SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission file number
September 30, 1997 0-15586
GHS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1373960
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1350 Piccard Drive Suite 360, Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 417-9808
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 3, 1997
----- --------------------------------
Common Stock, $.01 par value 6,979,160 Shares
PART I
FINANCIAL INFORMATION
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
---- ----
Current assets:
Cash $ 1,616,000 $ 159,000
Accounts receivable, net of allowance 569,000 994,000
for doubtful accounts of $281,000 in
1997 and 164,000 in 1996
Unbilled accounts receivable -- 31,000
Other current assets 22,000 86,000
----------- -----------
Total current assets $ 2,207,000 $ 1,270,000
Furniture and equipment, net -- 77,000
Software development costs -- 180,000
Other assets 187,000 198,000
Deferred tax asset -- 463,000
Gamma Knife venture assets:
Gamma Knife 4,419,000 1,933,000
Progress payment- Gamma Knife -- 2,610,000
Costs incurred in connection with
unamortized leasehold interest 2,038,000 954,000
Deposits -- 43,000
Cash held in escrow 117,000 907,000
TOTAL $ 8,968,000 $ 8,635,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 31,000 $ 845,000
Loan payable-Gamma Knife-current portion -- 63,000
Obligation under capital lease -Gamma Knife- current portion 876,000 592,000
Demand loan -- 525,000
Equipment 162,000 69,000
----------- -----------
Total current liabilities 1,069,000 2,094,000
Obligation under capital lease
Gamma Knife 3,995,000 1,132,000
Equipment 249,000 265,000
Loan payable - Gamma Knife -- 2,547,000
Common stock - par value $.01: 500,000
shares issued with put option 500,000 500,000
Stockholders' equity:
Common stock - $.01 par value -
25,000,000 shares authorized;
6,979,160 and 6,947,828
issued and outstanding
in 1997 and 1996 66,000 65,000
Additional paid-in capital 3,113,000 3,082,000
Retained Earnings (Deficit) (24,000) (1,050,000)
----------- -----------
Total stockholders' equity $ 3,155,000 $ 2,097,000
----------- -----------
TOTAL $ 8,968,000 $ 8,635,000
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
2
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
--------------------------
1997 1996
---- ----
Revenue:
Patient Revenue $ 501,000 $ 343,000
Income from joint venture -- 100,000
----------- -----------
Total $ 501,000 $ 443,000
Expenses:
Patient Expenses $ 256,000 $ 204,000
Selling, General and Administrative 287,000 72,000
----------- -----------
Total 543,000 276,000
Income (loss) before items listed below $ (42,000) $ 167,000
Interest expense (172,000) (178,000)
Interest income 21,000 --
----------- -----------
Income (loss) from continuing operations (193,000) (11,000)
----------- -----------
Discontinued operations
Income (loss) from operations (204,000) 132,000
Gain on disposal 1,460,000 --
Subtotal 1,256,000 132,000
----------- -----------
Minority Interest -- 4,000
----------- -----------
Net Income 1,063,000 125,000
Net Income per share $ .15 $ .02
=========== ===========
Weighted average shares outstanding 6,979,160 6,947,828
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
3
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
---------------------------
1997 1996
---- ----
Revenue:
Patient Revenue $ 1,267,000 $ 1,056,000
Income from joint venture -- 100,000
----------- -----------
Total $ 1,267,000 $ 1,156,000
Expenses:
Patient Expenses $ 625,000 $ 623,000
Selling, General and Administrative 338,000 101,000
----------- -----------
Total 963,000 724,000
Income (loss) before items listed below $ 304,000 $ 432,000
Interest expense (338,000) (418,000)
Interest income 39,000 --
----------- -----------
Income from continuing operations 5,000 14,000
----------- -----------
Discontinued operations
Income (loss) from operations (439,000) 78,000
Gain on disposal 1,460,000 --
----------- -----------
Subtotal 1,021,000 78,000
----------- -----------
Minority Interest -- 2,000
----------- -----------
Net Income 1,026,000 94,000
Net Income per share $ .15 $ .01
=========== ===========
Weighted average shares outstanding 6,979,160 6,947,828
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
4
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30
-----------------------
1997 1996
---- ----
Cash flows from operating activities:
Continuing operations
Net Income $ 5,000 $ 14,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization: 494,000 338,000
Minority Interest in net gain of consolidated subsidiary -- 2,000
Increase to allowance for bad debts 116,000 --
Changes in operating assets and liabilities:
Decrease in cash held in escrow 795,000 --
Decrease in deposits 43,000 --
Net increase(decrease) in receivables, payables and
other assets 131,000 (36,000)
----------- ---------
Net cash provided by continuing operations 1,584,000 316,000
Discontinued operations
Net Income (loss) (439,000) 78,000
Noncash items included in income (loss)
Depreciation and amortization 96,000 131,000
Net Increase (decrease) in receivables, payables and
other assets (362,000) 97,000
----------- ---------
Net cash provided (used in) discontinued operations (705,000) 306,000
Cash flows from investing activities :
Furniture and Equipment Purchases (24,000) (32,000)
Software Development Costs of discontinued operations -- (50,000)
Investment in Joint Venture -- (155,000)
Return of Deposit on Gamma Knife -- 190,000
Cost Incurred with Leasehold improvements (1,127,000) (50,000)
Proceeds received from sale of subsidiaries 2,146,000 --
----------- ---------
Net cash provided by (used in) investing activities 995,000 (97,000)
Cash flows from financing activities:
Payment of capital lease obligations (567,000) (381,000)
Proceeds of equipment lease obligations 150,000 --
Payments of notes payable -- (100,000)
Payment to loan officer -- (20,000)
----------- ---------
Net cash (used in) financing activities (417,000) (501,000)
Net Increase in cash and cash equivalents 1,457,000 26,000
Cash and cash equivalents - beginning of period 159,000 198,000
----------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD 1,616,000 $ 224,000
=========== =========
Supplemental disclosures of noncash financing activities:
Loan payable - Gamma Knife (525,000) --
Lease payable - Gamma Knife 815,000 --
The accompanying notes to financial statements are an integral part hereof.
5
GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Preparation
The accompanying financial statements at September 30, 1997, for the
three and nine months ended September 30, 1997 and 1996, are unaudited. However,
in the opinion of management, such statements include all adjustments necessary
to a fair statement of the information presented therein. The balance sheet at
December 31, 1996 has been derived from the audited financial statements at that
date appearing in the Company's Annual Report on Form 10-K.
Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
financial statements and these notes do not include all disclosures required by
generally accepted accounting principles for complete financial statements.
Accordingly, these statements should be read in conjunction with the Company's
most recent annual financial statements.
Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.
6
GHS, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND
ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
The following discussion and analysis provides information which the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein.
On July 15, 1997, the Company completed the sale of two subsidiaries, Global
Health Systems and GHS Management Services to Health Management Systems, Inc.
for $2,146,000. As a result the Company is left with assets related to US
Neurosurgical (USN), a wholly owned subsidiary, which operates two Gamma Knives,
a 20% equity interest in Florida Specialty Network, Ltd., and the proceeds from
the sale.
Third Quarter 1997 Compared to Third Quarter 1996 and Nine Months Ended
September 30, 1997 Compared to Nine Months Ended September 30, 1996
Results of Operations
Patient revenue increased 46% to $501,000 from $343,000 for the quarter ended
September 30, 1997. The increase was due to an increase in the number of
procedures from the Midwest Gamma Knife Center and additional procedures
performed due to the opening of the NYU Gamma Knife Center. The first patient
was treated at NYU Center at the end of July 1997. Revenue for the nine months
ended September 30, increased 20% to $1,267,000 from $1,056,000 in the same
period, a year earlier.
Patient expenses increased 25% to $256,000 from $204,000 a year earlier. This
increase is due to the opening of the NYU Gamma Knife Center. For the nine
months ended September 30, patient expenses were $625,000 as compared to
$623,000 a year earlier. Selling, general and administrative expense increased
to $287,000 from $72,000 for the quarter ended September 30. This increase was
due to an increase to the allowance for doubtful accounts of $116,000 and costs
related to the opening of the NYU Gamma Knife. The Company retained all of the
receivables and payables of Global Health Systems. For the nine months ended
September 30 S,G&A was $338,000 as compared to $101,000 for the same period a
year earlier.
For the quarter ended September 30, the loss from continuing operations was
$193,000 as compared to a loss of $11,000 for the same period a year earlier.
Interest, increased depreciation and amortization were the reasons for the loss.
The loss from discontinued operations was $204,000. The gain on disposal of the
subsidiaries was $1,460,000. As a result net income was $1,063,000 for the
quarter ended September 30, 1997. For the nine months ended September 30, income
from continuing operations was $5,000. The loss from discontinued operations was
$439,000. Net income for the nine months ended September 30, 1997 was
$1,026,000.
7
Liquidity and Capital Resources
At September 30, 1997 the Company had working capital of $1,138,000 as compared
to $259,000 at September 30, 1996. The increase in working capital is primarily
from the proceeds of the sale of the subsidiaries. Cash and cash equivalents at
September 30, 1997 was $1,616,000 as compared with $224,000 at September 30,
1996.
Net cash provided by operating activities of continuing operations was
$1,584,000 as compared with $316,000 for the same period, a year earlier.
Depreciation expense on the Gamma Knife and amortization on the leasehold
improvements have increased due to the fact that the NYU Gamma Knife was placed
into service during the quarter. As a result of the NYU Gamma Knife Center the
cash held in escrow was released.
Net cash used in discontinued operations was $705,000 as compared to net cash
provided by discontinued operations of $306,000, a year earlier. The net loss
from Global Health Systems was $439,000 for the nine months ended September 30,
1997.
Net cash provided by investing activities was $995,000 as compared to net cash
used in investing activities of $97,000 at September 30, 1996. The increase was
due to the sale of the two subsidiaries realizing proceeds of $2,146,000 less
the cost of leasehold improvements related to the NYU Gamma Knife of $1,127,000.
Net cash used in financing activities was $417,000 as compared to $501,000 for
the same period a year earlier. The Company paid $567,000 towards its lease
obligations and received proceeds of $150,000 to complete the NYU Gamma Knife
project.
This document contains forward-looking statements. Such statements by their
nature entail various risks, reflecting the dynamic, complex, and rapidly
changing nature of the health care industry. Results actually achieved may
differ materially from those currently anticipated. The various risks include
but are not necessarily limited to: (i) the continued ability of GHS to grow
internally or by acquisition, (ii) the success experienced in integrating
acquired businesses into the GHS group of companies, (iii) government regulatory
and political pressures which could reduce the rate of growth of health care
expenditures, (iv) competitive actions by other companies, and (v) other risks,
as noted in GHS's registration statements and periodic reports filed with the
Commission.
8
PART II
OTHER INFORMATION
GHS, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
During the quarter, GHS, Inc. ("GHS"), commenced an action for declaratory
relief (the "Complaint") against A. Hyman Kirshenbaum ("Kirshenbaum") and Jerry
Brown ("Brown") (collectively the "Defendants") in the United States District
Court for the District of Maryland, Southern Division. The complaint seeks a
declaration that GHS is entitled to purchase the Defendants' 20% interest in
U.S. Neurological, Inc. ("U.S. Neuro"), a subsidiary of GHS, for $38,763.41 or
in exchange for 38,782 shares of GHS stock. These numbers were derived pursuant
to an equation set forth in a purchase/option agreement signed by the Defendants
on or about August 2, 1993. The Defendants have rejected these numbers and
allege that, based on their own calculations, their 20% interest in U.S. Neuro
is worth at least $584,497.00. Accordingly, GHS brought suit for a declaration
that its offer to the Defendants is consistent with the purchase/option
agreement and is fair and equitable.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) On July 18, 1997, the Company filed a form 8-K dated July 15,
1997. GHS, Inc.(GHSI) announced the sale to Health Management
Systems, Inc.(HMSY) of the assets of GHSI's subsidiaries,
Global Health Systems, Inc. and GHS Management Services, Inc.
for $2,146,000, which amount includes certain closing
adjustments.
9
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.
GHS, INC.
Date November 12, 1997 By /s/ Alan Gold
--------------------------------- ----------------------------
Alan Gold
Director and President
Chief Executive Officer
10