Here's the latest filing:
May 14, 1998
APACHE MEDICAL SYSTEMS INC (AMSI)
Quarterly Report (SEC form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
On June 2, 1997, the Company acquired all the common stock of National Health Advisors, Ltd. ("NHA") in exchange for 367,564 shares of the Company's Common Stock. NHA is a healthcare management consulting firm focused on strategy and management support services for progressive healthcare organizations and networks. The merger was accounted for as a pooling-of-interests. Accordingly, the Company's financial statements were previously restated to include the results of NHA for all periods presented.
CONSOLIDATED REVENUE. Revenue for the quarter ended March 31, 1998 increased 13% to $3.5 million from $3.1 million in the prior year period.
SYSTEMS AND RELATED PRODUCTS REVENUE. Systems and related products revenue for the quarter ended March 31, 1998, increased 5% to $1.45 million from $1.38 million in the prior year period. This increase is a result of the first quarter release of the Company's next generation Critical Care Series ("CCS") products.
SUPPORT REVENUE. Support revenue for the quarter ended March 31, 1998 increased 9% to $518,000 from $477,000 in the prior year period. Increase in support revenue was due to the increase in the number of clients utilizing the Company's systems.
PROFESSIONAL SERVICES REVENUE. Professional services revenue for the quarter ended March 31, 1998 increased 25% to $1.5 million from $1.2 million for the prior year period. The increase in professional services revenue was due to increases in volume of the Health Outcomes Research services.
COST OF SYSTEMS AND RELATED PRODUCTS. Cost of systems and related products for the quarter ended March 31, 1998 decreased 71% to $168,000 from $574,000 in the prior year period. The decrease from the prior year was due to a decrease in staffing requirements and third party license fees for systems and related products that the Company has discontinued or postponed as a result of the Company's recording a restructuring charge of $1.6 million during the third quarter of 1997.
COST OF PROFESSIONAL SERVICES. Cost of professional services for the quarter ended March 31, 1998 decreased 36% to $532,000 from $829,000 in the prior year period. The decrease was due to decreases in staff requirements as a result of the discontinuation or postponement of the development of certain other products and focus primarily on products for critical care patients, which resulted in the Company's restructuring charge of $1.6 million during the third quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the quarter ended March 31, 1998 decreased 27% to $2.3 million from $3.1 million in the prior year period. This was due primarily to a decrease in overhead costs associated with the Company's restructuring charge during the third quarter of 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses for the quarter ended March 31, 1998 decreased 36% to $428,000 from $671,000 in the prior year period. The decrease was due primarily to a decrease in staffing requirements related to the development of new products and services that the Company has discontinued or postponed as a result of the Company's restructuring charge during the third quarter of 1997. During the first quarter of 1998, no product development costs were capitalized, compared to $128,000 in the prior year period, as technological feasibility on the Company's products under development had not been achieved.
WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. In January 1997, the Company acquired the assets of CardioMac, a point-of-care data collection and reporting tool for the cardiac catheterization laboratory and cardiovascular operating room, from Iowa Health Centers, P.C. d/b/a Iowa Heart Center, P.C., Mercy Hospital Medical Center, Mark A. Tannenbaum, M.D. and Iowa Heart Institute. At the time of the acquisition, the Company recorded a non-recurring charge resulting from the write-off of the acquired in-process research and development costs. This charge totaled $1.1 million.
OTHER INCOME (EXPENSE). Other income (expense) decreased from $230,000 for the quarter ended March 31, 1997 to $145,000 for the quarter ended March 31, 1998. The decrease is due to a decrease in interest-bearing notes payable, partially offset by a reduction in cash.
YEAR 2000 READINESS. The version of the Company's Medical Cost Management Program ("MCMP") product, an application using UNIX based terminals/clients and UNIX based servers requiring stand alone equipment, that was sold to customers prior to 1997 will not function properly as January 1, 2000 approaches. The Company has focused its attention on its next generation CCS product (for which the Company has taken orders in 1997) which was completed in March 1998. It is Year 2000 ready and includes new features and enhancements. The CCS product operates on a PC based client/UNIX server platform, supporting Windows 95 and Windows NT. The costs expended for CCS product development are being expensed as incurred.
The Company has decided not to support the MCMP product beyond October 1999. The Company has offered existing clients the ability to migrate to the new CCS product during the next two years on favorable terms. Nearly half of the clients using the old UNIX version of the MCMP product have indicated an intent to migrate to the new CCS product. A few have indicated that they intend to discontinue use of the product completely, and, like many participants in the health care industry, a majority are still assessing their systems and migration options. The Company has entered into an agreement with a vendor to perform the migration activities. The use of this third party vendor is expected to enable all migration activities to be completed by October 1999. The favorable terms and migration services offered to customers to encourage migration to the new CCS product are not expected to have a material impact on the Company's future operating results or financial position. Because the Company is not yet aware of the plans of customers who have not yet accepted the Company's terms for migration to the new CCS product, the Company is not yet able to fully evaluate the impact of Year 2000 issues associated with the UNIX version of the MCMP product.
The Company has identified several internal computer systems that are not Year 2000 ready. It is not expected that upgrading or replacing other internal systems that are not Year 2000 ready will have a material effect in 1998 on the Company's financial statements taken as a whole.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments were $10.1 million as of March 31, 1998 compared to $11.3 million as of December 31, 1997.
In April 1997, the Company entered into a secured revolving line of credit from Crestar Bank providing for a borrowing capacity of $2.0 million. Borrowings bear interest at a fluctuating rate equal to the Bank's prime rate plus 0.25%. The Company also pays an annual fee on the total borrowing capacity of $2.0 million at a rate of 0.75% per annum. Borrowings are collateralized by the Company's accounts receivable and all other uncommitted assets. The line of credit expires on May 31, 1998. There are currently no borrowings under the line of credit. Pursuant to the covenants under the line of credit, the Company is not currently eligible to borrow funds under the line.
The Company anticipates that remaining net proceeds from the initial public offering and funds generated from operations will be sufficient to meet its planned ongoing working capital requirements and to finance planned product development, sales and marketing activities and capital acquisitions for the next twelve months. Through March 31, 1998, the Company has incurred cumulative net operating losses of approximately $38.9 million. There can be no assurance that the Company will be profitable in the future or that present capital will be sufficient to fund the Company's ongoing operations. The Company believes that its current operating funds will be sufficient to meet its planned ongoing operating and working capital requirements and to finance planned product development, sales and marketing activities through 1998. If additional financing is required to fund operations, there can be no assurance that such financing can be obtained or obtained on terms acceptable to the Company.
The Company does not believe the impact of inflation has significantly affected the Company's operations.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Statements in this filing which are not historical facts are forward-looking statements under provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. The Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in fiscal 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company.
Important factors that could cause actual results to differ materially include but are not limited to the Company's: having sufficient sales and timely collections to meet cash requirements and achieve profitability; ability to attract and retain key employees and to successfully replace its chief executive officer and chief financial officer; success of its strategy to concentrate its product offerings on high-risk, high-cost patients; ability to timely develop new products and enhance existing products; ability to compete in the competitive and rapidly evolving healthcare information technology industry; ability to correctly estimate and manage its Year 2000 costs and liabilities; success of its marketing and consulting efforts and ability to effectively utilize its direct sales force; ability to protect proprietary information and to obtain necessary licenses on commercially reasonable terms; and ability to comply with and adopt products and services to potential regulatory changes.
The Company's quarterly revenues and operating results have varied significantly in the past and are likely to vary from quarter to quarter in the future. Quarterly revenues and operating results may fluctuate as a result of a variety of factors, including: the Company's relatively long sales cycle; variable customer demand for its products and services; changes in the Company's product mix and the timing and relative prices of product sales; the loss of customers due to consolidation in the healthcare industry; changes in customer budgets; investments by the Company in marketing or other corporate resources; acquisitions of other companies or assets; the timing of new product introductions and enhancements by the Company and its competitors; changes in distribution channels; sales and marketing promotional activities and trade shows; and general economic conditions. Further, due to the relatively fixed nature of most of the Company's costs, which primarily include personnel costs, as well as facilities costs, any unanticipated shortfall in revenue in any fiscal quarter would have an adverse effect on the Company's results of operations in that quarter. Accordingly, the Company's operating results for any particular quarterly period may not necessarily be indicative of results for future periods. |
