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 June 30, 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 August 9th, 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 June 30, 1996 and September 30, 1995 3-4
Statements of Operations
for the three months and nine months ended June 30, 1996
and 1995 5
Statements of Cash Flows
for the nine months ended June 30, 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
* 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.
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AGES HEALTH SERVICES INC.
Balance Sheets
(Unaudited)
June 30 September 30,
1996 1995*
- -----------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 240,592 $ 126,878
U.S. Treasury Notes 1,972,305 1,965,470
Accounts receivable, less allowance for
uncollectible accounts of $312,683 and $350,000 2,298,039 1,885,125
Prepaid expenses 73,593 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 4,614,529 4,090,155
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Property and equipment, net of accumulated
depreciation of $215,985 and $166,842 203,472 223,522
- --------------------------------------------------------------------------------
Other Assets:
Covenant not to compete - 335,800
Nursing home affiliation - 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 59,957 584,184
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2,099 44,872
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Long-term note receivable related to discontinued
operations, less current portion 17,752 20,000
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$4,837,852 $4,378,549
================================================================================
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Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $2,142,572 $1,662,257
Accounts payable 277,981 110,815
Accrued expenses 568,072 507,549
Current portion of long-term debt and loans
payable 170,044 132,405
- --------------------------------------------------------------------------------
Total current liabilities 3,158,669 2,413,026
Long-term debt and loans payable, less current
portion 353,171 397,398
Deferred income taxes 25,000 25,000
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Total liabilities 3,536,840 2,835,424
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Stockholders' 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 (2,297,190) (2,048,320)
Unrealized loss on marketable securities (27,695) (34,452)
- --------------------------------------------------------------------------------
Total stockholders' equity 1,301,012 1,543,125
- --------------------------------------------------------------------------------
$4,837,852 $4,378,549
================================================================================
See accompanying notes to financial statements.
<F*> The balance sheet at September 30, 1995 has been derived from the audited
financial statements at that date. All other information is unaudited.
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AGES HEALTH SERVICES INC.
Statements of Operations
(Unaudited)
For the three months For the nine months
ended June 30, ended June 30,
- ----------------------------------------------------------------------------------------------------
1996 1995 1996 1995
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Net patient service revenue $1,571,160 $1,862,614 $5,508,459 $5,075,972
Cost of patient services 1,268,934 1,522,167 4,032,722 4,051,094
- ----------------------------------------------------------------------------------------------------
Gross profit on patient services 302,226 340,447 1,475,737 1,024,878
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General and administrative expenses 497,934 575,816 1,571,657 1,801,488
Amortization of acquisition-related costs 3,288 23,197 42,772 71,295
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Operating expenses 501,222 599,013 1,614,429 1,872,783
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Operating income (loss) (198,996) (258,566) (138,692) (847,905)
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Interest expense (income), net 32,376 19,251 76,352 32,921
- ----------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before taxes on income
(credit) (231,372) (277,817) (215,044) (880,826)
- ----------------------------------------------------------------------------------------------------
Taxes on income 8,109 878 8,109 878
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Income (loss) from continuing
operations (239,481) (278,695) (223,153) (881,704)
- ----------------------------------------------------------------------------------------------------
Discontinued operations:
Loss from operations - (81,674) - (256,093)
Loss on disposal - - (3,217) -
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Loss from discontinued operations 0 (81,674) (3,217) (256,093)
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Net income (loss) (239,481) (360,369) (226,370) (1,137,797)
- ----------------------------------------------------------------------------------------------------
Preferred stock dividends (7,500) (7,500) (22,500) (22,500)
- ----------------------------------------------------------------------------------------------------
Net income (loss) applicable to common
stock ($ 246,981) ($ 367,869) ($ 248,870) ($1,160,297)
====================================================================================================
Income (loss) per share of common stock:
Income (loss) from continuing operations ($.10) ($.11) ($.10) ($.35)
Loss from discontinued operations - ($.03) ($.00) ($.10)
Net income (loss) per share of common stock ($.10) ($.14) ($.10) ($.45)
====================================================================================================
Weighted average number of shares of
common stock outstanding 2,580,100 2,580,100 2,580,100 2,580,100
See accompanying notes to financial statements.
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AGES HEALTH SERVICES INC.
Statements of Cash Flows
(Unaudited)
For the nine months
ended June 30,
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) ($ 226,370) ($1,137,797)
Adjustments to reconcile net income (loss)
to net cash used for operating activities:
Depreciation and amortization 91,916 115,014
Provision for losses on accounts receivable 137,733 200,668
Deferred consulting costs 24,000 24,000
Refundable Income Taxes - 93,845
Gain on sale of marketable securities (78) -
Changes in operating assets and liabilites:
Accounts receivable (550,647) (409,485)
Prepaid expense (14,911) 58,265
Accounts payable 154,666 (6,532)
Accrued expenses 60,523 236,980
- --------------------------------------------------------------------------------
Net cash used for operating activities (323,168) (825,042)
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of marketable securities 1,000,078 -
Purchase of marketable securities (1,000,078) -
Purchase of property and equipment (29,093) (97,472)
Organization costs capitalized - (6,934)
Principal payments from note receivable 2,248 -
- --------------------------------------------------------------------------------
Net cash used for investing activities (26,845) (104,406)
- --------------------------------------------------------------------------------
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Cash flows from financing activities
Proceeds from short-term borrowings 480,315 1,172,878
Payments of notes to affiliate - (198,000)
Principal payments on other notes payable (6,588) (19,709)
Dividends paid on preferred stock (10,000) (22,500)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 463,727 932,669
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 113,714 3,221
Cash and cash equivalents, beginning of period 126,878 81,505
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 240,592 $ 84,726
================================================================================
See accompanying notes to financial statements.
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AGES HEALTH SERVICES INC.
Notes to Financial Statements
1. Basis of Presentation
The financial statements as of June 30, 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 nine months ended June 30, 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 June 30, 1996 unrealized losses pertaining to
the U.S. Treasury Notes amounted to $27,695, and the Company realized a $78
gain on the rollover of two $500,000 strips of U.S. Treasury Notes which
matured in January and May of 1996. The U.S. Treasury Notes bear annual
interest rates ranging between 4.375% and 5.125% with maturity dates between
November 1996 and October 1998.
3. Short-Term Borrowings
Short-term borrowings at June 30, 1996 of $1,867,572 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 (8.375% at June 30, 1996). The U.S. Treasury
Notes are subject to a lien for discharge of the borrowings. Short-term
borrowings at June 30, 1996 of $275,000 are collateralized by the Company's
accounts receivable. Interest is charged at a prime rate of interest as
determined by NationsBank, N.A., + 3% (11.25% at June 30, 1996). Accounts
receivable 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 June 30, 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 nine months ended June 30, 1995 or 1996 in the
accompanying statements of operations.
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5. Net Loss Per Share of Common Stock
Net loss per share of Common Stock is computed by dividing net 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 nine months ended June
30, follows:
1996 1995
----------------------------------------------------
Interest $87,928 $79,010
Income taxes $ 8,109 $ -0-
A supplemental schedule of noncash investing and financing activities
for the nine months ended June 30, follows:
1996 1995
- ----------------------------------------------------------------
Preferred Stock dividends accrued $12,500 $ -0-
Unrealized loss on marketable securities $27,695 $34,452
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.
-9-
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 June 30, 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 June 30, 1996. Net patient service
revenues applicable to discontinued operations were $-0- and $72,987 for the
three months ended June 30, 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 $212,494 for the nine months ended
June 30, 1996 and 1995 respectively.
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AGES HEALTH SERVICES INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
During the nine months ended June 30, 1996 (first three quarters of
Fiscal 1996), the Company required cash of $323,168 to fund operating
activities as a result primarily of the increase in accounts receivable of
$550,647 which was offset partially by an increase in accounts payable of
$154,666. The increase in accounts receivable is attributed to expanded
levels of service in Connecticut and Rhode Island, to changes in
Massachusetts Medicaid's managed care contract, 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 and Medicaid billing and managed care 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 $29,093 in property and equipment
during the nine months ended June 30, 1996, primarily related to computer
hardware. The Company's operating cash requirements, equipment purchases
and debt repayment were funded in part by proceeds from short-term borrowing
of $480,315.
The Company's working capital was $1,455,860 at June 30, 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 has secured a $300,000 line of credit based on its accounts
receivable to provide additional financing for Fiscal 1996. At June 30,
1996, the Company had borrowed $275,000 against the line.
Results of Operations
Net patient service revenues for the three months ended June 30
decreased from Fiscal 1995 to Fiscal 1996 by $291,454 (15.6%). The decrease
is due to a 24.2% drop in service volume, primarily for services to
geriatric long-term care facilities in Massachusetts. However, net patient
service revenues for the nine months ended June 30 increased from Fiscal
1995 to Fiscal 1996 by $432,487 (8.5%) due to expansion of nongeriatric
outpatient services, which increased 165%.
The Company's cost of patient services as a percentage of net patient
service revenues decreased from 81.7% and 79.8% for the three months and
nine months ending June 30, 1995, to 80.8% and 73.2% for the three months
and nine months ending June 30, 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. However, the
cost of service in the three months ended June 30, 1996 was over 80% due to
increased program management for nursing and psychology services, and for
utilization review and treatment planning initiatives undertaken to prepare
for recertification of the Massachusetts clinic license issued by the
Department of Public Health.
-11-
General and administrative expenses as a percentage of net patient
service revenues rose from Fiscal 1995 to Fiscal 1996 from 30.9% to 31.7%
for the three months ended June 30. The increased burden is due to the
drop in supporting revenues for the quarter. The same general and
administrative expense burden for the nine months ended June 30 shows a
decrease from 35.5% of revenues in Fiscal 1995 to 28.5% in Fiscal 1996. The
higher general and administrative cost burden in 1995 primarily relates to
start-up costs for non-geriatric outpatient services and for services to
geriatric long-term care facilities in Connecticut and Rhode Island.
The Company's interest expense, net of interest income, increased by
$43,976 during the first nine 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 ($248,870) or
($.10) per share for the nine months ended June 30, 1996 compared to a net
loss of ($1,160,297) or ($.45) per share for the same period of Fiscal 1995.
Of the loss in Fiscal 1995, $256,093 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
None.
Item 5. Other Matters
None.
-12-
Item 6. Exhibits and Reports on Form 8 - K
(a) Exhibits -- none
(b) Reports on Form 8 - K -- none
-13-
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)
Date August 14, 1996 /s/ Henry Goodhue
Henry Goodhue
Controller
(principal financial officer)
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