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, 1999 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, 1999
----- ---------------------------
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,
1999 1998
---- ----
Current assets:
Cash and cash equivalents $2,659,000 $2,063,000
Certificates of deposit-at cost which approximates market 1,100,000 1,305,000
Accounts receivable 399,000 238,000
Receivable from sale of discontinued operation -- 494,000
Other current assets 108,000 110,000
---------- ----------
Total current assets $4,266,000 $4,210,000
Furniture & Equipment (net of accumulated
depreciation of 12,000 in 1999 and 9,000 in 1998) 56,000 56,000
Gamma Knife (net of accumulated depreciation of
2,791,000 in 1999 and 2,560,000 in 1998) 3,675,000 3,906,000
Leasehold improvements (net of accumulated
amortization of 444,000 in 1999 and 395,000 in 1998) 1,398,000 1,447,000
---------- ----------
Total property and equipment 5,129,000 5,409,000
Deferred tax asset 260,000 260,000
Cash held in escrow 93,000 92,000
Deposits 3,000 3,000
TOTAL $9,751,000 $9,974,000
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 273,000 $ 182,000
Accrued litigation settlement 934,000 934,000
Obligations under capital lease
and loans payable- current portion 1,473,000 1,423,000
Income tax payable -- 67,000
---------- ----------
Total current liabilities 2,680,000 2,606,000
Deferred tax liability 450,000 450,000
Obligations under capital lease and loans payable
Net of current portion 2,293,000 2,794,000
Common stock - par value $.01: 375,000 in 1999
500,000 in 1998 shares issued with put option 375,000 500,000
Stockholders' equity:
Common stock - $.01 par value -
25,000,000 shares authorized;
6,979,160 issued and outstanding
in 1999 and 1998 66,000 65,000
Additional paid-in capital 3,238,000 3,114,000
Retained Earnings 649,000 445,000
---------- ----------
Total stockholders' equity $3,953,000 $3,624,000
---------- ----------
TOTAL $9,751,000 $9,974,000
---------- ----------
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,
---------
1999 1998
---- ----
Revenue:
Patient Revenue $ 940,000 $ 588,000
---------- ----------
Expenses:
Patient Expenses $ 343,000 $ 333,000
Selling, General and Administrative 323,000 151,000
---------- ----------
Total 666,000 484,000
---------- ----------
Income (loss) before items listed below $ 274,000 $ 104,000
Interest expense (116,000) (152,000)
Interest income 46,000 49,000
---------- ----------
Income from continuing operations 204,000 1,000
---------- ----------
Net Income 204,000 1,000
Basic and diluted income per share $ .03 --
---------- ----------
Weighted average shares outstanding 6,979,160 6,979,160
---------- ----------
The accompanying notes to financial statements are an integral part hereof.
3
GHS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
---------
1999 1998
---- ----
Cash flows from operating activities:
Income from continuing operations $ 204,000 $ 1,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization: 283,000 282,000
Changes in operating assets and liabilities:
(Increase) decrease in cash held in escrow (1,000) (1,000)
(Increase) decrease in receivables (161,000) 42,000
(Increase) decrease in other assets 2,000 (178,000)
(Decrease) increase in payables and accrued expenses 91,000 (46,000)
(Decrease) increase income taxes payable (67,000) --
Cash provided by (used in) discontinued operations 494,000 (33,000)
---------- ----------
Net cash provided by operating activities 845,000 133,000
Cash flows from investing activities :
Furniture and Equipment Purchases (3,000) (6,000)
(Purchase) redemption of certificates of deposit 205,000 (300,000)
Cost Incurred with Leasehold improvements -- (7,000)
---------- ----------
Net cash provided by (used in) investing activities 202,000 (313,000)
Cash flows from financing activities:
Payment of capital lease obligations (451,000) (325,000)
---------- ----------
Net cash (used in) financing activities (451,000) (325,000)
Net increase (decrease) in cash and cash equivalents 596,000 (505,000)
Cash and cash equivalents - beginning of period 2,063,000 3,466,000
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $2,659,000 $2,961,000
---------- ----------
Supplemental disclosures of cash flow information:
Cash paid for
Interest 116,000 152,000
Taxes 8,000 193,000
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 1999, and for the three
months ended March 31, 1999 and 1998, are unaudited. However, in the opinion of
management, such statements include all adjustments necessary for a fair
statement of the information presented therein. The balance sheet at December
31, 1998 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 1999 Compared to First Quarter 1998
Results of Operations
Patient revenue increased 60% to $940,000 in the quarter ended March 31,
1999 from $588,000 for the quarter ended March 31, 1998. The increase was due to
an increase in the number of Gamma Knife procedures at Research Medical Center
in Kansas City and the NYU Gamma Knife Center in New York. Patient expenses
increased 3% to $343,000 from $333,000 a year earlier. Selling, general and
administrative expense increased to $323,000 from $151,000 for the quarter ended
March 31 a year ago. The increase was due to the completion of activities
related to the sale of the Company's software and systems business, which was
sold in 1997. Interest expense decreased 31% to $116,000 from $152,000 in the
same period a year earlier. The decrease was due to increased principal payments
on its Gamma Knife properties. Interest income was $46,000 for the period as
compared to $49,000 in the same period in 1998. For the quarter ended March 31
1999, income from continuing operations was $204,000 as compared to $1,000 for
the same period a year earlier.
Liquidity and Capital Resources
At March 31, 1999 the Company had working capital of $1,586,000 as
compared to $2,652,000 at March 31, 1998. The decrease in working capital is
primarily from the liability associated with the settlement of the lawsuit
mentioned in Part II Item 1. Cash and cash equivalents at March 31, 1999 were
$2,659,000 as compared with $2,961,000 at March 31, 1998.
Net cash provided by operating activities was $845,000 as compared with
$133,000 for the same period, a year earlier. There was an increase in
receivables of $161,000 during the quarter. The Company received $494,000 in the
quarter as payment to release CMSF, Inc. from an earnout and provision that was
previously entered into at the time of the sale of the Company's interest in
Florida Specialty Networks, Ltd. (FSN) in December 1997.
The Company had cash provided by investing activities of $202,000 as
compared to net cash used of $391,000 at March 31, 1998. The Company had
redemption of $205,000 on certificates of deposit.
Net cash used in financing activities was $451,000 as compared to $325,000
for the same period a year earlier. The Company paid $451,000 towards its lease
obligations as compared to $325,000 in the previous year.
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This document contains forward-looking statements that are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that forward-looking statements are inherently
uncertain. 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.
PART II OTHER INFORMATION
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, at a value to be
calculated by the Company in accordance with the terms of the USN Agreement. The
Company exercised its right to repurchase the 20% interest in USN in November
1996 at a value of $38,781.40, which value 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.
In response to the Declaratory Action, Brown and Kirshenbaum filed a
counterclaim and third party claim against the Company, USN, Alan Gold and Allen
& Company, Incorporated. The counterclaim against the Company and third party
claim against USN and the other parties is purportedly for (1) violations of the
RICO statutes; (2) various causes of action for fraud; and (3) various causes of
action for breach of contract. The fraud counts seek damages of not less than $9
million per count and also seek the imposition of treble damages for punitive
damages for the fraud counts. The breach of contract counts range from $250,000
to $600,000. The claims of fraud arise out of an alleged conspiracy between the
Company and other parties to misappropriate 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.
USN filed a counterclaim against Brown and Kirshenbaum alleging various
tort claims arising out of the business relationship. On September 4, 1998 the
Court dismissed Brown and Kirshenbaum's counterclaim for RICO actions brought
against GHS and USN.
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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.
On September 8, 1998 the Circuit Court for Montgomery County entered a
Stipulation for stay of action for Brown to pursue his claims in the federal
action. Subsequently Brown and Kirshenbaum filed an amended Complaint in the
federal action to include Brown's state court allegations.
In January 1999 the parties participated in a settlement conference and
reached a tentative agreement to settle all of the claims currently pending
between the parties. On January 19,1999 the court entered an Order
administratively closing the case and that Order was extended on March 18, 1999
allowing either party without prejudice to move for good cause to reopen the
case if final settlement had not been achieved or consummated by April 19, 1999.
On March 22, 1999 all parties to the litigation including GHS, USN and Alan Gold
entered into an Agreement of Settlement. The parties have agreed to all of the
terms of the settlement; however, the settlement is confidential and contingent
on an event which those parties, who are aligned with GHS believe will occur in
the near future. The administrative dismissal of the case has been extended by
Order of Court dated April 20, 1999 to May 19, 1999.
All other terms of the Agreement of Settlement have been finalized.
Although management was prepared to vigorously defend the lawsuit, management
believes that the settlement is in the best interest of shareholders, and will
not have a significant adverse affect to the operation of GHS or USN.
Item 5. Other Information
On April 26, 1999, the Company announced an Internet initiative that includes
plans for an online network to focus on personal and professional improvement.
The press release containing the Company's announcement was filed as an exhibit
to the Company's Form 8-K filed on April 27, 1999. As stated therein, the
transactions described therein are subject to a number of conditions, including
the execution of definitive documentation, required regulatory and third party
consents and approvals and the obtaining of additional capital to fund the
initial development of the business. There can be no assurance that such
conditions will be satisfied and, therefore, that all or any of such
transactions will be consummated.
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 10, 1999 By /s/ Alan Gold
---------------------------- ------------------------------------
Alan Gold
Director and President
Chief Executive
Officer
9