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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: MARCH 31, 1999 Commission File Number: 1-12238
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MHM SERVICES, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 52-1223048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8065 WESTWOOD CENTER DRIVE, SUITE 400, VIENNA, VIRGINIA 22182
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (703) 749-4600
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 requirement for the past 90 days. Yes X No
-
As of May 14, 1999, there were 3,538,225 shares of Common Stock, par value $.01
per share, outstanding.
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MHM SERVICES, INC., AND SUBSIDARIES
QUARTER ENDED MARCH 31, 1999
INDEX
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PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations-
Three and Six Months Ended March 31, 1999 and 1998 (Unaudited) 4
Condensed Consolidated Balance Sheets
March 31, 1999 (Unaudited) and September 30, 1998 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 1999 and 1998 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-15
PART II. OTHER INFORMATION 15
ITEM 1. LEGAL PROCEEDING 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
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2
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MHM SERVICES, INC., AND SUBSIDARIES
QUARTER ENDED MARCH 31, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
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MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1999 1998 1999 1998
----------- ------------ ----------- ------------
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Net revenues $ 3,412,000 $ 7,560,000 $ 9,281,000 $ 16,023,000
Costs and expenses
Operating 3,420,000 4,425,000 7,570,000 10,732,000
General and administrative 1,344,000 2,841 000 2,945,000 4,380,000
Provision for bad debts 393,000 439,000 1,116,000 1,217,000
Depreciation and amortization 55,000 109,000 172,000 241,000
Other (credits) charges
Interest expense - MEDIQ - 262,000 - 524,000
Interest expense - Other 79,000 49,000 251,000 115,000
Gain on sale of repossessed property (299,000) - (299,000) -
Gain on sales of extended care division assets (63,000) - (301,000) -
Loss on sale of assets 1,000 - 1,000 -
Other (23,000) 14,000 (26,000) (6,000)
--------------- ------------ ------------ -------------
Loss before income tax (1,495,000) (579,000) (2,148,000) (1,180,000)
Income tax expense 16,000 - 35,000 -
--------------- ------------ ------------ -------------
Net loss $ (1,511,000) $ (579,000) $(2,183,000) $ (1,180,000)
=============== ============ ============ =============
Loss per share:
Basic and diluted $ (0.43) $ (0.16) $ (0.62) $ (0.33)
=============== ============ ============ =============
Weighted average shares outstanding
3,538,000 3,525,000 3,538,000 3,523,000
=============== ============ ============ =============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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UNAUDITED
MARCH 31, 1999 SEPTEMBER 30, 1998
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Assets
Current assets:
Cash and cash equivalents $ 332,000 $ 54,000
Accounts receivable, net 848,000 2,706,000
Prepaid expenses 148,000 134,000
Estimated third party settlements 167,000 1,409,000
Repossessed property under contract for sale - 1,172,000
Other current assets 90,000 8,000
------------ ------------
Total current assets 1,585,000 5,483,000
Property, plant and equipment, Net 187,000 335,000
Restricted cash 192,000 526,000
Other intangibles, net - 431,000
Other assets 227,000 223,000
Goodwill, net 245,000 538,000
------------ ------------
$ 2,436,000 $ 7,536,000
============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 1,032,000 $ 444,000
Accrued expenses 468,000 746,000
Estimated third party payor settlements 333,000 967,000
Other accrued expenses 1,938,000 2,258,000
Note payable 211,000 2,000,000
Line of credit 500,000 500,000
Current maturities of long term debt 121,000 579,000
------------ ------------
Total current liabilities 4,603,000 7,494,000
Long term debt, less current maturities 150,000 176,000
Stockholders' deficit (2,317,000) (134,000)
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$ 2,436,000 $ 7,536,000
============ ============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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SIX MONTHS ENDED MARCH 31,
--------------------------
1999 1998
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Cash flows from operating activities
- ------------------------------------
Net loss $ (2,183,000) $ (1,180,000)
Adjustments to reconcile net loss to net cash
provided by in operating activities $ 2,077,000 $ 234,000
------------- -------------
Net cash provided used in operating activities $ (106,000) $ (946,000)
Cash flows from investing activities
- ------------------------------------
Proceeds from sales of extended care division assets $ 870,000
Proceeds from sale of repossessed property $ 1,470,000
Capital expenditures $ (13,000) $ (3,000)
Restricted cash $ 334,000
Other $ (4,000) $ (5,000)
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Net cash provided by (used in) investing activities $ 2,657,000 $ (8,000)
Cash flows from financing activities
- ------------------------------------
Borrowings, net $ 2,924,000 $ 641,000
Debt repayments $ (5,197,000) $ (79,000)
Other $ - $ 197,000
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Net cash provided by (used in) financing activities $ (2,273,000) $ 759,000
Increase (decrease) in cash and cash equivalents $ 278,000 $ (195,000)
Cash and cash equivalents
Beginning balance $ 54,000 $ 195,000
------------- -------------
Ending balance $ 332,000 $ -
============= =============
Supplemental disclosure of cash flow Information
Interest paid $ 251,000 $ 115,000
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Income taxes paid (refunded) $ - $ -
============= =============
Supplemental disclosure of non-cash investing and financing
Note receivable from sale of extended care division assets $ 150,000
=============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1. CONDENSED CONSOLDIATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1999, the
condensed consolidated statements of operations for the three and six-month
periods ended March 31, 1999 and 1998, and condensed consolidated statements of
cash flows for the six-month periods ended March 31, 1999 and 1998 have been
prepared by the Company, without audit. In the opinion of management, all
material adjustments (consisting only of normal, recurring adjustments)
necessary to present fairly the condensed consolidated financial position,
results of operations and cash flows as of March 31, 1999, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. For presentation purposes, certain
amounts presented for the six-month period and quarter ended March 31, 1998 were
reclassified to conform with the presentation for the six-month period and
quarter ended March 31, 1999. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1998. The results of operations for the period ended March
31, 1999 are not necessarily indicative of the operating results for the full
year.
NOTE 2. LIQUIDITY
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company has incurred aggregated net losses of $13,353,000 for the
three years and six months ended March 31, 1999, and had a stockholders' deficit
of $2,317,000 as of March 31, 1999. At March 31, 1999, the Company is in default
on one of its notes payable in the amount of $42,000 and is experiencing
difficulty in generating sufficient cash flows to meet its other obligations and
to sustain its operations. At March 31, 1999, current liabilities exceeded
current assets by $3,018,000. Such conditions raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result should the Company
be unable to continue as a going concern.
On March 8, 1999, the Company received $1,470,000 from the sale of a
hospital property that was reacquired by the Company on September 11, 1998 in a
foreclosure. The proceeds from this sale was used to reduce the $2,000,000 loan
the Company secured to fund its settlement with MEDIQ, Inc. On March 12, 1999,
the Company received $248,000 from net recoveries of cost report settlements
related to a freestanding hospital sold in 1996. These proceeds were also used
to reduce the $2,000,000 loan.
As a result of the Company's continued negative operating results and
reduced collections of accounts receivable from certain government-funded
payors, as well as other administrative delays by third party payors, the
Company has been experiencing
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difficulty generating sufficient cash flows from operations to meet its
obligations and sustain its operations. In an effort to improve this situation,
the Company divested itself of its unprofitable extended care operations, has
taken steps to reduce operating expenses, is attempting to raise additional
capital, and is working to improve its cash flows. Although the Company
continues to seek additional sources of debt and equity financing, given the
Company's financial condition it is unlikely that the Company's efforts will be
successful unless the Company is able to significantly reduce its operating
losses and raise additional working capital. The Company's liquidity could also
be improved by (i) the collection of additional outstanding receivables; (ii)
significant reductions in overhead; and (iii) obtaining additional capital
and/or financing sources. However, to date, the Company's efforts to improve
liquidity through these means have not been successful. There can be no
assurance that any of such events will occur or, if they do occur, that the
impact on cash flows will be sufficient to enable the Company to continue its
operations.
NOTE 3. DEBT
In October 1997, the Company borrowed an aggregate of $500,000 under a
line of credit with NationsBank, NA, which debt is guaranteed by certain
officers, directors and shareholders of the Company. The line of credit permits
maximum borrowings by the Company of $500,000, and bears interest at a rate 2.6%
above the Eurodollar rate. As of March 31, 1999, the Company had drawn the full
$500,000.
In July 1998, the Company settled its dispute with MEDIQ Inc., its former
parent for $3,000,000 in cash. The Company funded the $3,000,000 settlement
payment to MEDIQ by fully drawing on the NationsBank line of credit in the
amount of $500,000, drawing on a portion of the revolving line of credit with
HealthCare Financial Partners, amounting to $275,000, and receiving a loan from
HealthCare Financial Partners of $2,000,000. The Company's Directors and
Officers liability insurance paid the remaining $225,000 of this settlement.
The loan from HealthCare Financial Partners had a maturity of January 15,
1999, and an interest rate of prime plus 2%. In consideration of the loan, the
Company granted HealthCare Financial Partners five year warrants for 300,000
shares of stock exercisable at $.01 per share. Michael S. Pinkert, the Company's
President and Chief Executive Officer, has also guaranteed $800,000 of the
$2,000,000 HealthCare Financial Partners loan. For his guaranty, the Company
granted Mr. Pinkert ten year warrants for 145,000 shares of stock exercisable at
$.50 per share.
In January 1999, the Company negotiated an extension of the $2,000,000
loan with HealthCare Financial Partners until April 15, 1999. As of March 31,
1999, the outstanding loan balance was $211,000 which the Company paid in May
1999 from the collections of accounts receivable remaining from the divestiture
of operating units of Extended Care Services Subsidiary at December 31, 1998.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion addresses the financial condition of the Company
as of March 31, 1999 and the Company's results of operation for the three-month
and six-month periods then ended compared with the same periods last year. This
discussion should be read in conjunction with Management's Discussion and
Analysis section (pages 10-19) for the fiscal year ended September 30, 1998
included in the Company's Annual Report on Form 10-K
GENERAL
Historically, the Company has provided on-site behavioral health services
through its Correctional Services Subsidiary, Extended Care Services Subsidiary,
and provided inpatient psychiatric services through its Hospital Division. The
Company formed a Correctional Services Subsidiary in 1997 and in the fourth
quarter of 1997 secured contracts with the Tennessee and Georgia Departments of
Correction to provide behavioral health services on a capitated basis to the
inmates of those states' correctional systems. In the second quarter of 1999,
the Company was awarded a contract to provided similar services to the Broward
County, Florida Correctional Systems as a subcontractor to Prison Health System
who provides general healthcare services to the Broward facility. During fiscal
year 1998, the Company made the determination to focus its strategic growth
efforts on the Correctional Services Subsidiary and, during the first quarter of
fiscal year 1999, the Company sold most of the operations of its Extended Care
Services Subsidiary, which had been operating unprofitably. The Company's sole
remaining operation in the Extended Care Services Subsidiary is a capitated
contract to provide services to Medicaid beneficiaries residing in Georgia
nursing homes. The Company has been providing these services for the state since
1994. The current contract expires on June 30, 1999 and the Company has been
awarded a new one-year contract beginning July 1, 1999, with three successive
options to renew this contract for additional terms up to one fiscal year each.
Consistent with its strategy of focusing on the Correctional Services
Subsidiary, the Company sold two freestanding hospital facilities, Mountain
Crest, in the third quarter of 1998, and Oakview (which the Company initially
sold in 1996 and which was later reacquired by the Company by foreclosure), in
March 1999. With the sale of the Mountain Crest and Oakview hospital facilities,
the Company no longer owns or operates any freestanding hospital facilities.
Collectively, the sale of the Extended Care Services operations and the sale of
the Mountain Crest and Oakview facilities shall be called the "Divestiture".
Since the Divestiture, the Company continues to incur losses arising from
unanticipated expenses winding down those assets. For the six-month period ended
March 31, 1999, the operations that were sold during the first quarter of 1999
accounted
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for $2,500,000 of net revenues and $1,545,000 of loss before income taxes (net
of the gain of $301,000 from sale of these assets). Excluding assets that were
sold in the Divestiture, the Company would have had net revenues of $6,781,000
and a loss before income taxes of $638,000 for the six-month period ended March
31, 1999.
For the three-month period ended March 31, 1999, the Company recognized a
loss before income taxes of $1,495,000. The divested operations contributed
$617,000 to the second quarter loss before income taxes. Excluding the
operations that were sold in the Divestiture, the Company would have had net
revenues of $3,131,000 and a loss before income taxes of $894,000 for the
three-month period ended March 31, 1999.
Proceeds from the sales of the Company's inpatient facilities and certain
of its extended care operating units have provided the Company with sufficient
cash to fund the Company's working capital needs as the Company continues to
sustain operating losses. These losses have totaled $13,353,000 since October 1,
1995. Commencing on January 1, 1999, the Company expects that its remaining
operations will be profitable but it recognizes the level of profits will be
insufficient to cover all of the Company's general and administrative expenses.
Therefore, continuing operations will remain dependent upon the Company securing
additional contracts in the Company's Correctional Services Subsidiary and
obtaining additional working capital. No assurance can be provided that the
Company will be successful in securing additional contracts or obtaining
additional working capital. See, "Liquidity." The report of the Company's
independent auditors on the Company's audited consolidated financial statements
for the fiscal year ended September 30, 1998, includes an explanatory paragraph
which states that the Company's current financial condition raises substantial
doubt as to the Company's ability to continue as a going concern.
FINANCIAL POSITION - MARCH 31, 1999 COMPARED TO SEPTEMBER 30, 1998
The Company's stockholders' deficit increased to $ 2,317,000 at March 31,
1999 from $134,000 at September 30, 1998 which increase is attributable to the
Company's losses of $2,183,000 for the six months ended March 31, 1999. Total
current assets were $1,585,000 at March 31, 1999 as compared to $5,483,000 at
September 30, 1999. The decrease of $3,898,000 was mainly due to the sale of the
Oakview hospital facility (repossessed property under contract for sale), the
collection of accounts receivable, and the settlements of estimated third party
payor receivables. Noncurrent assets also decreased significantly since
September 30, 1998 primarily due to the sale of Extended Care Services assets.
Total current liabilities were $4,603,000 at March 31, 1999 as compared to
$7,494,000 at September 30, 1999. This decrease of $2,891,000 was mainly due to
principal repayments made on the Company's line of credit and other notes
payable as well as payments to settle estimated third party payor liabilities.
As presented in the accompanying Condensed Consolidated Statement of Cash
Flows, the Company's cash balance increased from $54,000 at September 30, 1998
to $332,000 at March 31, 1999. The Company has a deficit in working capital at
March 31, 1999 of $3,018,000, which represents an increase of $1,007,000 from
the deficit at
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September 30, 1998 of $2,011,000. The increase is primarily attributed to
operating losses for the six months ended March 31, 1999 which was partially
offset by the gains from the sales of certain assets of the Company's Extended
Care Services Subsidiary and repossessed property under contract for sale.
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998
Net revenues for the six-month period ended March 31, 1999 were
$9,281,000, a decrease of 42% as compared to $16,023,000 in net revenues for the
six-month period ended March 31, 1998. This decrease in revenue is the direct
result of the Company's Divestiture. The Correctional Services Subsidiary
generated revenues of $5,538,000 for the six-month period ending March 31, 1999
as compared to $5,425,000 for the six-month period ending March 31, 1998. The
Extended Care Services Subsidiary generated revenues of $4,263,000 for the
six-month period ending March 31, 1999 as compared to $8,013,000 for the
six-month period ending March 31, 1998. During the first six-months of 1999, the
Hospital Division recorded net revenues of ($520,000) from cost report
settlements of hospitals which were divested in 1996, as compared to $2,585,000
from Mountain Crest Hospital, the only operating facility in fiscal year 1998,
generating net revenues in the six-month period ending March 31, 1998.
Operating expenses for the six-month period ended March 31, 1999 were
$7,570,000, a decrease of 29% as compared to $10,732,000 for the six-month
period ended March 31, 1998. This decrease was primarily attributable to the
Divestiture. The Correctional Services Subsidiary had operating expenses of
$4,887,000 for the six-months period ended March 31, 1999 as compared to
$4,883,000 for the six-month period ended March 31, 1998. The Extended Care
Services Subsidiary had operating expenses of $2,683,000 for the six-month
period ended March 31, 1999 as compared to $4,300,000 for the six-month period
ended March 31, 1998. The Company's divested freestanding facility, Mountain
Crest, generated operating expenses of $1,549,000 for the six-month period
ending March 31, 1998.
General and administrative expenses for the six-month period ended
March 31, 1999 were $2,945,000, a decrease of 33% as compared to $4,380,000 from
the six-month period ended March 31,1998. This decrease is also attributable to
the Divestiture. The Correctional Services Subsidiary had general and
administrative expenses of $277,000 for the six-month period ended March 31,
1999 as compared to $206,000 for the six-month period ended March 31, 1998. The
Extended Care Services Subsidiary had general and administrative expenses of
$1,485,000 for the six-month period ended March 31, 1999 as compared to
$2,174,000 for the six-month period ended March 31, 1998. The Company's divested
freestanding facility, Mountain Crest, and other freestanding facilities, had
expenses of ($42,000) as of March 31, 1999 as compared to charges of $821,000
for the six- month period ending March 31, 1998. Corporate general and
administrative expenses were $1,225,000 for the six-month period ended March 31,
1999 as compared to $1,179,000 for the six-month period ended March 31, 1998.
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The provision for bad debts was $1,116,000 for the six-month period ended
March 31, 1999 as compared to $1,217,000 for the six-month period ended March
31, 1998. As a percentage of net revenues, bad debt expense was 12% for the
six-month period ended March 31, 1999, compared to 8% in the prior year period.
The increase in the provision for bad debts as a percentage of net revenues was
primarily attributable to the management's projections of the net realizable
value of outstanding accounts receivable from divested Extended Care Services
operations.
Depreciation and amortization expenses were $172,000 for the six-month
period ended March 31, 1999 as compared to $241,000 in the six-month period
ended March 31, 1998.
Interest expense for the six-month period ended March 31, 1999 totaled
$251,000 as compared to $639,000 for the six-month period ended March 31, 1998.
Interest expense incurred in the six-month period of 1999 relates to interest on
the Company's six-month loan and lines of credit. Of such expense in the
six-month period of 1998, $524,000 related to interest expense due the Company's
former parent, MEDIQ.
In December 1998 the Company sold certain unprofitable operating units of
its extended care operations and recorded a one-time gain of $238,000. The gain
was increased by the Company experiencing fewer shut down costs related to
closing the majority of the extended care operation than previously estimated.
This resulted in an increase of the previously reported gain of $238,000 to
$301,000.
During the six-month period ended March 31, 1999, the Company recognized a
one-time gain of $299,000 from the sale of Oakview and $301,000 from its
divestiture of certain operations of its Extended Care Services Subsidiary. The
Company recognized a loss of $1,000 from the disposal of certain fixed assets
during the relocation of its corporate office during March 1999.
The Company recognized other credits of $26,000 in the six-month period
ended March 31, 1999 compared to $6,000 in the six-month period ended March 31,
1998 as a result of interest income on invested cash balances.
As a result of the foregoing, the Company recognized a net loss of
$2,183,000 during the six-month period ended March 31, 1999, compared to a net
loss of $1,180,000 for the six month period ended March 31, 1998. Operating
results in the 1999 period were adversely affected by the operations of the
Company's Extended Care Services Subsidiary, which continued to operate
unprofitably during the first quarter of 1999. Operating losses relating to this
subsidiary were $1,545,000, net of the gain on the sales of $301,000. As
mentioned earlier, with the Divestiture, the Company is focusing on growth
opportunities for its Correctional Services Subsidiary. However, there can be no
assurance that the Company will be successful in its efforts to secure
additional contracts
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in its Correctional Services Subsidiary or reduce expenses in its Correctional
Services Subsidiary and the remaining operations of the Extended Care Services
Subsidiary to offset corporate overhead costs and operate profitably.
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998
Net revenues for the second quarter ended March 31, 1999 were $3,412,000,
a decrease of 55% as compared to $7,560,000 for the second quarter ended March
31, 1998. The decrease is attributable to the Company's Divestiture. The
Correctional Services Subsidiary generated revenues of $2,771,000 for the second
quarter of 1999 as compared to $2,692,000 for the second quarter of 1998. The
Extended Care Services Subsidiary generated revenues of $1,161,000 for the
second quarter 1999 as compared to $3,642,000 for the second quarter 1998.
During the second quarter of 1999, the Hospital Division recorded net revenues
of ($520,000) from cost report settlements of hospitals which were divested in
1996, as compared to $1,226,000 from Mountain Crest, the only operating hospital
facility in fiscal year 1998, generating net revenues in the second quarter of
1998.
Operating expenses for the second quarter ended March 31, 1999 were
$3,420,000, a decrease of 23% as compared to $4,425,000 for the second quarter
ended March 31, 1998. Again, the decrease is attributable to the Divestiture.
The Correctional Services Subsidiary had operating expenses of $2,468,000 for
the second quarter of 1999 as compared to $2,398,000 for the second quarter of
1998. The Extended Care Services Subsidiary had operating expenses of $952,000
in the second quarter of 1999 as compared to $1,272,000 for the second quarter
of 1998. Mountain Crest generated operating expenses of $755,000 for the second
quarter of 1998.
General and administrative expenses for the second quarter ended
March 31, 1999 were $1,344,000, a decrease of 53% as compared to $2,841,000 for
the second quarter ended March 31, 1998, which decrease was primarily caused by
the Divestiture. The Correctional Services Subsidiary had general and
administrative expenses of $139,000 for the second quarter of 1999 as compared
to $153,000 for the second quarter of 1998. The Extended Care Services
Subsidiary had general and administrative expenses of $614,000 in the second
quarter of 1999 as compared to $1,649,000 for the second quarter of 1998.
Mountain Crest and other freestanding facilities generated expenses of ($85,000)
during the second quarter of 1999 as compared to expenses of $437,000 for the
second quarter of 1998. Corporate general and administrative expenses were
$676,000 for the second quarter of 1999; an increase of 12% as compared to
$602,000 for the second quarter 1998. The increase was caused largely by the
relocation of the corporate office and marketing costs incurred in the second
quarter of 1999.
The provision for bad debts was $393,000 for the second quarter of 1999 as
compared to $439,000 in the second quarter of 1998. The decrease is attributable
to the Divestiture.
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Depreciation and amortization expenses were $55,000 for the second quarter
of 1999 as compared to $109,000 in the second quarter of 1998.
Interest expense for the second quarter ended March 31, 1999 was $79,000
as compared to $311,000 for the three-month period ended March 31, 1998.
Interest expense incurred in the second quarter of 1999 relates to interest on
the Company's six-month loan and lines of credit. Of such expense in the second
quarter of 1998, $262,000 was related to interest expense due to the Company's
former parent, MEDIQ.
The Company recognized a one-time gain of $299,000 from the sale of
Oakview (repossessed property under contract for sale) in March 1999. In
December 1998 the Company sold certain unprofitable operating units of its
extended care operations and recorded a one-time gain of $238,000. The gain was
increased by the Company experiencing lower shut down costs related to closing
the majority of the extended care operation than previously estimated. This
resulted in an increase of the previously reported gain by $63,000. The Company
recognized a loss of $1,000 from the disposal of certain fixed assets during the
relocation of its corporate office.
The Company recognized other credits of $23,000 in the second quarter
ended March 31, 1999 compared to $14,000 in charges in the second quarter ended
March 31, 1998. The credit in 1999 is the result of interest income on invested
cash balances.
As a result of the foregoing, the Company recognized a net loss of
$1,511,000 during the second quarter of 1999, compared to a net loss of $579,000
for the second quarter of 1998. Operating results in the second quarter of 1999
were adversely affected by shut down costs of the divested operations of the
Company's Extended Care Services Subsidiary which contributed $617,000 to the
second quarter net loss. Also, an unfavorable cost report settlement for
divested freestanding hospitals contributed $520,000 to the net loss of the
second quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operating losses through a combination of the
proceeds derived from the sale of operating units and through borrowed funds.
The Company had utilized a revolving credit facility for its Extended Care
Services Subsidiary, which was paid from collections of accounts receivable
remaining from the divested operating units during the second quarter of 1999.
In addition, as of March 31 1999, the Company has a fully utilized $500,000 line
of credit which certain officers, directors and shareholders have guaranteed,
and an outstanding loan with HealthCare Financial Partners of $211,000. The
Company intends to repay the remaining $211,000 balance on the loan and the
$500,000 line of credit primarily from collections of accounts receivable
remaining from the divestiture of operating units of the Extended Care Services
Subsidiary. The Company is currently negotiating a $2,000,000 revolving credit
14
<PAGE> 15
facility for its Correctional Services Subsidiary and for the operations
remaining in its Extended Care Services Subsidiary with Capital Healthcare
Financing a lender that specializes in financing for healthcare facilities and
providers. There is no assurance that an agreement will be reached.
In addition to the anticipated revolving credit facility, the Company
anticipates that it will continue to maintain its borrowing capacity under the
$500,000 line of credit although this cannot be assured. The $2,000,000
revolving credit facility and the $500,000 line of credit alone, however, will
not be sufficient to fund the Company's working capital needs. The Company
realizes that to sustain its operations, additional correctional service
contracts will be required and that even if such additional contracts are
obtained, additional working capital may be necessary to fund operating expenses
until the additional contracts produce contributions to the Company's cash flow.
The Company further recognizes that it has exhausted its ability to obtain
working capital from proceeds obtained upon the disposition of operating units
which are no longer part of the Company's strategic focus. As the Company seeks
to obtain additional contracts in its Correctional Services Subsidiary, it will
attempt to accelerate the collection of receivables and reduce the level of
expenses. No assurance can be provided, however, that any of the Company's
efforts to improve its current financial condition will be successful or that
the Company will be able to continue in business.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in various other legal proceedings incidental to
its business, some of which may be covered by insurance. The Company knows of no
new litigation, either pending or threatened, which is likely to have a material
adverse effect on the Company's consolidated financial statements.
<TABLE>
<S> <C>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
Form 8-K filed January 15, 1999
Form 8-K/A filed March 16, 1999.
</TABLE>
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated May 17, 1999 MHM Services, Inc.
/s/ CLEVELAND E. SLADE
Vice President and Chief
Financial Officer
17
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 332
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<ALLOWANCES> (4,494)
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0
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