubs are expected to have similar results and
expected to dramatically increase the revenues of the Company.
As of the date of this report, the Company has two clinics in operation and has
two concurrent plans for clinic expansion. The first plan is to build and equip
five additional clinics through the use of cash generated strictly from clinic
operations. The second plan is the acquisition of Primus and other companies
which provide similar type services. The Company intends to continue to fund its
acquisitions through the use of Registrant's restricted common stock.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
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.
HEALTHTECH INTERNATIONAL, INC.
By: s/s Gordon L. Hall Date: February 26, 1997
-----------------------
Gordon L. Hall, Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Tim Williams Date: February 26, 1997
--------------------
Tim Williams, President
By: /s/ Perry Ducsh Date: February 26, 1997
---------------
Perry Dusch, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM HEALTHTECH INTERNATIONAL, INC.'S CONSOLDIATED BALANCE SHEET
AND CONSOLIDATED STATEMENTS OF OPERATION FOR THE PERIOD ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000876889
<NAME> HEALTHTECH INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 37,631
<SECURITIES> 0
<RECEIVABLES> 1,850,740
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,327,261
<PP&E> 13,836,373
<DEPRECIATION> 892,179
<TOTAL-ASSETS> 25,272,490
<CURRENT-LIABILITIES> 4,050,308
<BONDS> 0
0
19
<COMMON> 6845
<OTHER-SE> 26,447,855
<TOTAL-LIABILITY-AND-EQUITY> 25,272,490
<SALES> 1,603,953
<TOTAL-REVENUES> 1,603,953
<CGS> 351,896
<TOTAL-COSTS> 1,281,775
<OTHER-EXPENSES> 48,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,898
<INCOME-PRETAX> 274,154
<INCOME-TAX> 93,213
<INCOME-CONTINUING> 180,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 180,942
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
</TABLE>
