UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0001087216
Alliance HealthCard, Inc.
(Exact name of registrant as specified in its charter)
| Georgia |
58-2445301 | |
| (State or other jurisdiction of |
(I.R.S. Employer | |
| incorporation or organization) |
Identification No.) |
3500 Parkway Lane, Suite 720, Norcross, GA 30092
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (770) 734-9255
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 periods 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 the Registrant’s common stock as of the latest practicable date.
| Class |
Outstanding at May 15, 2003 | |
| Common Stock, $.001 par value |
4,454,263 |
| PAGE | ||||
| PART I. |
||||
| Item 1. |
||||
| 3 | ||||
|
Statements of Operations for the Three Months and Six Months Ended |
4 | |||
|
Statements of Cash Flows for the Six Months Ended |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and |
7 | ||
| Item 3. |
9 | |||
| PART II. |
||||
| Item 6. |
9 | |||
| 10 |
2
Alliance HealthCard, Inc.
| March 31, 2003 |
September 30, 2002 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
335,958 |
|
$ |
1,175,945 |
| ||
| Accounts receivable, net |
|
1,173,929 |
|
|
908,259 |
| ||
| Prepaid expenses and other |
|
427,943 |
|
|
536,830 |
| ||
| Total current assets |
|
1,937,830 |
|
|
2,621,034 |
| ||
| Furniture and equipment, net |
|
27,710 |
|
|
38,778 |
| ||
| Other assets |
|
— |
|
|
10,249 |
| ||
| Total assets |
$ |
1,965,540 |
|
$ |
2,670,061 |
| ||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
1,698,364 |
|
$ |
1,305,228 |
| ||
| Accrued salaries and benefits |
|
65,113 |
|
|
115,153 |
| ||
| Deferred revenue |
|
1,137,188 |
|
|
1,678,870 |
| ||
| Other accrued liabilities |
|
88,946 |
|
|
117,656 |
| ||
| Notes payable |
|
587,988 |
|
|
654,172 |
| ||
| Current portion of capital lease obligations |
|
8,508 |
|
|
11,193 |
| ||
| Total current liabilities |
|
3,586,107 |
|
|
3,882,272 |
| ||
| Capital lease obligation |
|
1,413 |
|
|
4,250 |
| ||
| Commitments |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $.001 par value; 100,000,000 |
|
2,253 |
|
|
2,227 |
| ||
| Additional paid-in-capital |
|
2,818,047 |
|
|
2,792,907 |
| ||
| Accumulated deficit |
|
(4,442,280 |
) |
|
(4,011,595 |
) | ||
| Total stockholders’ equity |
|
(1,621,980 |
) |
|
(1,216,461 |
) | ||
| Total liabilities and stockholders’ equity |
$ |
1,965,540 |
|
$ |
2,670,061 |
| ||
The accompanying notes are an integral part of these financial statements.
3
Alliance HealthCard, Inc.
| Three Months Ended March 31, |
Six Months Ended March 31, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Net revenues |
$ |
1,040,232 |
|
$ |
175,802 |
|
$ |
2,100,603 |
|
$ |
247,744 |
| ||||
| Direct costs |
|
644,235 |
|
|
199,900 |
|
|
1,148,152 |
|
|
375,634 |
| ||||
| Gross Profit |
|
395,997 |
|
|
(24,098 |
) |
|
952,451 |
|
|
(127,890 |
) | ||||
| Marketing and sales |
|
336,133 |
|
|
98,916 |
|
|
737,242 |
|
|
157,204 |
| ||||
| General and administrative |
|
360,467 |
|
|
281,305 |
|
|
745,404 |
|
|
510,700 |
| ||||
| Operating loss |
|
(300,603 |
) |
|
(404,319 |
) |
|
(530,195 |
) |
|
(795,794 |
) | ||||
| Other income (expense): |
||||||||||||||||
| Other |
|
112,750 |
|
|
— |
|
|
112,750 |
|
|
— |
| ||||
| Interest, net |
|
(6,032 |
) |
|
(3,993 |
) |
|
(13,240 |
) |
|
(9,425 |
) | ||||
| Net loss |
$ |
(193,885 |
) |
$ |
(408,312 |
) |
$ |
(430,685 |
) |
$ |
(805,219 |
) | ||||
| Per share data: |
||||||||||||||||
| Basic loss |
$ |
(0.04 |
) |
$ |
(0.10 |
) |
$ |
(0.10 |
) |
$ |
(0.20 |
) | ||||
| Diluted loss |
$ |
(0.04 |
) |
$ |
(0.10 |
) |
$ |
(0.10 |
) |
$ |
(0.20 |
) | ||||
| Basic and diluted weighted |
|
4,443,184 |
|
|
4,132,584 |
|
|
4,437,076 |
|
|
4,076,466 |
| ||||
The accompanying notes are an integral part of these financial statements.
4
Statements of Cash Flows
| Six Months Ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ |
(430,685 |
) |
$ |
(805,219 |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
|
12,315 |
|
|
6,707 |
| ||
| Change in operating assets and liabilities: |
||||||||
| Accounts receivable |
|
(265,670 |
) |
|
(430,566 |
) | ||
| Prepaid expenses and other assets |
|
119,136 |
|
|
6,467 |
| ||
| Accounts payable |
|
393,136 |
|
|
509,288 |
| ||
| Accrued wages |
|
(50,040 |
) |
|
13,589 |
| ||
| Deferred revenue and other accrued expenses |
|
(570,392 |
) |
|
365,346 |
| ||
| Net cash used in operating activities |
|
(792,200 |
) |
|
(334,388 |
) | ||
| Cash flows from investing activities |
||||||||
| Purchase of equipment |
|
(1,247 |
) |
|
(6,535 |
) | ||
| Net cash used in investing activities |
|
(1,247 |
) |
|
(6,535 |
) | ||
| Cash flows from financing activities |
||||||||
| Repayments of short-term debt |
|
(66,184 |
) |
|
— |
| ||
| Sale of stock and other issuances |
|
25,166 |
|
|
367,998 |
| ||
| Repayments of capital lease obligations |
|
(5,522 |
) |
|
(7,128 |
) | ||
| Net cash (used in) provided by financing activities |
|
(46,540 |
) |
|
360,870 |
| ||
| Net (decrease) increase in cash |
|
(839,987 |
) |
|
19,947 |
| ||
| Cash at beginning of period |
|
1,175,945 |
|
|
175,631 |
| ||
| Cash at end of period |
$ |
335,958 |
|
$ |
195,578 |
| ||
The accompanying notes are an integral part of these financial statements.
5
Notes to Financial Statements
March 31, 2003 and 2002
(Unaudited)
1. Description of the Business
Alliance HealthCard, Inc. (the “Company”) was organized on September 30, 1998 to provide comprehensive health-care services through provider networks at discounts to patients for services not covered by their health insurance. The Company was formed as a limited liability corporation and was reorganized into a Georgia corporation in February 1999.
2. Summary of Significant Accounting Policies
The accompanying financial statements are unaudited and have been prepared by management of the Company in accordance with the rules and regulations of the Securities and Exchange Commission. The unaudited financial information furnished herein in the opinion of management reflects all adjustments, which are of a normal recurring nature, that are necessary to fairly state the Company’s financial position, the results of its operations and its cash flows. For further information refer to the financial statements and footnotes thereto included in the Company’s Form 10-KSB for the year ended September 30, 2002. Footnote disclosures, which would substantially duplicate the disclosure contained in those documents, have been omitted.
Net loss per share is computed in accordance with SFAS No. 128 “Earnings per Share.” Basic and diluted net loss per share are the same in the three and six month periods ended March 31, 2003 and 2002 because the Company’s potentially dilutive securities are anti-dilutive in such periods.
| 3. | Sale of Unregistered Securities |
The Company issued an Offering Memorandum on December 15, 2000, pursuant to the exemption set forth in Regulation D, Rule 506, for the sale of 333,333 Units of its securities at a price of $4.50 per Unit, with each Unit being comprised of three shares of Common Stock, $.001 par value plus one Warrant to purchase one share of Common Stock at $1.50 per share. As of September 30, 2002, the Company had sold a total of 346,378 Units of its Common Stock at $4.50 per Unit for an aggregate amount of $1,558,703.
6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was founded in September 1998 as a limited liability company and reorganized into a Georgia corporation in February 1999. The Company is not an insurance provider, but is a provider of an innovative membership organization that receives discounts on cash purchases of healthcare-related products and services from networks of providers. Alliance offers its programs to consumers who are underinsured, uninsured and to individuals who participate in employer sponsored health plans that provide primary health insurance, but do not provide insurance coverage for certain other healthcare-related services and products. The Company began sales of its membership cards in November 1999.
Results of Operations
| Three | Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002 |
Net revenues for the Company increased from $175,802 for the three months ended March 31, 2002 to $1,040,232 for the three months ended March 31, 2003. The increase in co-branded cards issued under the contract with CVS Pharmacy, Inc. accounted for 46% of the increase. The State Farm Mutual Automobile Insurance Company accounted for 50% of the increase. The Ascent Management, Inc. contract accounted for 11% of the increase but this increase was nearly offset by the decrease in Bankers Fidelity revenue resulting from a revenue accrual adjustment for the quarter ending December 31, 2002.
Gross profit increased $420,095 to $395,997 for the three months ended March 31, 2003 from a loss of $24,098 for the quarter ending March 31, 2002. The increase in gross profit was primarily attributable to an increase in net revenues from the CVS and State Farm contracts. This increase was partially offset by decreased gross profits from the Bankers Fidelity and Ascent Management contracts.
Marketing and sales expenses increased to $336,133 for the three months ended March 31, 2003 from $98,916 in the same prior year period primarily due to additional CVS co-branded cards issued. The additional cards resulted in increased royalty expenses pursuant to the CVS contract.
General and administrative expenses increased to $360,467 for the three months ended March 31, 2003 from $281,305 in the same prior year period. The increase of $79,162 was attributable to the following: (a) compensation expense of $77,636 for additional and existing personnel and (b) an increase of $1,526 for general office expenses including rent, telephone and other office expenses associated with the additional personnel.
Interest expense increased to $6,032 for the three months ended March 31, 2003 from $3,993 for the same prior year quarter due to an increase in the principal balance on the line of credit since March 2002.
The Company reported a net loss of $193,884 for the three months ended March 31, 2003 compared to a loss of $408,312 for the same prior year period. The decrease of $214,428 resulted from the increase in gross profits related to the CVS and State Farm contracts that were partially offset by the increase in marketing and sales, and general administrative expenses as discussed above.
7
Six Months Ended Mach 31, 2003 Compared to Six Months Ended March 31, 2002
Net revenues for the Company increased $1,852,859 to $2,100,603 for the six months ended March 31, 2003. The increase in co-branded cards issued under the contract with CVS Pharmacy, Inc. accounted for 51% of the increase. The State Farm contract accounted for 43% of the increase. The contract with Ascent Management accounted for the remaining 6% of the increase.
Gross profit increased $1,080,341 to $952,451 for the six months ended March 31, 2003 from a loss of $127,890 for the same six-month period in the prior year. The increase in gross profit was primarily attributable to an increase in net revenues from the CVS and State Farm contracts offset slightly by lower gross profits from the Bankers Fidelity and Ascent Management contracts.
Marketing and sales expenses increased to $737,242 for the six months ended March 31, 2003 from $157,204 in the same prior year period primarily due to additional CVS co-branded cards. The additional cards resulted in increased royalty expenses pursuant to the CVS contract.
General and administrative expenses increased to $745,404 for the six months ended March 31, 2003 from $510,700 in the same prior year period. The increase of $234,704 was attributable to the following: (a) compensation expense of $201,559 for additional and existing personnel, and (b) an increase of $33,145 for general office expenses including rent, telephone and other office expenses associated with the additional personnel.
Other income increased $112,750 for the six months ended March 31, 2003 as a result of compensation received from CVS Pharmacy, Inc. representing payment of expenses incurred by the Company in 2002 associated with a direct mail campaign related to the CVS Pharmacy, Inc. contract.
Interest expense, net increased to $13,240 for the six months ended March 31, 2003, due to an increase in the principal balance on the line of credit since March 2002.
The Company reported a net loss of $430,685 for the six months ended March 31, 2003 compared to $805,219 for the same prior year period. The lower net loss resulted from the increase in gross profits related to the CVS and State Farm contracts that were partially offset by the increase in marketing and sales, and general administrative expenses as discussed above.
Liquidity and Capital Resources
The Company’s operations used cash of $792,200 for the six months ended March 31, 2003 as a result of the following: a) a net loss of $430,685; b) an increase in accounts receivable of 265,670 with the CVS contract accounting for nearly the entire increase; and c) a decrease in other liabilities of $570,392 which was primarily the result of a decrease in deferred revenue of $541,682 related to the State Farm and CVS contracts. Membership fees are generally paid to the Company on a monthly or annual basis. Membership fees paid in advance on an annual basis are recognized monthly over the applicable twelve-month membership term.
The Company’s net working capital decreased $387,039 to $(1,648,277) during the six months ended March 31, 2003 from $(1,261,238) at September 30, 2002. The decrease in working capital was primarily caused by a net loss of $430,685 for the six months ended March 31, 2003.
The Company’s financing activities for the six months ended March 31, 2003 used cash of $46,540 primarily for the repayment of a promissory note issued on September 30, 2002.
On October 22, 2002 the Company extended its credit agreement with SunTrust Bank in Atlanta, Georgia. The agreement provides the Company with a $500,000 working capital facility secured by personal guaranties from certain officers and directors of the Company who received common stock options in exchange for their guaranties. The credit agreement matured on
8
April 22, 2003 and bears an interest rate of 5.25% per annum. The principal balance plus accrued interest, remains unpaid as of May 15, 2003. The Company is in the process of securing a ninety-day extension on the credit agreement and is also actively pursuing an alternative working capital facility. The new working capital facility will continue to be used to provide on-going capital to fund the implementation of new contracts and general corporate operations. The Company’s future liquidity and capital requirements will depend upon numerous factors, including the success of its product offerings and competing market developments. The Company intends to fund its ongoing development and operations through a combination of sales through the four existing contracts and potential new contracts. If the Company fails to successfully develop a market through the healthcare provider, institutional and retail distribution models, the Company may not be able to successfully implement its business plan to the fullest extent during the next twelve months.
The Company may be profitable in its fourth fiscal quarter of 2003 if additional new business is identified, closed and comes on stream on the planned dates and at the expected implementation costs. Alliance is still an emerging company and very sensitive to the timing of new business implementations and staying within their implementation budgets, especially accounts bringing a large number of new cardholders such as State Farm.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material exposure to market risk from derivatives or other financial instruments.
Item 6. Exhibits and Reports on Form 8-K
(a) The Company did not file any reports on Form 8-K during the three months ended March 31, 2003.
Exhibits
| Exhibit 99.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| Exhibit 99.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
9
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 hereunto duly authorized.
|
May 15, 2003 |
Alliance HealthCard, Inc.
By: /s/ ROBERT D. GARCES Robert D. Garces Chairman and Chief Executive Officer (Principal Executive Officer) |
|
May 15, 2003 |
By: /s/ RITA MCKEOWN Rita McKeown Chief Financial Officer (Principal Financial and Accounting Officer) |
10
CERTIFICATION
I, Robert D. Garces, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Alliance HealthCard, Inc.; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by the quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures for the registrant and I have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to me by others within these entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; |
| 5. | I have disclosed, based on my most recent evaluation, to the registrant’s auditors and audit committee of the registrant’s board of directors: |
| a) | All significant deficiencies in the design or operation of the registrant’s internal controls which should adversely affect the company’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in the internal controls; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| Date: May 15, 2003 |
By: /s/ ROBERT D. GARCES |
11
CERTIFICATION
I, Rita W. McKeown, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Alliance HealthCard, Inc.; |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by the quarterly report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures for the registrant and I have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known to me by others within these entities, particularly during the period in which this quarterly report is being prepared; |
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and |
| c) | presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; |
| 5. | I have disclosed, based on my most recent evaluation, to the registrant’s auditors and audit committee of the registrant’s board of directors: |
| a) | All significant deficiencies in the design or operation of the registrant’s internal controls which should adversely affect the company’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in the internal controls; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
| Date: May 15, 2003 |
By: /s/ RITA W. MCKEOWN |
12