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
March 31, 1998 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.)
2400 Research Blvd, Suite 325, Rockville, Maryland 20850
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 208-8998
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 May 11, 1998
----- ---------------------------
Common Stock, $.01 par value 6,979,160 Shares
PART I
FINANCIAL INFORMATION
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 2,961,000 $ 3,466,000
Certificates of deposit-at cost which
approximates market 700,000 400,000
Accounts receivable 167,000 209,000
Other current assets 227,000 51,000
Net current assets - discontinued operations 10,000 43,000
----------- -----------
Total current assets $ 4,065,000 $ 4,169,000
Computers & Equipment 6,000 --
Gamma Knife (net of accumulated depreciation of 4,598,000 4,830,000
1,867,000 in 1998 and 1,070,000 in 1997)
Leasehold improvements (net of accumulated 1,581,000 1,624,000
amortization of 246,000 in 1998 and
91,000 in 1997)
Cash held in escrow 90,000 89,000
Other assets 2,000 --
TOTAL $10,342,000 $10,712,000
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 103,000 $ 149,000
Obligations under capital lease
and loans payable- current portion 1,310,000 1,195,000
----------- -----------
Total current liabilities 1,413,000 1,344,000
Deferred tax liability 450,000 450,000
Obligations under capital lease and loans
payable
Net of current portion 3,777,000 4,217,000
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 6,971,327
issued and outstanding
in 1998 and 1997 65,000 65,000
Additional paid-in capital 3,114,000 3,114,000
Retained Earnings 1,023,000 1,022,000
----------- -----------
Total stockholders' equity $ 4,202,000 $ 4,201,000
----------- -----------
TOTAL $10,342,000 $10,712,000
----------- -----------
The accompanying notes to financial statements are an integral part hereof.
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GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
---------
1998 1997
---- ----
Revenue:
Patient Revenue $ 588,000 $ 388,000
----------- -----------
Expenses:
Patient Expenses $ 333,000 $ 187,000
Selling, General and Administrative 151,000 77,000
----------- -----------
Total 484,000 264,000
----------- -----------
Income (loss) before items listed below $ 104,000 $ 124,000
Interest expense (152,000) (107,000)
Interest income 49,000 --
----------- -----------
Income from continuing operations 1,000 17,000
----------- -----------
Discontinued operations
Income from operations -- 68,000
Net Income 1,000 85,000
Basic and diluted income per share $ -- $ .01
----------- -----------
Weighted average shares outstanding 6,979,160 6,971,327
----------- -----------
The accompanying notes to financial statements are an integral part hereof.
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GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31
--------
1998 1997
---- ----
Cash flows from operating activities:
Income from continuing operations $ 1,000 $ 17,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization: 282,000 114,000
Changes in operating assets and liabilities:
(Increase) decrease in cash held in escrow (1,000) 411,000
Decrease in deposits -- 43,000
(Increase) decrease in receivables 42,000 (9,000)
(Increase) decrease in other assets (178,000)
(Decrease) increase in payables and accrued expenses (46,000) (95,000)
Cash provided by (used in) discontinued operations 33,000 (181,000)
----------- -----------
Net cash provided by operating activities 133,000 350,000
Cash flows from investing activities :
Furniture and Equipment Purchases (6,000) --
Purchase of certificates of deposit (300,000) --
Cost Incurred with Leasehold improvements (7,000) (383,000)
Cash used in discontinued operations -- (8,000)
----------- -----------
Net cash (used in) investing activities (313,000) (391,000)
Cash flows from financing activities:
Lease payable - Gamma Knife -- 100,000
Payment of capital lease obligations (325,000) (82,000)
----------- -----------
Net cash provided by (used in) financing activities (325,000) 18,000
Net (decrease) in cash and cash equivalents (505,000) (23,000)
Cash and cash equivalents - beginning of period 3,466,000 159,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,961,000 $ 136,000
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for
Interest 152,000 101,000
Taxes 193,000 --
Supplemental disclosures of non-cash financing activities:
Loan payable - Gamma Knife -- (525,000)
Lease payable - Gamma Knife -- 525,000
The accompanying notes to financial statements are an integral part hereof.
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GHS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note A - Basis of Preparation
The accompanying financial statements at March 31 1998, for the three
months ended March 31, 1998 and 1997, 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, 1997 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.
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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.
First Quarter 1998 Compared to First Quarter 1997
Results of Operations
Patient revenue increased 52% to $588,000 from $388,000 for the quarter ended
March 31, 1998. The increase was due to an increase in the number of Gamma Knife
procedures and additional revenue from the NYU Gamma Knife Center. Patient
expenses increased 78% to $333,000 from $187,000 a year earlier. This increase
is mainly because of increased depreciation and amortization due to the NYU
equipment and improvements. Selling, general and administrative expense
increased to $151,000 from $77,000 for the quarter ended March 31. The increase
was due to legal fees incurred by the Company for its litigation with A. Hyman
Kirshenbaum and Jerry Brown. Interest expense increased 42% to $152,000 from
$107,000 in the same period a year earlier. The increase was related to the
second Gamma Knife lease at NYU. The increase in interest income is due to the
Company's sale of its Systems business and its interest in its equity investee,
Florida Specialty Networks, Ltd. ("FSN"). For the quarter ended March 31, income
from continuing operations was $1,000 as compared to $17,000 for the same period
a year earlier.
The Company had income from discontinued operations of $68,000 for the quarter
ended March 31, 1997 due to the Systems business which was operated through its
subsidiaries, formerly known as Global Health Systems, Inc. and GHS Management
Services, Inc. The Company sold substantially all the assets of these
subsidiaries during July 1997. As a result net income was $85,000 for the
quarter ended March 31, 1997, as compared to $1,000 for the quarter ended March
31, 1998.
Liquidity and Capital Resources
At March 31, 1998 the Company had working capital of $2,652,000 as compared to a
working capital deficit of $824,000 at March 31, 1997. The increase in working
capital is primarily from the proceeds of the sale of the assets of its
subsidiaries and the sale of its partnership interest in FSN. Cash and cash
equivalents at March 31, 1998 was $2,961,000 as compared with $136,000 at March
31, 1997.
Net cash provided by operating activities was $133,000 as compared with $350,000
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 past year.
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The Company had net cash used in investing activities of $313,000 as compared to
$391,000 at March 31, 1997. The Company made purchases of $300,000 of
certificates of deposit. In the previous year the Company incurred $383,000 of
leasehold improvements related to the NYU Gamma Knife.
Net cash used in financing activities was $325,000 as compared to net cash
provided by financing activities of $18,000 for the same period a year earlier.
The Company paid $325,000 towards its lease obligations as compared to $82,000
in the previous year. As a result of the commencement of the NYU operation the
Company had two capital lease obligations therefore increasing the lease
obligation by $243,000.
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.
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PART II
OTHER INFORMATION
GHS, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
In 1993, pursuant to an agreement (the "USN Agreement") between the Company and
A. Hyman Kirshenbaum, M.D. ("Kirshenbaum") and Jerry Brown, Ph.D ("Brown") , the
Company, among other things, granted an aggregate 20% interest in USN to Brown
and Kirshenbaum. In addition, following the execution of the USN agreement,
Kirshenbaum was appointed as an officer of USN and Brown was appointed to the
Company's Board of Directors and executed an employment agreement with USN.
Under the terms of the USN Agreement, the Company possessed the right to
repurchase for cash or Common Stock such 20% interest during each of the third
through sixth full fiscal years of the USN Agreement. The Company exercised its
right to repurchase the 20% interest in USN in September 1996 at a value of
$38,781.40, which value was calculated by the Company in accordance with the
terms of the USN Agreement. Such valuation was disputed by Brown and
Kirshenbaum.
In June 1997, the Company instituted an action (the "Declaratory Action")
in the United States District Court of Maryland, Southern Division against
Kirshenbaum and Brown seeking a declaration from the Court that its repurchase
of Brown's and Kirshenbaum's 20% interest in USN for $38,781.40 was fair and
equitable. Because of the dispute between the Company and Brown and Kirshenbaum
on the valuation of their 20% in USN, the Company filed the Declaratory Action
to determine: (1) whether the Company's repurchase is proper; (2) whether the
valuation of Brown's and Kirshenbaum's 20% interest in USN is just and fair; (3)
whether Brown's and Kirshenbaum's valuation of their 20% interest in USN is
improper. If successful in this action, the Company will be entitled to purchase
Brown's and Kirshenbaum's 20% interest for $38,781.40 or 38,782 shares of Common
Stock. If unsuccessful, the Company may be required to purchase Brown's and
Kirshenbaum's interests in USN for approximately $584,497.
In response to the Declaratory Action, Brown and Kirshenbaum filed a
counterclaim and third party claim against the Company, USN and others,
including Alan Gold. The counterclaim against the Company and third party claim
against USN and the other parties is purportedly for violations of : (1) the
RICO statutes (18 U.S.C. ss1962(c) and (d)) ; (2) various causes of action for
fraud ; and (3) various causes of action for breach of contract. The RICO and
fraud counts seek damages of not less than $9 million per count and also seek
the imposition of treble damages for RICO and punitive damages for the fraud
counts. The breach of contract counts range from $250,000 to $600,000. The
claims of RICO and fraud arise out of an alleged conspiracy between the
8
Company and other parties to missappropriate a business concept allegedly
created by Brown and Kirshenbaum. The remainder of Brown's and Kirshenbaum's
claims are in the nature of a breach of contract between the Company, USN and
Brown and Kirshenbaum.
The Company intends to vigorously pursue its claim in the Declaratory
Action. However, no evaluation of the likelihood of a favorable or unfavorable
outcome can be made at this time. In addition, the Company and USN intend to
vigorously defend Brown's and Kirshenbaum's counterclaim and third party claims.
In addition to the above-described federal court action, Brown has filed a
state court action in the District Court in and for Montgomery County, Maryland
against USN and other parties seeking breach of contract damages for lost
salary, unreimbursed expenses and for consequential damages and costs arising
out of what he claims to be an improper termination from USN. Brown seeks
approximately $381,000 for lost salary and $36,000 for unreimbursed expenses in
addition to the consequential damages and treble damages he seeks under his
various counts of his Complaint. USN has and continues to vigorously defend this
action. Because the case is in the initial pleading stages, no evaluation of the
likelihood of an unfavorable outcome can be made at this time.
Item 6. Exhibits and Reports on Form 8-K
(a) None
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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 May 12, 1998 By /s/ Alan Gold
---------------------------- ----------------------------
Alan Gold
Director and President
Chief Executive
Officer
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