-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Dlk6NFXDAhUQrjSvB4TuejAX11/WNJXVxzJ0z+/r+6tafvtXMbP3CjNnVrFRtflY t2GpLeJ8vKV3tNjUzc36qQ== 0001005477-96-000522.txt : 19961120 0001005477-96-000522.hdr.sgml : 19961120 ACCESSION NUMBER: 0001005477-96-000522 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961118 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED HEALTH CORP CENTRAL INDEX KEY: 0001002628 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 133832365 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21209 FILM NUMBER: 96668699 BUSINESS ADDRESS: STREET 1: 560 WHITE PLAINS RD STREET 2: 2ND FL CITY: TARRYTOWN STATE: NY ZIP: 10591 BUSINESS PHONE: 9143326688 MAIL ADDRESS: STREET 1: 560 WHITE PLAINS RD STREET 2: 2ND FLOOR CITY: TARRYTOWN STATE: NY ZIP: 10591 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (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 For the Transition period ______________ to _____________. Commission File Number: 0-21209 ADVANCED HEALTH CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-3893841 (State or other jurisdiction of (IRS Employer incorporation or organization Identification No.) 555 White Plains Road Tarrytown, New York 10591 (Address of principal executive offices, including zip code) (914) 524-4200 (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 |_| No |X| As of November 18, 1996, there were 7,145,267 shares outstanding of the registrant's Common Stock, $.01 par value. ================================================================================ ADVANCED HEALTH CORPORATION INDEX PART I - FINANCIAL INFORMATION Page No. - -------------------------------------------------------------------------------- ITEM 1. Consolidated Financial Statements Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 ........................... 1 Consolidated Statements of Operations - Three and nine months ended September 30, 1996 and 1995 ............ 2 Consolidated Statements of Cash Flows - Nine months ended September 30, 1996 and 1995 ...................... 3 Notes to Consolidated Financial Statements ......................... 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................ 6 PART II - OTHER INFORMATION - --------------------------- SIGNATURES ................................................................. 9 PART I. -- FINANCIAL INFORMATION - -------------------------------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ADVANCED HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 ------------ ------------ (unaudited) ASSETS CURRENT ASSETS: Cash $ 58,925 $ 1,464,427 Accounts receivable 4,684,092 1,020,558 Note receivable -- 125,000 Prepaid expenses and deferred registration costs 655,290 278,305 ------------ ------------ Total current assets 5,398,307 2,888,290 PROPERTY AND EQUIPMENT, net 1,571,410 1,538,898 DEFERRED INCOME TAXES, net of valuation allowance of $4,658,408 and $3,506,540, respectively -- -- INTANGIBLE ASSETS, net 1,884,725 1,875,611 OTHER ASSETS 146,258 159,112 ------------ ------------ Total assets $ 9,000,700 $ 6,461,911 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 1,754,383 $ 1,312,571 Accrued expenses 1,324,218 407,241 Due to affiliate 67,105 -- Deferred revenue 675,000 1,500,000 Promissory notes 5,025,500 -- Loan payable related to acquisitions -- 150,000 Current portion of capital lease obligations 133,867 259,805 ------------ ------------ Total current liabilities 8,980,073 3,629,617 ------------ ------------ CAPITAL LEASE OBLIGATIONS 170,106 157,254 ------------ ------------ Total liabilities 9,150,179 3,786,871 ------------ ------------ COMMITMENTS SHAREHOLDERS' EQUITY (DEFICIT) Preferred stock, $.01 par value, 5,000,000 shares authorized Series A Convertible Preferred Stock, $.01 par value; 971,800 shares authorized; 0 and 971,800 shares issued and outstanding, respectively -- 9,718 Series B Convertible Preferred Stock, $.01 par value; 282,900 shares authorized; 0 and 282,900 shares issued and outstanding, respectively -- 2,829 Series C Convertible Preferred Stock, $.01 par value; 200,000 shares authorized; 0 and 200,000 shares issued and outstanding, respectively -- 2,000 Series D Convertible Preferred Stock, $.01 par value; 666,360 shares authorized; 0 and 666,360 shares issued and outstanding, respectively -- 6,664 Common stock, $.01 par value; 15,000,000 shares authorized; 4,500,267 and 2,595,649 shares issued and outstanding, respectively 45,003 25,957 Additional paid-in capital 11,526,538 11,479,223 Accumulated deficit (11,646,020) (8,776,351) Less: Treasury stock, at cost (8,937 and 8,937 shares, respectively (75,000) (75,000) ---------------------------- Total shareholders' equity (deficit) (149,479) 2,675,040 ---------------------------- Total liabilities and shareholders' equity (deficit) $ 9,000,700 $ 6,461,911 ============================
The accompanying notes are an integral part of these consolidated statements. (1) ADVANCED HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended For the Nine Months Ended ---------------------------- ---------------------------- September 30, September 30, September 30, September 30, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ REVENUE $ 1,121,518 $ 252,518 $ 3,227,580 $ 352,518 REVENUE FROM MSOs 3,433,639 -- 8,944,641 -- ------------------------------------------------------------ Total Revenues 4,555,157 252,518 12,172,221 352,518 COST OF SALES 2,452,127 14,502 5,963,914 36,324 ------------------------------------------------------------ Gross profit 2,103,030 238,016 6,208,307 316,194 OPERATING EXPENSES 2,052,602 793,508 6,086,104 1,410,011 RESEARCH AND DEVELOPMENT EXPENSES 968,367 889,868 2,843,355 2,401,549 ------------------------------------------------------------ Operating (loss) (917,939) (1,445,360) (2,721,152) (3,495,366) OTHER INCOME (EXPENSE), net (94,889) (3,125) (148,517) (1,784) ------------------------------------------------------------ Net (loss) $ (1,012,828) $ (1,448,485) $ (2,869,669) $ (3,497,150) ============================================================ PER SHARE INFORMATION Net loss per share $ (0.20) $ (0.34) $ (0.57) $ (0.98) Weighted average common shares outstanding (in thousands) 4,996 4,296 4,993 3,591
The accompanying notes are an integral part of these consolidated statements. (2) ADVANCED HEALTH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended ---------------------------- September 30, September 30, 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) $ (2,869,669) $ (3,497,150) Adjustments to reconcile net (loss) to net cash used in operating activities -- Depreciation and amortization 713,305 264,319 Changes in operating assets and liabilities Accounts receivable (3,686,840) (82,330) Note receivable 125,000 -- Prepaids and deferred registration costs (353,679) (9,487) Other assets 12,854 (9,096) Accounts payable 441,812 29,213 Accrued expenses 916,977 (119,345) Due to affiliate 67,105 (680,891) Deferred revenue (825,000) 1,000,000 ---------------------------- Net cash used in operating activities (5,458,135) (3,104,767) ---------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net purchase price of acquisitions (45,000) (548,790) Purchases of property and equipment, net (664,931) (327,219) ---------------------------- Net cash used in investing activities (709,931) (876,009) ---------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: (Repayment of) proceeds from loans payable related to acquisitions (150,000) 100,000 Net proceeds from sale and issuance of common stock 150 7,280,531 Net proceeds from promissory notes 5,025,500 -- Repayment of capital lease obligations (113,086) (71,534) ---------------------------- Net cash provided by financing activities 4,762,564 7,308,997 ---------------------------- Net change in cash (1,405,502) 3,328,221 CASH, beginning of period 1,464,427 6,903 ---------------------------- CASH, end of period $ 58,925 $ 3,335,124 ============================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 151,250 $ 1,119 Income taxes $ 0 $ 0
The accompanying notes are an integral part of these consolidated statements. (3) ADVANCED HEALTH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 (in thousands, except per share data) (unaudited) 1. Reference is made to the Notes to Consolidated Financial Statements contained in the Company's December 31, 1995 audited consolidated financial statements included in the Company's Prospectus dated October 3, 1996 as filed with the Securities and Exchange Commission. In the opinion of Management, the interim unaudited financial statements included herein reflect all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of such data on a basis consistent with that of the audited data presented therein. The Company believes that its historical results of operations from period to period are not comparable and that such results are not necessarily indicative of results for any future period because the Company was a development stage company investing in technology development and did not provide significant physician practice and network management services prior to December 11, 1995. 2. Effective October 2, 1996, the Company completed an initial public offering of its common stock (including the exercise of the underwriters' over-allotment option). In the offering, the Company sold 2,645,000 shares of common stock at an initial public offering price of $13.00 per share. 3. The Company used a portion of the proceeds of the initial public offering to repay bridge financing of which $5,025,000 was outstanding at September 30, 1996. The supplementary net loss per share for the three and nine months ended September 30, 1996 (unaudited) which follows gives supplemental effect to the issuance of 386,538 shares of common stock for the entire period during which the related bridge financing was outstanding, which is the number of shares issued in the initial public offering, the proceeds of which were used to repay the $5,025,500 outstanding at September 30, 1996, as well as to the effect of the reduction of related interest expense in these periods. These shares are presumed outstanding for supplementary purposed only, and were neither issued nor outstanding for any purpose during the three and nine months ended September 30, 1996. Three Months Nine Months ------------ ----------- Supplementary net loss per share ($0.17) ($0.51) Supplementary weighted average common shares outstanding 5,384,364 5,296,490 (4) 4. The following reflects selected consolidated balance sheet data, at September 30, 1996, as adjusted to reflect the sale of common stock from the Company's initial public offering and the exercise of the underwriters' over-allotment option: (In thousands) September 30, 1996 ------------------ Actual As Adjusted ------ ----------- Cash $ 59 $27,037 Working capital (deficit) (3,582) 27,716 Total assets 9,001 35,469 Total debt 5,329 319 Total shareholders' equity (149) 31,318 5. Net loss per share on a fully-diluted basis (which assumes a treasury stock method weighted average number of common shares outstanding that includes options, warrants and contingent warrants) was ($0.19) and ($0.55) for the three and nine months ended September 30, 1996. This data, although used by the Company for benchmarking and other purposes, has not been presented on the face of the consolidated statements of operations as it is (ii) anti-dilutive and (ii) not in accordance with generally accepted accounting principles. (5) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Overview Advanced Health Corporation (the "Company") provides a full range of integrated management services and clinical information systems to physician group practices and physician networks. The Company generates revenues from (i) fees for managing and providing consulting services to physician group practices, (ii) fees for managing physician networks and (iii) fees for use and support of its clinical information systems, including recurring license, software installation, software integration, training and data conversion fees. The Company contracts with its physician practice and network management clients pursuant to long term agreements with its MSOs, the results of which MSOs are consolidated in the Consolidated Financial Statements. To date, the Company has been dependent on a small number of contracts to generate the majority of its revenues. The Company expects that the concentration of its revenues will be reduced as the Company enters into additional contracts to provide management services and clinical information systems to physician organizations. Results of Operations Three Months Ended September 30, 1996 and 1995 Net revenue for the three months ended September 30, 1996 increased to $4.6 million from $.3 million in the comparable period ended September 30, 1995, primarily as a result of the initiation of the Company's group practice and network management services. The Company began providing network management services in September 1995 and physician group practice management and related services in December 1995. The provision of physician group practice management and related services and network management services accounted for approximately $3.8 million of the Company's net revenue for the three months ended September 30, 1996 as compared to $.1 million in the comparable period ended September 30, 1995. The Company earned fees for the use and support of its clinical information systems, including the recognition of license revenues and software and training revenues, of approximately $.8 million for the three months ended September 30, 1996, as compared to $.2 million in the comparable period ended September 30, 1995. Cost of sales for the three months ended September 30, 1996 increased to $2.5 million from approximately $15,000 for the comparable period ended September 30, 1995. The increase in cost of sales related primarily to the non-medical and system expenses outsourced to the Company from physician group practices under management. Operating expenses for the three months ended September 30, 1996 increased to $2.1 million from $.8 million for the comparable period ended September 30, 1995. The increase in operating expenses reflected expenses related to the provision of physician group practice management services for the three months ended September 30, 1996 whereas the Company was not providing such services for the comparable period ended September 30, 1995. Research and development expenses for the three months ended September 30, 1996 increased to $1.0 million from $.9 million for the comparable period ended September 30, 1995, due to an increase in the Company's development activities for its clinical information systems. (6) Other expense for the three months ended September 30, 1996 was $.1 million and related to interest on capital lease obligations and interest on $3.0 million and $2.0 million of indebtedness issued as of June 20, 1996, bearing interest at 8% and 9% respectively. The Company incurred interest expense of approximately $3,000 for the comparable period ended September 30, 1995, primarily with respect to capital leases. The net loss for the three months ended September 30, 1996 was $1.0 million compared to a loss of $1.4 million for the three months ended September 30, 1995 due to the factors described above. Nine Months Ended September 30, 1996 and 1995 Net revenue for the nine months ended September 30, 1996 increased to $12.2 million from $.4 million in the comparable period ended September 30, 1995, primarily as a result of the initiation of the Company's group practice and network management services. The provision of physician group practice management and related services and network management services accounted for approximately $9.9 million of the Company's net revenue for the nine months ended September 30, 1996 as compared to $.1 million in the comparable period ended September 30, 1995. The Company earned fees for the use and support of its clinical information systems, including the recognition of license revenues and software and training revenues, of approximately $2.3 million for the nine months ended September 30, 1996, as compared to $.3 million in the comparable period ended September 30, 1995. Cost of sales for the nine months ended September 30, 1996 increased to $6.0 million from approximately $36,000 for the comparable period ended September 30, 1995. The increase in cost of sales related primarily to the non-medical outsourced expenses and system sale-related expenses to the Company from physician group practices under management. Operating expenses for the nine months ended September 30, 1996 increased to $6.1 million from $1.4 for the comparable period ended September 30, 1995. The increase in operating expenses reflected expenses related to the provision of physician group practice management services for the nine months ended September 30, 1996 whereas the Company was not providing such services for the comparable period ended September 30, 1995. Research and development expenses for the nine months ended September 30, 1996 increased to $2.8 million from $2.4 million for the comparable period ended September 30, 1995, due to an increase in the Company's development activities for its clinical information systems. Other expense for the nine months ended September 30, 1996 was $.1 million and related to interest on capital lease obligations and interest on $3.0 million and $2.0 million of indebtedness issued as of June 20, 1996, bearing interest at 8% and 9% respectively. The Company incurred interest expense of approximately $2,000 for the comparable period ended September 30, 1995. The net loss for the nine months ended September 30, 1996 was $2.9 million compared to a loss of $3.5 million for the nine months ended September 30, 1995 due to the factors described above. (7) As of September 30, 1996, the Company had net operating loss carryforwards ("NOLs") available to offset future book and taxable income of approximately $11.6 million and $9.1 million, respectively, which expire through 2010. The difference between the book and tax NOLs relates principally to the differences between book and tax accounting with respect to start-up costs, depreciation of fixed assets, amortization of intangible assets and recognition of deferred revenue. The book income tax benefits of $4.7 million and $3.5 million as of September 30, 1996 and December 31, 1995, respectively, have been fully reserved due to the uncertainty of their future realization. Liquidity and Capital Resources Effective October 2, 1996, the Company completed its initial public offering raising net proceeds to the Company of approximately $31 million net of expenses from the sale of $2,645,000 shares of Common Stock, including the underwriters' over-allotment option. Prior to its initial public offering and since its inception, the Company financed its capital requirements through the sale of equity and debt securities. The Company issued three 8% promissory notes in the principal amounts of $1.5 million, $.75 million and $.75 million on February 28, April 26 and June 28, 1996, respectively. The Company issued six 9% promissory notes in the aggregate principal amount of $2.0 million on June 19 and August 13, 1996. All such notes were repaid in October 1996 using proceeds from the initial public offering. For the nine months ended September 30, 1996, the Company had negative cash flow from its operating activities of $5.5 million, compared with $3.1 for the comparable period ended September 30, 1995. Net cash used in investing activities was $.7 million for the nine months ended September 30, 1996 compared with $.9 million for the comparable period ended September 30, 1995. Net cash provided by financing activities was $4.8 million for the nine months ended September 30, 1996 and related to the issuance of debt securities. Net cash provided by financing activities for the nine months ended September 30, 1995 was $7.3 million, principally attributable to the private placement of equity securities. The Company's operating plan for the remainder of 1996 and for the first two quarters of 1997 includes continued development of the Company's integrated management services and clinical information systems. The principal categories of expenditures include research and development of the Company's clinical information systems as well as ongoing business development and marketing. The Company believes that the proceeds of the initial public offering, cash on hand, interest income and revenues from operations will be sufficient to fund planned operations of the Company through at least the end of 1998. The Company has no planned material capital expenditures or capital commitments. (8) 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. November 18, 1996 ADVANCED HEALTH CORPORATION By: /s/ Jonathan Edelson --------------------------- Jonathan Edelson, M.D. Chairman of the Board and Chief Executive Officer (Principal Executive Officer) By: /s/ Alan B. Masarek --------------------------- Alan B. Masarek Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer) (9) -----END PRIVACY-ENHANCED MESSAGE-----