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
June 30, 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 August 03, 1998
----- ------------------------------
Common Stock, $.01 par value 6,979,160 Shares
PART I
FINANCIAL INFORMATION
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1998 1997
---- ----
Current assets:
Cash and cash equivalents $ 2,140,000 $ 3,466,000
Certificates of deposit-at cost which approximates market 1,411,000 400,000
Accounts receivable 216,000 209,000
Other current assets 218,000 51,000
Net current assets - discontinued operations 4,000 43,000
----------- -----------
Total current assets $ 3,989,000 $ 4,169,000
Furniture & Fixtures 28,000 --
Computers & Equipment 35,000 --
Gamma Knife (net of accumulated depreciation of 4,368,000 4,830,000
2,097,000 in 1998 and 1,636,000 in 1997 )
Leasehold improvements (net of accumulated 1,546,000 1,624,000
amortization of 296,000 in 1998 and 198,000 in 1997)
Cash held in escrow 91,000 89,000
Other assets 3,000 --
TOTAL $10,060,000 $10,712,000
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 244,000 $ 149,000
Obligations under capital lease
and loans payable- current portion 1,402,000 1,195,000
----------- -----------
Total current liabilities 1,646,000 1,344,000
Deferred tax liability 450,000 450,000
Obligations under capital lease and loans payable
Net of current portion 3,366,000 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 919,000 1,022,000
----------- -----------
Total stockholders' equity $ 4,098,000 $ 4,201,000
----------- -----------
TOTAL $10,060,000 $10,712,000
----------- -----------
The accompanying notes to financial statements are an integral part hereof.
2
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30,
--------
1998 1997
---- ----
Revenue:
Patient Revenue $ 675,000 $ 378,000
----------- -----------
Expenses:
Patient Expenses $ 358,000 $ 167,000
Selling, General and Administrative 316,000 81,000
----------- -----------
Total 674,000 248,000
----------- -----------
Income (loss) before items listed below $ 1,000 $ 130,000
Interest expense (143,000) (65,000)
Interest income 38,000 5,000
----------- -----------
Income (loss) from continuing operations (104,000) 70,000
----------- -----------
Discontinued operations
Loss from operations -- (149,000)
Net Loss (104,000) (79,000)
Basic and diluted income (loss) per share $ (.02) $ .01
----------- -----------
Weighted average shares outstanding 6,979,160 6,971,327
----------- -----------
The accompanying notes to financial statements are an integral part hereof.
3
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30,
--------
1998 1997
---- ----
Revenue:
Patient Revenue $ 1,263,000 $ 766,000
----------- -----------
Expenses:
Patient Expenses $ 691,000 $ 369,000
Selling, General and Administrative 467,000 158,000
----------- -----------
Total 1,158,000 527,000
----------- -----------
Income (loss) before items listed below $ 105,000 $ 239,000
Interest expense (295,000) (166,000)
Interest income 87,000 18,000
-----------
Income (loss) from continuing operations (103,000) 91,000
----------- -----------
Discontinued operations
Loss from operations -- (135,000)
Net Loss (103,000) (44,000)
Basic and diluted income (loss) per share $ (.01) $ (.01)
----------- -----------
Weighted average shares outstanding 6,979,160 6,971,327
----------- -----------
The accompanying notes to financial statements are an integral part hereof.
4
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
--------
1998 1997
---- ----
Cash flows from operating activities:
Income (loss) from continuing operations $ (103,000) $ 91,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization: 562,000 320,000
Changes in operating assets and liabilities:
(Increase) decrease in cash held in escrow (2,000) 644,000
(Increase) decrease in deposits (3,000) 43,000
(Increase) decrease in receivables (7,000) 17,000
(Increase) decrease in other assets (165,000)
(Decrease) increase in payables and accrued expenses 95,000 (35,000)
Cash provided by (used in) discontinued operations 39,000 (15,000)
----------- -----------
Net cash provided by operating activities 416,000 1,065,000
Cash flows from investing activities :
Furniture and Equipment Purchases (66,000) --
Purchase of certificates of deposit (1,011,000) --
Cost Incurred with Leasehold improvements (21,000) (913,000)
Cash used in discontinued operations -- (34,000)
----------- -----------
Net cash (used in) investing activities (1,098,000) (947,000)
Cash flows from financing activities:
Payment of capital lease obligations (644,000) (356,000)
Proceeds of equipment lease obligations -- 150,000
----------- -----------
Net cash provided by (used in) financing activities (644,000) (206,000)
Net (decrease) in cash and cash equivalents (1,326,000) (88,000)
Cash and cash equivalents - beginning of period 3,466,000 159,000
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,140,000 $ 71,000
----------- -----------
Supplemental disclosures of cash flow information:
Cash paid for
Interest 295,000 166,000
Taxes 243,000 --
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 June 30 1998, for the three
months ended June 30, 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.
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.
Second Quarter 1998 Compared to Second Quarter 1997 and Six Months Ended June
30, 1998 Compared to Six Months Ended June 30, 1997
Results of Operations
Patient revenue increased 78% to $675,000 for the quarter ended June 30, 1998 as
compared to $378,000 for the same period in 1997. The increase was due to an
increase in the number of Gamma Knife procedures and additional revenue from the
NYU Gamma Knife Center. The Company is increasing its presence at the two
facilities that it manages, as more physicians are becoming familiar with the
Gamma Knife and its capabilities. Patient expenses increased 114% to $358,000
from $167,000 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 $316,000 from $81,000
for the quarter ended June 30. The increase was due to legal fees incurred by
the Company for its litigation with A. Hyman Kirshenbaum and Jerry Brown. The
amount of these fees were $100,000. Interest expense increased to $143,000 from
$65,000 in the same period a year earlier. The increase was related to the
second Gamma Knife lease at NYU. Interest income was $38,000 for the quarter as
compared to $5,000 in the previous year. The increase in is due to the Company's
sale of its Systems business and its interest in its equity investee, Florida
Specialty Networks, Ltd. ("FSN"). The Company paid $50,000 in income tax during
the quarter related to the sale of its FSN interest. For the quarter ended June
30, the loss from continuing operations was $104,000 as compared to income of
$70,000 for the same period a year earlier.
For the six months ended June 30, revenue increased 65% to $1,263,000 from
$766,000 in the same period a year earlier. Patient expenses increased 87% to
$691,000 from $369,000 for the period. S,G & A increased to $467,000 as compared
to $158,000 a year earlier. Interest expense increased to $295,000 from $166,000
in the same period a year ago. The reasons for the increases in these expenses
are the same as in the previous section. Interest income increased to $87,000
from $18,000 for the six months ended June 30.
The Company had a loss from discontinued operations of $135,000 for the six
months ended June 30, 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 the net loss was $44,000 for the six
months ended June 30, 1997, as compared to $103,000 for the six months ended
June 30, 1998.
Liquidity and Capital Resources
At March 31, 1998 the Company had working capital of $2,343,000 as compared to
working capital of $2,825,000 at December 31, 1997. The decrease in working
capital is
7
primarily from prepayment of state and federal income taxes. Cash and cash
equivalents at June 30 1998 was $2,140,000 as compared with $3,466,000 at
December 31, 1997.
Net cash provided by operating activities was $416,000 as compared with
$1,065,000 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.
Depreciation and amortization increased to $562,000 from $320,000 in the six
months ended June 30. A decrease in cash held in escrow of $644,000 for the
completion of the NYU center made up a large portion of the 1997 activity.
The Company had net cash used in investing activities of $1,098,000 as compared
to $947,000 at June 30, 1997. The Company made purchases of $1,011,000 of
certificates of deposit. In the previous year the Company incurred $913,000 of
leasehold improvements related to the NYU Gamma Knife.
Net cash used in financing activities was $644,000 as compared to net cash
provided by financing activities of $206,000 for the same period a year earlier.
The Company paid $644,000 towards its lease obligations as compared to $356,000
in the previous year.
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 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
9
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 August 05, 1998 By /s/ Alan Gold
------------------------- ------------------------------
Alan Gold
Director and President
Chief Executive
Officer
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