U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act of
1934
For the quarter ended March 31, 1996
Commission file number 1-12564
---------------
Ages Health Services Inc.
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Massachusetts 04 - 3102249
- - ------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
800 Hingham Street, Suite 103 S, Rockland, MA 02370
- - -------------------------------------------------------------------------------
(Address of principal executive offices)
617 - 871- 6550
- - -------------------------------------------------------------------------------
(Issuer's telephone number)
N/A
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 [ ]
The number of shares outstanding of registrant's no par value common stock, at
May 10th, 1996, was 2,580,100.
Transitional small business disclosure format (check one):
Yes [ ] No [X]
AGES Health Services Inc.
INDEX
PART 1 - FINANCIAL INFORMATION*
Item 1. - Financial Statements
Page
Number
------
Balance Sheets at March 31, 1996 and September 30, 1995........... 3 - 4
Statements of Operations for the three months and six months
ended March 31, 1996 and 1995.................................... 5
Statements of Cash Flows for the three months and six months
ended March 31, 1996 and 1995.................................... 6 - 7
Notes to Financial Statements..................................... 8 - 10
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 11 - 12
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings........................................... 12
Item 2. - Changes in Securities See Part............................. 12
Item 5. - Other Matters............................................... 12
Item 6. - Exhibits and Reports on Form 8-K............................ 13
Signatures............................................................ 14
[FN]
* The financial information at September 30, 1995 has been derived from
the Company's audited financial statements at that date. All other
information is unaudited.
[/FN]
AGES HEALTH SERVICES INC.
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995*
--------- -------------
Assets
<S> <C> <C>
Current:
Cash and cash equivalents.............................. $ 20,107 $ 126,878
U.S. Treasury Notes.................................... 1,974,375 1,965,470
Accounts receivable, less allowance for uncollectible
accounts of $267,230 and $350,000..................... 2,352,497 1,885,125
Prepaid expenses....................................... 70,099 82,682
Current portion of long-term note receivable related
to discontinued operations............................ 5,000 5,000
Deferred taxes......................................... 25,000 25,000
---------- ----------
Total current assets................................. 4,447,078 4,090,155
---------- ----------
Property and equipment, net of accumulated depreciation
of $197,274 and $166,842.................................. 217,561 223,522
---------- ----------
Other Assets:
Covenant not to compete................................ - 335,800
Nursing home affiliation agreements.................... - 224,266
Organization costs for geriatric services.............. 62,056 62,056
Organization costs for clinic license.................. - 6,934
---------- ----------
62,056 629,056
Less accumulated amortization.......................... 56,669 584,184
---------- ----------
5,387 44,872
---------- ----------
Long-term note receivable related to discontinued
operations, less current portion.......................... 17,752 20,000
---------- ----------
$4,687,778 $4,378,549
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings.................................. $1,876,586 $1,662,257
Accounts payable....................................... 266,427 110,815
Accrued expenses....................................... 443,640 507,549
Current portion of long-term debt and loans payable.... 156,851 132,405
---------- ----------
Total current liabilities............................ 2,743,504 2,413,026
Long-term debt and loans payable, less current portion..... 368,195 397,398
Deferred income taxes...................................... 25,000 25,000
---------- ----------
Total liabilities.................................... 3,136,699 2,835,424
---------- ----------
Stockholder's equity:
Preferred stock, 12% cumulative, nonparticipating,
$1,000 per share liquidation value, without par
value; 100,000 shares authorized, 250 shares issued
and outstanding....................................... 250,000 250,000
Common stock, without par value; 4,500,000 shares
authorized; 2,580,100 shares issued and outstanding... 3,375,897 3,375,897
Accumulated deficit.................................... (2,050,209) (2,048,320)
Unrealized loss on marketable securities............... (24,609) (34,452)
---------- ----------
Total stockholders' equity........................... 1,551,079 1,543,125
---------- ----------
$4,687,778 $4,378,549
========== ==========
</TABLE>
See accompanying notes to financial statements.
[FN]
* The balance sheet at September 30, 1995 has been derived from the
audited financial statements at that date. All other information is
unaudited.
[/FN]
AGES HEALTH SERVICES INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended March 31, ended March 31,
-------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net patient service revenue.......................... $2,041,385 $1,677,712 $3,937,299 $3,213,356
Cost of patient services............................. 1,430,081 1,355,779 2,763,788 2,528,923
---------- ---------- ---------- ----------
Gross profit on patient services................. 611,304 321,933 1,173,511 684,433
---------- ---------- ---------- ----------
General and administrative expenses.................. 571,779 727,301 1,073,723 1,225,673
Amortization of acquisition-related costs............ 15,536 23,198 39,484 48,098
---------- ---------- ---------- ----------
Operating expenses............................... 587,315 750,499 1,113,207 1,273,771
---------- ---------- ---------- ----------
Operating income (loss).......................... 23,989 (428,566) 60,304 (589,338)
---------- ---------- ---------- ----------
Interest expense (income), net....................... 19,319 14,834 43,976 13,669
---------- ---------- ---------- ----------
Income (loss) from continuing operations before
taxes on income (credit)........................ 4,670 (443,400) 16,328 (603,007)
---------- ---------- ---------- ----------
Taxes on income...................................... - - - -
---------- ---------- ---------- ----------
Income (loss) from continuing operations......... 4,670 (443,400) 16,328 (603,007)
---------- ---------- ---------- ----------
Discontinued operations:
Loss from operations........................... - (88,020) - (174,421)
Loss on disposal............................... - - (3,217) -
---------- ---------- ---------- ----------
Loss from discontinued operations................ 0 (88,020) (3,217) (174,421)
---------- ---------- ---------- ----------
Net income (loss).................................... 4,670 (531,420) 13,111 (777,428)
---------- ---------- ---------- ----------
Preferred stock dividends............................ (7,500) (7,500) (15,000) (15,000)
---------- ---------- ---------- ----------
Net income (loss) applicable to common stock......... $ (2,830) $ (538,920) $ (1,889) $ (792,428)
========== ========== ========== ==========
Income (loss) per share of common stock:
Income (loss) from continuing operations......... - $ (.18) - $ (.24)
Loss from discontinued operations................ - $ (.03) - $ (.07)
Net income (loss) per share of common stock.......... - $ (.21) - $ (.31)
========== ========== ========== ==========
Weighted average number of shares of
common stock outstanding............................ 2,580,100 2,580,100 2,580,100 2,580,100
</TABLE>
See accompanying notes to financial statements.
AGES HEALTH SERVICES INC.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 13,111 $ (777,428)
Adjustments to reconcile net income (loss) to net
cash used for operating activities:
Depreciation and amortization...................... 69,917 77,240
Provision for losses on accounts receivable........ 62,797 124,000
Defeffed consulting costs.......................... 18,000 18,000
Loss on sale of marketable securities.............. 938 -
Changes in operating assets and liabilities:
Accounts receivable.............................. (530,169) (385,501)
Prepaid expense.................................. (5,417) 6,755
Accounts payable................................. 150,612 3,755
Accrued expenses................................. (63,909) 86,650
--------- -----------
Net cash used for operating activities......... (284,120) (846,529)
--------- -----------
Cash flows from investing activities:
Proceeds from sale of marketable securities.......... 499,062 -
Purchase of marketable securities.................... (499,062) -
Purchase of property and equipment................... (24,471) (79,215)
Organization costs capitalized....................... - (6,934)
Principal payments from note receivable.............. 2,248 -
--------- -----------
Net cash used for investing activities......... (22,223) (86,149)
--------- -----------
Cash flows from financing activities
Proceeds from short-term borrowings.................. 214,329 1,167,866
Payments of notes to affiliate....................... - (198,000)
Principal payments on other notes payable............ (4,757) (13,987)
Dividends paid on preferred stock.................... (10,000) (15,000)
--------- -----------
Net cash provided by financing activities...... 199,572 940,879
--------- -----------
Net decrease in cash and cash equivalents.............. (106,771) 8,201
Cash and cash equivalents, beginning of period......... 126,878 81,505
--------- -----------
Cash and cash equivalents, end of period............... $ 20,107 $ 89,706
========= ===========
</TABLE>
See accompanying notes to financial statements.
AGES HEALTH SERVICES INC.
Notes to Financial Statements
1. Basis of Presentation
The financial statements as of March 31, 1996 and 1995 are unaudited but
include all adjustments (consisting of normal, recurring adjustments) which
the Company considers necessary for a fair presentation of such interim
financial statements. The accompanying financial statements and notes are
presented as permitted by Form 10-QSB and do not contain certain information
included in the Company's annual audited financial statements and notes
thereto. The results of operations for the three months and
six months ended March 31, 1996 are not necessarily indicative of the results
to be expected for the entire year ending September 30, 1996.
2. U.S. Treasury Notes
Short term investments in U.S. Treasury Notes are considered available-
for-sale securities, and therefore are accounted for at fair market value.
Unrealized gains and losses are recorded as a component of Stockholders'
Equity. Realized gains and losses are recognized in the results of
operations. As of March 31, 1996 unrealized losses pertaining to the U.S.
Treasury Notes amounted to $24,609, and the Company realized a $938 loss on
the rollover of one $500,000 strip of U.S. Treasury Notes which matured in
January of 1996. The U.S. Treasury Notes bear annual interest rates ranging
between 4.40% and 5.18% with maturity dates between May 1996 and October 1998.
3. Short-Term Borrowings
Short-term borrowings at March 31, 1995 are collateralized by the
Company's U.S. Treasury Notes. Interest is charged at the lenders base rate
plus a range of .5% to 2.5% based on the total outstanding borrowings (8.00%
at March 31, 1996). The U.S. Treasury Notes are subject to a lien for
discharge of the borrowings.
4. Taxes on Income
In recognition of the uncertainty regarding the ultimate amount of
income tax benefits to be derived from the Company's net operating loss
carryforward and other deferred tax assets, the Company has provided a
deferred tax asset valuation allowance at March 31, 1996 equal to 100% of the
net operating loss carryforward and a portion of the other deferred tax
assets. Accordingly, the Company has not recognized a tax credit for the
three months or the six months ended March 31, 1995 in the accompanying
statements of operations. A current tax provision was not provided for the
three months or the six months ended March 31, 1996 due to the availability of
the net operating loss carryforward which was used to offset current taxes
due.
5. Net Income (Loss) Per Share of Common Stock
Net income (Loss) per share of Common Stock is computed by dividing net
income (loss) applicable to common stockholders by the weighted average number
of common and common equivalent shares outstanding during each period
presented. Common shares issuable upon exercise of outstanding warrants and
options, when dilutive, are included in the computation of shares outstanding.
6. Cash Flow Information
Payments for interest and income taxes for the six months ended March
31, follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest $71,525 $49,090
Income taxes $ -0- $ -0-
</TABLE>
A supplemental schedule of noncash investing and financing activities
for the six months ended March 31, follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Preferred Stock dividends accrued $5,000 $ 7,500
Unrealized gain on marketable securities $9,843 $20,360
</TABLE>
7. Legal Proceedings
The Company is not a party to any legal proceedings which it believes
may have a material adverse effect on the Company's financial condition or
results of operations. However, the Massachusetts Department of the Attorney
General has been reviewing certain of the Company's Medicaid claims related to
diagnostic, consultation and medical services performed at nursing homes
serviced by the Company. The Company believes that the primary focus of such
review is to determine whether the services performed were qualifying
reimbursable services. The Company believes that the services provided were
appropriate and that all services were billed correctly. There can be no
assurance, however, that the Attorney General's review can be closed without
the need for the Company to pay back funds to the Commonwealth of
Massachusetts.
8. Discontinued Operations
In August 1995, the Company's Board of Directors authorized the sale of
the Company's Employee Assistance Program and the disposal of the Center for
Neuro-Diagnostics. Assets of discontinued operations at September 30, 1995
and March 31, 1996 consisted of a note receivable of $25,000 and $22,752,
respectively. There were no liabilities related to discontinued operations at
September 30, 1995, or at March 31, 1996. Net patient service revenues
applicable to discontinued operations were $-0- and $62,424 for the three
months ended March 31, 1996 and 1995 respectively, and were $2,646 (revenues
from the late submission of claims for services rendered just prior to the
close of operations) and $139,507 for the six months ended March 31, 1996 and
1995 respectively
AGES HEALTH SERVICES INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
-------------------------------
During the six months ended March 31, 1996 (first and second quarter of
Fiscal 1996), the Company required cash of $284,120 to fund operating
activities as a result primarily of the increase in accounts receivable of
$530,169 which was offset partially by an increase in accounts payable of
$150,612. The increase in accounts receivable is attributed to expanded
levels of service in Connecticut and Rhode Island, to calendar year
deductibles that require additional billings to secondary payors, and to
changes in billing and reimbursement requirements issued by Medicare for
nursing services, each of which has delayed cash receipts. The Company has
taken action with respect to its billing and collection procedures to adjust to
changes in Medicare billing protocols. These actions are expected to improve
the collection of receivables, although there can be no assurance that either
the timing or the volume of cash receipts will be improved. The Company also
invested $24,471 in property and equipment during the first and second quarter
of Fiscal 1996, primarily related to computer hardware. The Company's
operating cash requirements, equipment purchases and debt repayment was funded
in part by proceeds from short-term borrowing of $214,329.
The Company's working capital was $1,703,574 at March 31, 1996 compared
to $1,677,129 at September 30, 1995. The Company believes it is adequately
capitalized to support current continuing operations. However, the Company
will require further credit to pursue diversification and expansion plans.
The Company is considering a proposal for a $300,000 line of credit based on
its accounts receivable to provide additional financing for Fiscal 1996. There
can be no assurance however, that the line of credit offer can be finalized on
commercially reasonable terms.
Results of Operations
---------------------
Net patient service revenues increased from Fiscal 1995 to Fiscal 1996
by $363,673 (21.7%) for the three months ending March 31st, and by $723,943
(22.5%) for the six months ending March 31st. Approximately 53% of the
increase in revenues was due to expansion of services to geriatric long-term
care facilities in Massachusetts, Connecticut and Rhode Island, where net
patient service revenues grew 12.6%. Approximately 47% of the increase was due
to the expansion of outpatient clinical services to non-geriatric populations,
where net patient service revenues grew 192.5%.
The Company's cost of patient services as a percentage of net patient
service revenues decreased from 80.8% and 78.7% for the three months and six
months ending March 31, 1995, to 70.1% and 70.2% for the three months and six
months ending March 31, 1996. This decrease is due primarily to reorganization
of the Company's service delivery model, which now emphasizes delivery of
services by less costly qualified professionals.
General and administrative expenses as a percent of net patient service
revenues fell from 43.4% and 38.1% for the three months and six months ending
March 31, 1995, to 28.0% and 27.2% for the same period of 1996. Higher costs in
1995 primarily relate to start-up costs for non-geriatric outpatient services
and for services to geriatric long-term care facilities in Connecticut and
Rhode Island. Together, these segments of the Company, which started up during
the first six months of Fiscal 1995, had general and administrative expenses
as a percent of related net patient service revenues of 20.0% and 3.9% in first
six months of Fiscal 1995 and Fiscal 1996, respectively. Reductions in several
corporate line item expenses also helped reduce general and administrative
expenses. These include significant reductions in legal, consulting, public
relations, and dues and subscriptions. The Company's interest expense, net of
interest income, increased by $30,307 during the first six months of Fiscal
1996 versus the same period of Fiscal 1995, as a result of increased short
term borrowings.
The Company's net loss applicable to common stock was ($1,889) or ($.00)
per share for the six months ended March 31, 1996 compared to a net loss of
($792,428) or ($.31) per share for the same period of Fiscal 1995. Of the loss
in Fiscal 1995, $174,421 relates to discontinued operations (see Notes to
Financial Statements, Note #8).
PART II Other Information
- - --------------------------
Item 1. Legal Proceedings
The Company is not a party to any legal proceedings which it believes
may have a material adverse effect on the Company's financial condition or
results of operations. However, the Massachusetts Department of the Attorney
General has been reviewing certain of the Company's Medicaid claims related to
diagnostic, consultation and medical services performed at nursing homes
serviced by the Company. The Company believes that the primary focus of such
review is to determine whether the services performed were qualifying
reimbursable services. The Company believes that the services provided were
appropriate and that all services were billed correctly. There can be no
assurance, however, that the Attorney General's review can be closed without
the need for the Company to pay back funds to the Commonwealth of
Massachusetts.
Item 2. Changes in Securities See Item 5.
Item 5. Other Matters
The Company was delisted from the Boston Stock Exchange, Inc. effective
April 4, 1996. The action was taken in accordance with the terms of a letter
dated January 15, 1996 from the Boston Stock Exchange, Inc., because the
market value of the Company's publicly traded securities had fallen below the
Exchange's minimum requirement of $500,000.
Item 6. Exhibits and Reports on Form 8 - K
- - -------------------------------------------
(a) Exhibits -- none
(b) Reports on Form 8 - K -- none
AGES HEALTH SERVICES INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Ages Health Services Inc.
(Registrant)
May 13, 1996 /s/ Henry Goodhue
Date -------------------------- ----------------------------
Henry Goodhue
Controller
(principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 20,107
<SECURITIES> 1,974,375
<RECEIVABLES> 2,619,727
<ALLOWANCES> 267,230
<INVENTORY> 0
<CURRENT-ASSETS> 4,447,078
<PP&E> 414,835
<DEPRECIATION> 197,274
<TOTAL-ASSETS> 4,687,778
<CURRENT-LIABILITIES> 2,743,504
<BONDS> 0
0
250,000
<COMMON> 3,375,897
<OTHER-SE> (2,074,818)
<TOTAL-LIABILITY-AND-EQUITY> 4,687,778
<SALES> 3,937,299
<TOTAL-REVENUES> 3,937,299
<CGS> 2,763,788
<TOTAL-COSTS> 975,291
<OTHER-EXPENSES> 39,484
<LOSS-PROVISION> 98,432
<INTEREST-EXPENSE> 43,976
<INCOME-PRETAX> 16,328
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,328
<DISCONTINUED> (3,217)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,111
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
