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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2002
COMMISSION FILE NUMBER 1-11570
-------------------------------------------------------------
ALLIED HEALTHCARE INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 13-3098275
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 750-0064
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 12, 2002
Common Stock 20,679,065 Shares
ALLIED HEALTHCARE INTERNATIONAL INC.
THIRD QUARTER REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I
Item 1. Financial Statements (Unaudited)............................................................3
Condensed Consolidated Balance Sheets - June 30, 2002 (Unaudited) and
September 30, 2001........................................................................4
Condensed Consolidated Statement of Operations (Unaudited) - For the Three
and Nine Months Ended June 30, 2002 and June 30, 2001.....................................5
Condensed Consolidated Statement of Cash Flows (Unaudited) - For the Nine
Months Ended June 30, 2002 and June 30, 2001..............................................6
Notes to Condensed Consolidated Financial Statements (Unaudited)............................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................19
Item 3. Quantitative and Qualitative Disclosures about Market Risk..................................34
PART II
Item 2. Changes in Securities and Use of Proceeds...................................................35
Item 4. Submission of Matters to a Vote of Security Holders.........................................37
Item 6. Exhibits and Reports on Form 8-K............................................................38
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Quarterly Report contains certain
forward-looking statements and information that are based on the beliefs of
management as well as assumptions made by and information currently available to
management. The statements contained in this Quarterly Report relating to
matters that are not historical facts are forward-looking statements that
involve risks and uncertainties, including, but not limited to, future demand
for the company's products and services, general economic conditions, government
regulation, competition and customer strategies, capital deployment, the impact
of pricing and reimbursement and other risks and uncertainties. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected.
Page 2
PART I
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).
The consolidated financial statements of Allied Healthcare International Inc.
(formerly known as Transworld Healthcare, Inc.) (the "Company") begin on page 4.
Page 3
ALLIED HEALTHCARE INTERNATIONAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, SEPTEMBER 30,
2002 2001
(UNAUDITED)
---------------------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,664 $ 15,357
Restricted cash (Note 4) 17,565
Accounts receivable, less allowance for doubtful
accounts of $25,056 and $24,611, respectively 31,627 29,555
Inventories 1,101 972
Prepaid expenses and other assets 9,574 7,336
------------------ -----------------
Total current assets 74,531 53,220
Property and equipment, net 9,303 7,545
Restricted cash (Note 4) 49,763 71,020
Goodwill, net 116,154 109,426
Other assets 8,776 6,862
------------------ -----------------
Total assets $ 258,527 $ 248,073
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 16,905 $
Current portion of long-term debt 6,134 4,868
Accounts payable 3,166 2,160
Accrued expenses 23,441 20,795
Taxes payable 4,739 5,667
------------------ -----------------
Total current liabilities 54,385 33,490
Long-term debt 159,752 175,913
Deferred income taxes and other long term liabilities 684 702
Minority interest 1,734 1,614
------------------ -----------------
Total liabilities 216,555 211,719
------------------ -----------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $.01 par value; authorized
10,000 shares, issued and outstanding - none
Common stock, $.01 par value; authorized
62,000 shares, issued 19,476 and
17,551 shares, respectively 194 176
Additional paid-in capital 135,326 128,077
Accumulated other comprehensive loss ( 3,920 ) ( 5,600 )
Retained deficit ( 87,961 ) ( 85,579 )
------------------ -----------------
Total paid-in capital and retained deficit 43,639 37,074
Less notes receivable from officers ( 947 )
Less cost of treasury stock (266,200 shares) ( 720 ) ( 720 )
------------------ -----------------
Total stockholders' equity 41,972 36,354
------------------ -----------------
Total liabilities and stockholders' equity $ 258,527 $ 248,073
================== =================
See notes to condensed consolidated financial statements.
Page 4
ALLIED HEALTHCARE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
---------------------------------------------
JUNE 30, JUNE 30,
2002 2001
------------------- ---------------------
Revenues:
Net patient services $ 59,372 $ 32,023
Net infusion services 2,990 3,184
Net respiratory, medical equipment and supplies sales 2,412 2,213
----------------- -------------------
Total revenues 64,774 37,420
----------------- -------------------
Cost of revenues:
Patient services 43,465 22,205
Infusion services 2,127 2,323
Respiratory, medical equipment and supplies sales 1,310 1,242
----------------- -------------------
Total cost of revenues 46,902 25,770
----------------- -------------------
Gross profit 17,872 11,650
Selling, general and administrative expenses 13,838 9,162
Stock based compensation 4,217
Transaction expenses 819
General and administrative expenses related to Mail-Order
operations (Note 5) ( 14 )
Losses due to sale of subsidiary (Note 5)
----------------- -------------------
Operating (loss) income ( 1,002 ) 2,502
Interest income ( 720 ) ( 383 )
Interest expense 4,168 2,624
Foreign exchange (income) loss ( 2 )
----------------- -------------------
(Loss) income before income taxes and minority interest ( 4,448 ) 261
Provision (benefit) for income taxes 983 212
----------------- ------------------
(Loss) income before minority interest ( 5,431 ) 49
Minority interest 34 9
----------------- -------------------
Net (loss) income ( 5,465 ) 40
Preferred dividend 114
----------------- -------------------
Net (loss) income available for common shareholders $( 5,579 ) $ 40
================= ===================
Net loss per share of common stock:
Basic $( 0.30 ) $ 0.00
================= ===================
Diluted $( 0.30 ) $ 0.00
================= ===================
Weighted average number of common shares outstanding:
Basic 18,701 17,325
================= ===================
Diluted 18,701 17,496
================= ===================
NINE MONTHS ENDED
------------------------------------
JUNE 30, JUNE 30,
2002 2001
---------------- ----------------
Revenues:
Net patient services $ 171,145 $ 91,825
Net infusion services 9,584 9,273
Net respiratory, medical equipment and supplies sales 6,965 9,161
------------- --------------
Total revenues 187,694 110,259
------------- --------------
Cost of revenues:
Patient services 126,090 63,646
Infusion services 6,959 6,649
Respiratory, medical equipment and supplies sales 3,830 5,820
------------- --------------
Total cost of revenues 136,879 76,115
------------- --------------
Gross profit 50,815 34,144
Selling, general and administrative expenses 34,856 27,171
Stock based compensation 4,217
Transaction expenses 819
General and administrative expenses related to Mail-Order
operations (Note 5) 3,890
Losses due to sale of subsidiary (Note 5) 354
------------- --------------
Operating (loss) income 10,923 2,729
Interest income ( 2,253 ) ( 1,288 )
Interest expense 12,278 7,508
Foreign exchange (income) loss 18 391
------------- --------------
(Loss) income before income taxes and minority interest 880 ( 3,882 )
Provision (benefit) for income taxes 3,142 ( 690 )
------------- --------------
(Loss) income before minority interest ( 2,262 ) ( 3,192 )
Minority interest 120 12
------------- --------------
Net (loss) income ( 2,382 ) ( 3,204 )
Preferred dividend 114
------------- --------------
Net (loss) income available for common shareholders $( 2,496 ) $( 3,204 )
============= ==============
Net loss per share of common stock:
Basic $( 0.14 ) $( 0.18 )
============= ==============
Diluted $( 0.14 ) $( 0.18 )
============= ==============
Weighted average number of common shares outstanding:
Basic 17,760 17,448
============= ==============
Diluted 17,760 17,448
============= ==============
See notes to condensed consolidated financial statements.
Page 5
ALLIED HEALTHCARE INTERNATIONAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
---------------------------------------
JUNE 30, JUNE 30,
2002 2001
-------------------- ---------------
Cash flows from operating activities:
Net income (loss) $( 2,382 ) $( 3,204 )
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,597 4,296
Amortization of debt issuance costs 1,731 846
Provision for doubtful accounts 1,879 3,068
Stock based compensation 4,217
Interest accrued on loans to officers ( 7 )
Losses due to sale of subsidiary 354
Interest in kind 2,986 2,998
Minority interest 120 12
Deferred income taxes ( 2,020 )
Changes in assets and liabilities, excluding the effect of businesses
acquired and sold:
Increase in accounts receivable ( 2,762 ) ( 1,859 )
Increase in inventories ( 113 ) ( 173 )
Increase in prepaid expenses and other assets ( 4,482 ) ( 1,292 )
Increase (decrease) in accounts payable and other liabilities 1,476 ( 505 )
----------------- ---------------
Net cash provided by operating activities 4,260 2,521
----------------- ---------------
Cash flows from investing activities:
Capital expenditures ( 3,069 ) ( 1,455 )
Proceeds from sale of property and equipment 41 24
Loans issued to officers ( 940 )
Payments on acquisition payable ( 1,774 )
Payments for acquisitions - net of cash acquired ( 626 ) ( 9,014 )
Proceeds from sale of business 15,086
Proceeds from debt limited to acquisitions 6,131 ( 1,416 )
----------------- ---------------
Net cash (used in) provided by investing activities ( 237 ) 3,225
----------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,188
Payment of costs associated with issuance of common stock ( 23 )
Payments for treasury shares acquired ( 713 )
Payment on notes payable ( 3,379 )
Principal payments on long term debt ( 5,056 ) ( 4,042 )
----------------- ---------------
Net cash used in financing activities ( 5,270 ) ( 4,755 )
----------------- ---------------
Effect of exchange rate on cash 554 176
----------------- -------------------
(Decrease) increase in cash ( 693 ) 1,167
Cash and cash equivalents, beginning of period 15,357 7,867
----------------- ---------------
Cash and cash equivalents, end of period $ 14,664 $ 9,034
================= ===============
Supplemental cash flow information:
Cash paid for interest $ 7,501 $ 4,107
================= ===============
Cash paid for income taxes, net $ 4,207 $ 1,359
================= ===============
Supplemental disclosure of non-cash investing and financing activities: Details
of businesses acquired in purchase transactions:
Fair value of assets acquired $ 13,717
===============
Liabilities assumed or incurred $ 862
===============
Cash paid for acquisitions (including related expenses) $ 9,478
Cash acquired 464
---------------
Net cash paid for acquisitions $ 9,014
===============
Issuance of notes payable $ 3,377
===============
See notes to condensed consolidated financial statements.
Page 6
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION:
Allied Healthcare International Inc. (formerly known as Transworld
Healthcare, Inc.) (the "Company") is one of the leading providers of
healthcare staffing services, including nursing and ancillary services, to
the United Kingdom ("U.K.") healthcare industry. The Company operates a
community-based network of over 100 branches, with the capacity to provide
nurses, carers (often referred to as home health aides in the United
States) and specialized medical personnel to locations covering
approximately 90% of the population of the U.K. The Company provides
healthcare staffing services to hospitals, local governmental authorities,
nursing homes and private patients in the U.K. Through its U.K.
operations, the Company also supplies medical grade oxygen for use in
respiratory therapy to the U.K. pharmacy market and to private patients in
Northern Ireland.
The Company's United States ("U.S.") operations, which are concentrated in
New York and New Jersey, supply infusion therapy, respiratory therapy and
home medical equipment and accounted for less than 10% of the revenues
during the nine months ended June 30, 2002.
The Condensed Consolidated Financial Statements presented herein are
unaudited and include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations of the
interim periods pursuant to the rules and regulations of the Securities
and Exchange Commission (the "Commission"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the U.S. have
been condensed or omitted. The balance sheet at September 30, 2001 has
been derived from the audited consolidated balance sheet at that date, but
does not include all information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements. These
condensed financial statements should be read in conjunction with the
Company's Form 10-K for the year ended September 30, 2001. Although the
Company's operations are not highly seasonal, the results of operations
for the three and nine months ended June 30, 2002 are not necessarily
indicative of the operating results for the full year.
2. EARNINGS PER SHARE:
Basic earnings per share ("EPS") is computed using the weighted average
number of common shares outstanding. Diluted EPS is computed using the
weighted average number of common shares outstanding and dilutive stock
options and warrants using the treasury stock method. For the three and
nine months ended June 30, 2002, the dilutive effect of common stock
equivalents issued by the Company's U.K. subsidiary is not included in the
diluted calculation due to a net loss position. For the three and nine
months ended June 30, 2002, the Company had incremental weighted average
options of 476 and 159, respectively, which are not included in the
diluted calculation as the effect of such inclusion would be antidilutive
due to a net loss position. For the nine months ended June 30, 2001, the
Company had incremental weighted average options and warrants of 96 which
are not included in the diluted calculation as the effect of such
inclusion would be antidilutive due to a net loss position. At June 30,
2002 and 2001, the Company had outstanding stock options and warrants to
purchase 774 and 3,579 shares, respectively, of common stock ranging in
price from $5.41 to $7.25 and $4.31 to $12.45 per share, respectively,
that were not included in the computation of diluted EPS because the
exercise price was greater than the average market price of the common
shares.
Page 7
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. EARNINGS PER SHARE (CONTINUED):
The weighted average number of shares used in the basic and diluted EPS
computations for the three and nine months ended June 30, 2002 and 2001
are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
2002 2001 2002 2001
------- ------- ------- -------
Weighted average number of common shares outstanding
as used in computation of basic EPS of common stock 18,701 17,325 17,760 17,448
Effect of dilutive securities - stock options - 171 - -
------- ------- ------- -------
Shares used in computation of diluted EPS of common
stock 18,701 17,496 17,760 17,448
======= ======= ======= =======
3. COMPREHENSIVE LOSS:
Components of comprehensive loss include net (loss) income and all other
non-owner changes in equity, such as the change in the cumulative
translation adjustment, unrealized gains and losses on investments
available for sale and minimum pension liability. Currency translation is
the only item of other comprehensive loss impacting the Company. The
following table displays comprehensive loss for the three and nine months
ended June 30, 2002 and 2001:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- --------------
Net (loss) income $( 5,465) $ 40 $( 2,382 ) $( 3,204 )
Change in cumulative translation
adjustment 2,795 ( 428 ) 1,680 ( 832 )
-------- --------- ---------- ---------
Comprehensive loss $( 2,670) $( 388 ) $( 702 ) $( 4,036 )
======== ========= ========= ========
4. RESTRICTED CASH:
Restricted cash represents cash and cash equivalents, advanced under the
refinancing of the Company's U.K. operations, available for payment of
consideration for certain permitted acquisitions under the senior credit
facility, including the payment of contingent consideration for completed
transactions.
The current portion of restricted cash represents the amount on deposit,
as required by the senior credit lender, for the sole purpose of repaying
the notes payable issued in connection with the acquisition of certain
U.K. flexible staffing agencies.
5. BUSINESS COMBINATIONS AND DISPOSALS:
COMBINATIONS:
On September 27, 2001 Transworld Healthcare (UK) Limited ("TW UK")
acquired all of the issued and outstanding shares of Staffing Enterprise
Limited and Staffing Enterprise (PSV) Limited (collectively "Staffing
Enterprise"), a London-based provider of flexible staffing of specialist
nurses and other healthcare professionals to London National Health
Service ("NHS") Trust and independent hospitals. The acquisition was
accounted for as a purchase business combination. The results of
operations for Staffing Enterprise have been included in the financial
statements as of the beginning of the current fiscal year ended September
30, 2002.
Page 8
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
5. BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED):
The following table displays the unaudited pro forma results of operations
and related per share information as if the acquisition of Staffing
Enterprise was completed as of October 1, 2000. The pro forma results are
based on the historical financial statements of the Company and Staffing
Enterprise for the three and nine months ended June 30, 2001.
THREE MONTHS NINE MONTHS
ENDED ENDED
JUNE 30, 2001 JUNE 30, 2001
============= =============
Net revenues $ 52,314 $ 149,497
Net income (loss) 763 (1,450)
Income (loss) per share
of common stock:
Basic and Diluted 0.04 (0.08)
The transactions related to the acquisition of Staffing Enterprise and
other previous acquisitions of flexible staffing agencies include
provisions to pay additional amounts, payable in cash, of up to $46,112 in
contingent consideration dependent upon future earnings of the acquired
entities.
DISPOSITIONS:
U.S. MAIL - ORDER
In September 2000, the Company approved a plan to exit its U.S. Mail-Order
operations and effective October 3, 2000 sold certain assets of the U.S.
Mail-Order operations located in Jacksonville, Florida. In addition, the
Company recorded a $1,288 restructuring charge in the fourth quarter of
fiscal 2000 representing the estimated costs related to exiting and
closing its U.S. Mail-Order operations. Based upon additional information
and revised cost benefit estimates by management, the Company recorded an
additional charge of $1,900, in the first quarter of fiscal 2001, to
reflect the write-down of the remaining accounts receivable to their
estimated net realizable value. In addition to the write-down, the Company
incurred operating expenses of $1,990 during the nine months ended June
30, 2001, in connection with closing its U.S. Mail-Order operations.
The following table illustrates the restructuring accrual balance for
lease commitments at June 30, 2002.
Beginning balance $499
Payments made through
June 30, 2002 (174 )
----------------
Ending balance $325
================
Page 9
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
5. BUSINESS COMBINATIONS AND DISPOSALS (CONTINUED):
AMCARE LTD.
On November 22, 2000, the Company sold Amcare Ltd. ("Amcare"), a U.K.
subsidiary for approximately $13,826 in cash. As a result of the
completion of the transaction, the Company recorded an additional loss of
$354 and realized a foreign exchange loss of $391 for the three months
ended December 31, 2000.
6. COMMITMENTS AND CONTINGENCIES:
As further discussed in Note 5 and as it relates to the acquisitions of
flexible staffing agencies, the Company has entered into agreements to pay
additional amounts, payable in cash, in contingent consideration dependent
upon future earnings of such acquired entities.
Some of our subsidiaries are or were Medicare Part B suppliers who
submit/submitted claims to the designated carrier who is the government's
claims processing administrator. From time to time, the carrier may
request an audit of Medicare Part B claims on a prepayment or postpayment
basis. Currently, some of our subsidiaries have pending audits. If the
outcome of any audit results in a denial or a finding of an overpayment,
then the affected subsidiary has appeal rights. Under postpayment audit
procedures, the supplier generally pays the alleged overpayment and can
pursue appeal rights for a refund of any paid overpayment incorrectly
assessed against the supplier. Some of the subsidiaries currently are
responding to these audits and pursuing appeal rights in certain
circumstances.
During the normal course of business, the Company continues to carefully
monitor and review its submission of Medicare, Medicaid and all other
claims for reimbursement. The Company believes that it is substantially in
compliance, in all material respects, with the applicable provisions of
the Federal statutes, regulations and laws and applicable state laws.
Because of the broad and sometimes vague nature of these laws, there can
be no assurance that an enforcement action will not be brought against the
Company, or that the Company will not be found to be in violation of one
or more of these provisions. At present, the Company cannot anticipate
what impact, if any, subsequent administrative or judicial interpretation
of the applicable Federal and state laws may have on the Company's
consolidated financial position, cash flows or results of operations.
Page 10
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED):
The Company is involved in various other legal proceedings and claims
incidental to its normal business activities. The Company is vigorously
defending its position in all such proceedings. Management believes these
matters should not have a material adverse impact on the consolidated
financial position, cash flows or results of operations of the Company.
7. OPERATIONS BY BUSINESS SEGMENTS AND GEOGRAPHIC AREAS:
During the nine months ended June 30, 2002, the Company operated in two
reportable business segments: (i) U.K. operations and (ii) U.S. Home
Healthcare ("Home Healthcare") operations (formerly hi-tech). The U.K.
operations derive its revenues from healthcare services, principally
nursing and ancillary services, and respiratory therapy products to
patients throughout most of the U.K. The Home Healthcare operations derive
its revenues from infusion and respiratory therapy services and the sale
and lease of home medical equipment concentrated in New Jersey and New
York.
The Company uses differences in geographic areas, as well as in products
and services to identify the reportable segments. The Company evaluates
performance and allocates resources based on profit and loss from
operations before corporate expenses, interest and income taxes. Inter
segment sales are not material.
The following tables present certain financial information by reportable
business segment and geographic area of operations for the three and nine
months ended June 30, 2002 and 2001.
THREE MONTHS ENDED JUNE 30, 2002
---------------------------------------------
U.K. HOME
OPERATIONS HEALTHCARE TOTAL
------------- --------------- -------------
Revenues to unaffiliated customers $ 60,587 $ 4,187 $ 64,774
========== =========== ==========
Segment operating profit $ 6,010 $ 235 $ 6,245
========== ===========
Corporate expenses (7,247 )
Interest expense, net (3,448 )
Foreign exchange income 2
----------
Loss before income taxes and minority $ (4,448 )
interest
==========
THREE MONTHS ENDED JUNE 30, 2001
---------------------------------------------
U.K. HOME
OPERATIONS HEALTHCARE TOTAL
------------- --------------- -------------
Revenues to unaffiliated customers $ 33,154 $ 4,266 $ 37,420
========== =========== ==========
Segment operating profit $ 3,095 $ 131 $ 3,226
========== ===========
Corporate expenses (738 )
U.S. Mail-Order (Note 5) 14
Interest expense, net (2,241 )
----------
Income before income taxes and minority $ 261
interest
==========
Page 11
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
7. OPERATIONS BY BUSINESS SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED):
NINE MONTHS ENDED JUNE 30, 2002
---------------------------------------------
U.K. HOME
OPERATIONS HEALTHCARE TOTAL
------------- --------------- -------------
Revenues to unaffiliated customers $ 174,680 $ 13,014 $ 187,694
========== =========== ==========
Segment operating profit $ 18,794 $ 702 $ 19,496
========== ===========
Corporate expenses (8,573 )
Interest expense, net (10,025 )
Foreign exchange loss (18 )
----------
Income before income taxes and minority $ 880
interest
==========
Identifiable assets, June 30, 2002 $ 248,682 $ 9,332 $ 258,014
========== ===========
Corporate assets 513
----------
Total assets, June 30, 2002 $ 258,527
==========
NINE MONTHS ENDED JUNE 30, 2001
---------------------------------------------
U.K. HOME
OPERATIONS HEALTHCARE TOTAL
------------- --------------- -------------
Revenues to unaffiliated customers $ 98,002 $ 12,257 $ 110,259
========== =========== ==========
Segment operating profit $ 8,654 $ 401 $ 9,055
========== ===========
Corporate expenses (2,436 )
U.S. Mail-Order (Note 5) (3,890 )
Interest expense, net (6,220 )
Foreign exchange loss (Note 5) (391 )
----------
Loss before income taxes and minority interest $ (3,882 )
==========
Identifiable assets, June 30, 2001 $ 139,006 $ 10,657 $ 149,663
========== ===========
Corporate assets 25,418
U.S. Mail-Order (Note 5) 4
----------
Total assets, June 30, 2001 $ 175,085
==========
8. IMPACT OF RECENT ACCOUNTING STANDARDS:
In July 2001, the Financial Accounting Standards Board issued FAS 142,
"Goodwill and Other Intangible Assets". Under FAS 142, all existing and
newly acquired goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. Effective October 1, 2001, the Company adopted FAS 142 and
suspended the amortization of goodwill. In accordance with the
transitional provisions of FAS 142, previously recognized goodwill was
tested for impairment. Based on the Company's fair-value analysis of
goodwill, the carrying amount of goodwill did not exceed its fair value.
Therefore, no impairment to goodwill was recognized.
Page 12
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. IMPACT OF RECENT OF ACCOUNTING STANDARDS (CONTINUED):
The following tables present the changes in the carrying amount of
goodwill for the three and nine months ended June 30, 2002:
THREE MONTHS ENDED JUNE 30, 2002
-------------------------------------------------------
U.K. HOME
OPERATIONS HEALTHCARE TOTAL
------------------- -------------- -----------------
Balance at March 31, 2002 $ 103,796 $ 3,884 $ 107,680
Goodwill acquired during quarter 716 - 716
Foreign exchange difference 7,758 - 7,758
------------- ------------ ----------------
Balance at June 30, 2002 $ 112,270 $ 3,884 $ 116,154
============= ============ ================
NINE MONTHS ENDED JUNE 30, 2002
-------------------------------------------------------
U.K. HOME
OPERATIONS HEALTHCARE TOTAL
------------------- -------------- -----------------
Balance at September 30, 2001 $ 105,542 $ 3,884 $ 109,426
Goodwill acquired during year 2,547 - 2,547
Foreign exchange difference 4,181 - 4,181
------------- ------------ ----------------
Balance at June 30, 2002 $ 112,270 $ 3,884 $ 116,154
============= ============ ================
The amortization expense, net income (loss) and net income (loss) per
share of the Company for the three and nine months ended June 30, 2002,
the period of initial application of FAS 142, and, on a pro forma basis,
for the three and nine months ended June 30, 2001 are as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
--------------- ------------- ------------- --------------
Reported net (loss) income $( 5,465) $ 40 $( 2,382 ) $( 3,204 )
Add back: Goodwill amortization - 929 - 2,819
----------- --------- ---------- ---------
Adjusted net (loss) income $( 5,465) $ 969 $( 2,382 ) $( 385 )
=========== ========= ========== =========
Basic net (loss) income per share $( 0.30 ) $ 0.00 $( 0.13 ) $( 0.18 )
Add back: Goodwill amortization per
share - 0.05 - 0.16
----------- --------- ---------- ---------
Adjusted basic net (loss) income per
share ( 0.30 ) $ 0.05 $( 0.13 ) $( (0.02 )
=========== ========= ========== =========
Diluted net (loss) income per share $( 0.30 ) $ 0.00 $( 0.13 ) $( 0.18 )
Add back: Goodwill amortization per
share - 0.05 - .16
----------- --------- ---------- ---------
Adjusted diluted net (loss) income
per share $( 0.30 ) $ 0.05 $( 0.13 ) $( 0.02 )
=========== ========= ========== =========
In October 2001, the FASB issued FAS No. 144, "Accounting for Impairment
or Disposal of Long-lived Assets." FAS No. 144 supersedes FAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of", and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This
statement is effective for fiscal years beginning after December 15, 2001.
Adoption of this statement is not expected to have a material impact on
the Company's consolidated financial position or results of operations.
Page 13
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. IMPACT OF RECENT ACCOUNTING STANDARDS (CONTINUED):
In April 2002, the FASB issued FAS No. 145, "Rescission of FASB Statements
No. 4 (Reporting Gains and Losses From Extinguishment of Debt), 44
(Accounting for Intangible assets of Motor Carries), and 64
(Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements),
Amendment of FASB Statement No.13 (Accounting for Leases), and Technical
Corrections." FAS No. 145 addresses gain or loss on the extinguishment of
debt and sale-leaseback accounting for certain lease modifications. This
statement is effective for fiscal years beginning after May 15, 2002. The
Company is currently reviewing the impact of FAS 145 on its consolidated
financial position and results of operations.
In June 2002, the FASB issued FAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." FAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This statement is effective for exit and disposal
activities initiated after December 15, 2002. Adoption of this statement
is not expected to have a material impact on the Company's consolidated
financial position or results of operations.
9. SHARE ISSUANCE:
On April 22, 2002, the Company issued 684 shares of common stock to
Timothy M. Aitken, Chairman and Chief Executive Officer, and 487 shares of
common stock to Sarah L. Eames, President and Chief Operating Officer, as
a bonus for, among other things, services rendered through the date of
issuance. Simultaneously with this issuance, the Company entered into
agreements with Mr. Aitken and Ms. Eames in which the Company agreed to
provide them (through cash bonuses and loans) with substantially all of
the cash necessary for them to pay the income taxes that they are expected
to incur as a result of the issuances. Pursuant to these agreements, the
Company made a cash bonus payment to Mr. Aitken of $1,401 and loaned him
$550 and made a cash bonus payment to Ms. Eames of $846 and loaned her
$390. The loans, which have been issued on a recourse basis, provide for
interest at the rate of 4.65% compounded annually. All outstanding
principal and accrued interest will be due on the earlier of April 30,
2007 or the date on which the employee disposes of the common shares
received in accordance with the agreements. As collateral for the loans
the employees have pledged an aggregate of 1,155 fully vested
non-qualified stock options held by the employees and any proceeds
received from the sale of the underlying securities. In addition, pursuant
to these agreements, TW UK agreed to indemnify Mr. Aitken and Ms. Eames
for certain income tax liabilities that they may incur as a result of
these share issuances, subject to a maximum aggregate amount of $1,000.
These executive bonuses and loans have been approved by the Company's
Board of Directors. The Company has recognized an aggregate expense of
$6,558 related to these transactions in the quarter ended June 30, 2002.
The Company has agreed to register, at its expense, the resale of the
shares issued to Mr. Aitken and Ms. Eames.
Page 14
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
10. STOCK PURCHASE AGREEMENT:
On April 22, 2002, the Company entered into a Stock Purchase Agreement
with Hyperion TWH Fund II LLC, Triumph Partners III, L.P. and Triumph III
Investors, L.P pursuant to which the Company issued, on April 30, 2002, an
aggregate of 750 shares of the Company's common stock at a per share
purchase price of $4.25 per share. In addition, the Company has agreed to
register, at its expense the resale of such shares.
11. CORPORATE REORGANIZATION:
On April 24, 2002, the Company entered into a Master Reorganization
Agreement ("Reorganization Agreement"), with its U.K. subsidiaries -
Allied Healthcare Group Limited (the "UK Parent") and TW UK - and certain
investors in such subsidiaries.
The following transactions are referred to as the "Reorganization." Both
the Reorganization Agreement and Reorganization were voted upon and
approved at the Company's annual meeting of shareholders on June 7, 2002.
Under the Reorganization:
o Holders of the then outstanding redeemable shares of TW UK
will exchange their redeemable shares for shares of our
Company's common stock, using the net exercise method, and
receive either 0.1308 or 0.1657 shares of our Company's common
stock per redeemable share (depending upon the exercise price
of the redeemable share).
o Holders of ordinary shares of TW UK will exchange their
ordinary shares for shares of the Company's common stock at an
exchange ratio of 2.867 TW UK ordinary shares for every one
share of the Company's common stock (which is the equivalent
of 0.3488 shares of the Company's common stock for every
ordinary share of TW UK). This ratio of TW UK securities for
our Company's securities is referred to as the "Exchange
Ratio."
o All warrants held by the mezzanine lenders (the "Mezzanine
Warrants") of TW UK , that were issued in connection with the
refinancing of the Company's U.K. operations in 1999, will be
exercised for an aggregate of 1,640 ordinary shares of TW UK.
Each resulting ordinary share will be exchanged for 0.3488
shares of the Company's common stock. The exercise price for
the Mezzanine Warrants may be paid, at the option of the
holder, in cash or by reducing the interest that such holder
would otherwise have received under the mezzanine loan.
o Holders of the equity warrants of TW UK, that were issued in
connection with the refinancing of the Company's U.K.
operations in 1999, will exercise their equity warrants
through the tender of the senior subordinated promissory notes
of UK Parent (exclusive of accrued and unpaid PIK interest)
and receive an aggregate of 22,287 ordinary shares of TW UK.
Each resulting ordinary share will be exchanged for 0.3488
shares of the Company's new Series A preferred stock.
Page 15
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
11. CORPORATE REORGANIZATION (CONTINUED):
o Accrued and unpaid interest owed to the holders of the senior
subordinated promissory notes (the "Notes") issued by UK
Parent in the refinancing of the Company's U.K. operation in
1999, will be issued funding notes (the "Loan Notes") by UK
Parent in the principal amount of the accrued and unpaid
interest owed them through June 17, 2002, less amounts which
were withheld from certain U.K. residents as withholding
taxes, and the funding notes will in turn be exchanged for
shares of the Company's common stock at the rate of 0.3488
shares for every(pound)2.00 of Loan Notes. Interest will
accrue on the Notes through June 17, 2002 (regardless of the
date on which the Reorganization is actually consummated)
because the new shares of Series A preferred stock are
entitled to receive dividends commencing on June 18, 2002. The
Company has accrued preferred stock dividends of $114 as
required under the Reorganization Agreement for the period
from June 18, 2002 to June 30, 2002, even though the Series A
preferred stock had not been issued by June 30, 2002. The new
shares of Series A preferred stock are intended to replace the
Notes of UK Parent.
o Lastly, the special voting share of TW UK held by Triumph
Partners III, L.P. will be exchanged for one ordinary share of
TW UK. However, since conversion of this ordinary share at the
Exchange Ratio would result in 0.3488 shares of the Company's
common stock being issued, it has been agreed that, in the
Reorganization, the Company will issue zero shares of the
Company's common stock in respect of the ordinary share into
which the special voting share has been exchanged.
As a result of the foregoing, the Company will issue up to an aggregate
of:
o 414 shares of the Company's common stock to holders of the
redeemable shares of TW UK;
o 366 shares of the Company's common stock to the holders (other
than UK Parent) of the ordinary shares of TW UK;
o 572 shares of the Company's common stock to the holders of
the mezzanine warrants of TW UK;
o 7,774 shares of the Company's new Series A preferred stock to
holders of the equity warrants of TW UK;
o 1,007 shares of the Company's common stock to holders of the
accrued and unpaid interest of UK Parent;
o zero shares of the Company's common stock in exchange for the
special voting share held by Triumph Partners III, L.P.
Thus, we will issue up to an aggregate of 2,359 shares of the Company's
common stock and 7,774 shares of the Company's new Series A preferred
stock in the Reorganization.
Page 16
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
11. CORPORATE REORGANIZATION (CONTINUED):
For certain holders of the Notes, the Reorganization Agreement was amended
to provide them with the right to require UK Parent to issue the Loan
Notes, and the Company to issue its shares of common stock, to such
holders or their assignees. Such issuances may occur after the effective
time of the Reorganization, but the amount of the Loan Notes will in all
cases be equal to the amount of accrued and unpaid interest on the Notes
through June 17, 2002.
The following tables display the unaudited pro forma results of operations
and related per share information as if the Reorganization was completed
as of October 1, 2001. The unaudited pro forma results principally reflect
the reversal of interest expense, net of tax, related to the Notes of UK
Parent to reflect the exercise of Equity Warrants and the related exchange
of TW UK shares for the Company's new Series A preferred stock. The
unaudited pro forma balance sheet information assumes that the
transactions comprising the Reorganization, including the Company's
issuance of 2,359 shares of common stock and 7,774 shares of new Series A
preferred stock, occurred as of June 30, 2002. The pro forma results are
based on the historical financial statements of the Company as of June 30,
2002 and for the three and nine months ended June 30, 2002.
JUNE 30, 2002
------------------------
Current assets $ 74,474
Noncurrent assets 184,339
Current liabilities 54,385
Noncurrent liabilities 117,252
Redeemable preferred stock 34,011
Stockholders' equity 53,165
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2002
----------------------- -------------------
Net revenues $ 64,774 $ 187,694
Gross profit 17,872 50,815
Operating (loss) income (1,002) 10,923
Net loss (4,841) (367)
Net loss available for common shareholders (5,716) (2,902)
Loss per share of common stock:
Basic and Diluted (0.27) (0.14)
The above pro forma results, exclude the following one time and
non-recurring adjustments related to the Reorganization:
o The Company expects to recognize compensation expense of
approximately $1,618 on the exchange of 2,523 management's and
employees' redeemable shares of TW UK for new shares of the
Company's common stock calculated using a net exercise method.
o The Company expects to recognize a gain of approximately
$4,912 on the settlement of accrued and unpaid interest owed
to the holders of the Notes of UK Parent in exchange for new
shares of the Company's common stock.
o The Company expects to recognize a charge of approximately
$975 to reflect the write off of deferred costs associated
with the Notes of UK Parent issued in 1999, which will be
exchanged in the Reorganization.
Page 17
ALLIED HEALTHCARE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
11. CORPORATE REORGANIZATION (CONTINUED):
The Company has agreed to register, at its expense, the resale of all of
the shares of common stock to be issued in the Reorganization and the
shares of common stock issuable upon conversion of the Series A preferred
stock.
The Reorganization was subsequently closed on July 25, 2002.
Page 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are one of the leading providers of healthcare staffing services,
including nursing and ancillary services, to the United Kingdom ("U.K.")
healthcare industry. We operate a community-based network of over 100
branches, with the capacity to provide nurses, carers (often referred to
as home health aides in the United States) and specialized medical
personnel to locations covering approximately 90% of the population of the
U.K. We provide healthcare staffing services to hospitals, local
governmental authorities, nursing homes and private patients in the U.K.
Through our U.K. operations, we also supply medical grade oxygen for use
in respiratory therapy to the U.K. pharmacy market and to private patients
in Northern Ireland.
Our United States ("U.S.") operations, which are concentrated in New York
and New Jersey, supply infusion therapy, respiratory therapy and home
medical equipment and accounted for less than 10% of our revenues during
the nine months ended June 30, 2002.We provide these services and products
from the following reportable business segments:
o our U.K. operations, and
o our U.S. home healthcare operations.
We previously provided specialty pharmaceutical and medical supplies in
the U.K. On November 22, 2000, we sold Amcare, Ltd. ("Amcare"), a U.K.
subsidiary.
On April 24, 2002, we entered into a Master Reorganization Agreement
("Reorganization Agreement"), with two of our subsidiaries - Allied
Healthcare Group Limited (the "UK Parent") and Transworld Healthcare (UK)
Limited (the "TW UK") - and certain investors in such subsidiaries.
The following transactions are referred to as the "Reorganization." Both
the Reorganization Agreement and Reorganization were voted upon and
approved at the Company's annual meeting of shareholders on June 7, 2002.
Under the Reorganization:
o Holders of redeemable shares of TW UK will exchange their
redeemable shares for shares of our common stock, using the
net exercise method, and receive either 0.1308 or 0.1657
shares of our common stock per redeemable share (depending
upon the exercise price of the redeemable share).
o Holders of ordinary shares of TW UK will exchange their
ordinary shares for shares of our common stock at an exchange
ratio of 2.867 TW UK ordinary shares for every one share of
our common stock (which is the equivalent of 0.3488 shares of
our common stock for every ordinary share of TW UK). This
ratio of TW UK securities for our securities is referred to as
the "Exchange Ratio."
o All warrants held by the mezzanine lenders (the "Mezzanine
Warrants") of TW UK , that were issued in connection with the
refinancing of our U.K. operations in 1999, will be exercised
for an aggregate of 1,640,000 ordinary shares of TW UK. Each
resulting ordinary share will be exchanged for 0.3488 shares
of our common stock. The exercise price for the Mezzanine
Warrants may paid, at the option of the holder, in cash or by
reducing the interest that such holder would otherwise receive
under the mezzanine loan.
Page 19
o Holders of the equity warrants of TW UK, that were issued in
connection with the refinancing of our U.K. operations in
1999, will exercise their equity warrants through the tender
of the senior subordinated promissory notes of UK Parent
(exclusive of accrued and unpaid PIK interest) and receive an
aggregate of 22,286,869 ordinary shares of TW UK. Each
resulting ordinary share will be exchanged for 0.3488 shares
of our new Series A preferred stock.
o Accrued and unpaid interest owed to the holders of the senior
subordinated promissory notes (the "Notes") issued by UK
Parent in the refinancing of our U.K. operations in 1999, will
be issued funding notes (the "Loan Notes") by UK Parent in the
principal amount of the accrued and unpaid interest owed them
through June 17, 2002, less amounts which are withheld from
certain U.K. residents as withholding taxes, and the funding
notes will in turn be exchanged for shares of our common stock
at the rate of 0.3488 shares for every(pound)2.00 of Loan
Notes. Interest will accrue on the Notes through June 17, 2002
(regardless of the date on which the Reorganization is
actually consummated) because the new shares of Series A
preferred stock are be entitled to receive dividends
commencing on June 18, 2002. We have accrued preferred stock
dividends of $114,000 as required under the Reorganization
Agreement for the period from June 18, 2002 to June 30, 2002,
even though the Series A preferred stock had not been issued
by June 30, 2002. The new shares of Series A preferred stock
are intended to replace the Notes of UK Parent.
o Lastly, the special voting share of TW UK held by Triumph
Partners III, L.P. will be exchanged for one ordinary share of
TW UK. However, since conversion of this ordinary share at the
Exchange Ratio would result in 0.3488 shares of our common
stock being issued, it has been agreed that, in the
Reorganization, we will issue zero shares of our common stock
in respect of the ordinary share into which the special voting
share has been exchanged.
As a result of the foregoing, pursuant to the Reorganization Agreement we
will issue up to an aggregate of:
o 413,801 shares of our common stock to holders of the
redeemable shares of TW UK;
o 366,240 shares of our common stock to the holders (other than
UK Parent) of the ordinary shares of TW UK;
o 572,032 shares of our common stock to the holders of the
mezzanine warrants of TW UK;
o 7,773,660 shares of our new Series A preferred stock to
holders of the equity warrants of TW UK;
o 1,006,857 shares of our common stock to holders of the accrued
and unpaid interest of UK Parent;
o zero shares of our common stock in exchange for the special
voting share held by Triumph Partners III, L.P.
Thus, we will issue up to an aggregate of 2,358,930 shares of the
Company's common stock and up to an aggregate of 7,773,660 shares of the
Company's new Series A preferred stock in the Reorganization.
For certain holders of the Notes, the Reorganization Agreement was amended
to provide them with the right to require UK Parent to issue the Loan
Notes, and our company to issue its shares of
Page 20
common stock, to such holders or their assignees. Such issuances may occur
after the effective time of the Reorganization, but the amount of the Loan
Notes will in all cases be equal to the amount of accrued and unpaid
interest on the Notes through June 17, 2002.
As a result of the Reorganization and other transactions, as fully
described in Note 10 of Notes to Condensed Consolidated Financial
Statements, we expect to recognize certain charges in the fourth quarter.
Such amounts will be offset by a gain on the settlement of accrued and
unpaid interest owed to the holders of the Notes of UK Parent in exchange
for new shares of our common stock.
The Reorganization was subsequently closed on July 25, 2002.
CRITICAL ACCOUNTING POLICIES
Accounts Receivable
-------------------
We are required to estimate the collectibility of our accounts
receivables, which requires a considerable amount of judgment in assessing
the ultimate realization of these receivable, including the current
credit-worthiness of each customer. Significant changes in required
reserves may occur in the future as we continue to expand our business and
as conditions in the marketplace change.
Intangible Assets
-----------------
We have significant amounts of goodwill. The determination of whether or
not goodwill has become impaired involves a significant amount of
judgment. Changes in strategy and/or market conditions could significantly
impact these judgments and require adjustments to recorded amounts of
goodwill.
Deferred Taxes
--------------
We account for deferred income taxes based upon differences between the
financial reporting and income tax bases of our assets and liabilities.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amounts expected to be realized. The determination of
whether or not valuation allowances are required to be recorded involves
significant estimates regarding the future profitability of our company,
as well as potential tax strategies for the utilization of net loss and
operating loss carry forwards.
Contingencies
-------------
Related to our acquisitions of flexible staffing agencies, we have entered
into agreements to pay additional amounts, payable in cash, in contingent
consideration dependent upon future earnings of such acquired entities.
See Note 5 of the Notes to Condensed Consolidated Financial Statements.
During the normal course of business we are involved in legal proceedings
and claims incidental to our normal business activities. We are required
to assess the likelihood of any adverse judgments or outcomes to these
matters as well as potential ranges of probable losses. A determination of
the amount of reserves required, if any, for these contingencies are made
after careful analysis of each individual issue. The required reserves may
change in the future due to new developments in each matter or changes in
approach such as a change in settlement strategy in dealing with these
matters.
Revenue Recognition
-------------------
Patient services and infusion and respiratory therapy revenues are
recognized when services are performed and are recorded net of estimated
contractual adjustments based on agreements with third-party payors, where
applicable. Revenues from the rental of home medical equipment
Page 21
(including respiratory equipment) are recognized over the rental period
(typically on a month-to-month basis). Revenues from the sale of
pharmaceuticals and supplies are recognized when products are shipped and
are recorded at amounts expected to be paid by third-party payors.
We receive a majority of our revenue from third-party insurance companies,
the National Health Services (the "NHS") and other U.K. governmental
payors, Medicare and Medicaid. The amount paid by third-party payors is
dependent upon the benefits included in the patient's policy or as
allowable amounts set by third-party payors. Certain revenues are subject
to review by third-party payors, and adjustments, if any, are recorded
when determined.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2002 vs. Three Months Ended June 30, 2001
Revenues
--------
Total revenues increased by $27,354,000 or 73.1% to $64,774,000 for the
three months ended June 30, 2002 from $37,420,000 for the three months
ended June 30, 2001. This increase relates primarily to the growth of our
company's U.K. flexible staffing operations as a result of acquisitions,
principally Staffing Enterprise Limited and Staffing (PSV) Limited
(collectively "Staffing Enterprise") ($15,908,000), Crystalglen Limited
(operating under the trade name "Nurses Direct") ($3,770,000), and Balfor
Medical ($1,688,000) and internal growth ($5,981,000).
Gross Profit
------------
Total gross profit increased by $6,222,000 to $17,872,000 for the three
months ended June 30, 2002 from $11,650,000 for the three months ended
June 30, 2001. As a percentage of total revenue, gross profit for the
three months ended June 30, 2002 decreased to 27.6% from 31.1% for the
comparable prior period. Gross margins for patient services decreased
(26.8% for the three months ended June 30, 2002 versus 30.7% for the
comparable prior period) principally due to an increase in the percentage
of revenues derived from the staffing of nurses and other more highly paid
professionals, which have lower margins than the historical carer
business. In addition, U.K. regulatory changes, which extend the
entitlement of holiday pay to temporary workers, served to reduce gross
margins in the current year. Gross margins in the respiratory, medical
equipment and supplies sales increased (45.7% for the three months ended
June 30, 2002 versus 43.9% for the comparable prior period) mainly due to
the sales mix. Gross margins for infusion services also increased (28.9%
for the three months ended June 30, 2002 versus 27.0% for the comparable
prior period) principally due to product sales mix.
Selling, General and Administrative Expenses
--------------------------------------------
Total selling, general and administrative expenses increased by $4,690,000
to $13,838,000 for the three months ended June 30, 2002 from $9,148,000
for the three months ended June 30, 2001. The increase reflects $2,341,000
representing certain tax equalization bonuses paid to senior management
for the reimbursement of income taxes incurred as a result of share
issuances and the higher level of overhead costs in our U.K. operations
due principally to acquisitions and internal growth ($2,415,000). This
increase was partially offset by the application of Financial Accounting
Standards Board FAS 142, "Goodwill and Other Intangible Assets" ("FAS
142"), effective October 1, 2001, whereby goodwill is no longer being
amortized ($929,000).
Non-cash Stock-Based Compensation
---------------------------------
We recorded a non-cash charge of $4,217,000 for the three months ended
June 30, 2002 for the issuance of shares of our common stock to senior
management.
Page 22
Transaction Expenses
--------------------
We recorded a charge of $819, 000 for the three months ended June 30, 2002
for the write-off of non-capitalized costs incurred in connection with
evaluating options to maximize the value of our ownership interest in our
U.K. operations.
Interest Income
---------------
Total interest income increased by $337,000 to $720,000 for the three
months ended June 30, 2002 from $383,000 for the three months ended June
30, 2001. This increase was principally attributable to a higher level of
funds invested.
Interest Expense
----------------
Total interest expense increased by $1,544,000 to $4,168,000 for the three
months ended June 30, 2002 from $2,624,000 for the three months ended June
30, 2001. This increase was principally attributable to the higher level
of borrowings.
Provision (Benefit) for Income Taxes
------------------------------------
We recorded a provision for income taxes amounting to $983,000 for the
three months ended June 30, 2002 representing taxes payable for our U.K.
operations. The difference between the effective tax rate for the three
months ended June 30, 2002 and the statutory tax rate is due to our
recording of an additional valuation allowance for the tax benefit
associated with the current year U.S. operating loss.
We had been previously committed to implementing tax strategies that
provided for the sale of appreciated assets, including a portion of our
ownership interest in our U.K. subsidiary, to generate sufficient taxable
income to realize the tax net operating losses prior to their expiration.
While we believe we will eventually realize the value of our tax losses,
current developments, including the continued expansion of our U.K.
operations has increased the uncertainty as to both the execution of the
original strategy and the appropriateness of a tax strategy which may not
align with our current business strategy. These uncertainties have
impaired our ability to determine whether it is more likely than not that
our deferred tax assets will be realized. Accordingly, in the fourth
quarter of fiscal 2001, a full valuation allowance for all remaining
deferred tax assets was provided.
Minority Interest
-----------------
We recorded a charge for minority interest of $34,000 for the three months
ended June 30, 2002 representing the 1,050,000 ordinary shares of TW UK
issued as part of the Nightingale Bureau Limited ("Nightingale")
consideration.
Net Income (Loss)
-----------------
As a result of the foregoing, we recorded a net loss of $5,465,000 for the
three months ended June 30, 2002 versus net income of $40,000 for the
three months ended June 30, 2001.
Nine Months Ended June 30, 2002 vs. Nine Months Ended June 30, 2001
Revenues
--------
Total revenues for the nine months ended June 30, 2002 and 2001 were
$187,694,000 and $110,259,000, respectively. This represents an increase
of $77,435,000 when comparing the nine months ended June 31, 2002 to 2001.
This increase relates primarily to the growth of our company's U.K.
flexible staffing operations as a result of acquisitions, principally
Staffing Enterprise Limited and Staffing (PSV) Limited (collectively
"Staffing Enterprise") ($45,942,000), Crystalglen Limited
Page 23
(operating under the trade name "Nurses Direct") ($11,125,000), and Balfor
Medical ($4,534,000) and internal growth ($17,715,000). In addition,
revenues for our home healthcare operations increased by $756,000 largely
due to the increase in the number of patients serviced. Partly offsetting
these increases were declines in revenue due to the sale of Amcare
($2,861,000).
Gross Profit
------------
Total gross profit increased by $16,671,000 to $50,815,000 for the nine
months ended June 31, 2002 from $34,144,000 for the nine months ended June
31, 2001. As a percentage of total revenue, gross profit for the nine
months ended June 31, 2002 decreased to 27.1% from 31.0% for the
comparable prior period. Gross margins for patient services decreased
(26.3% for the nine months ended June 31, 2002 versus 30.7% for the
comparable prior period) principally due to an increase in the percentage
of revenues derived from the staffing of nurses and other more highly paid
professionals, which have lower margins than the historical carer
business. In addition, recent U.K. regulatory changes, which extend the
entitlement of holiday pay to temporary workers, served to reduce gross
margins in the period. Gross margins in the respiratory, medical equipment
and supplies sales increased (45.0% for the nine months ended June 30,
2002 versus 36.5% for the comparable prior period) principally due to the
sale of Amcare in November 2000 and increased for infusion services (27.4%
for the nine months ended June 31, 2002 versus 28.3% for the comparable
prior period) principally due to higher product costs.
Selling, General and Administrative Expenses
--------------------------------------------
Total selling, general and administrative expenses for the nine months
ended June 31, 2002 and 2001 were $34,856,000 and $31,061,000,
respectively. This represents an increase of $3,795,000 or 12.2% when
comparing the nine months ended June 31, 2002 to 2001. This increase
reflects higher levels of overhead costs in the U.K. operations due
principally to acquisitions and internal growth ($8,901,000) and
$2,341,000 representing certain tax equalization bonuses paid to senior
management for the reimbursement of income taxes incurred as a result of
share issuances. These amounts were partially offset by the savings from
closing our U.S. Mail-Order business in fiscal 2001 ($3,904,000), the sale
of Amcare in November 2000 ($419,000) and reduced corporate overhead and
professional costs ($407,000). In addition, the decrease is attributable
to the application of Financial Accounting Standards Board FAS 142,
"Goodwill and Other Intangible Assets" ("FAS 142"), effective October 1,
2001, whereby goodwill is no longer being amortized ($2,819,000).
Non-cash Stock-Based Compensation
---------------------------------
We recorded a non-cash charge of $4,217,000 in the nine months ended June
30, 2002 for the issuance of shares of our common stock to senior
management.
Transaction Expenses
--------------------
We recorded a charge of $819, 000 for the nine months ended June 30, 2002
for the write-off of non-capitalized costs incurred in connection with
evaluating options to maximize the value of our ownership interest in our
U.K. operations.
Losses due to Sale of Subsidiary
--------------------------------
In the nine months ended June 30, 2001, we recorded a loss of $354,000 due
to the sale of Amcare.
Interest Income
---------------
Total interest income for the nine months ended June 30, 2002 and 2001 was
$2,253,000 and $1,288,000, respectively. This represents an increase of
$965,000 when comparing the nine months
Page 24
ended June 30, 2002 to 2001. This increase was attributable to a higher
level of funds invested.
Interest Expense
----------------
Total interest expense for the nine months ended June 30, 2002 and 2001
was $12,278,000 and $7,508,000, respectively. This represents an increase
of $4,770,000 when comparing the nine months ended June 30, 2002 to 2001.
This increase was principally attributable to the higher level of
borrowings.
Foreign Exchange Loss
---------------------
For the nine months ended June 30, 2002, we realized a foreign exchange
loss of $18,000 compared to $391,000 for the nine months ended June 30,
2001 which was principally related to the sale of Amcare.
Provision (Benefit) for Income Taxes
------------------------------------
We recorded a provision for income taxes amounting to $3,142,000
principally reflecting taxes on U.K. based income. The difference between
the effective tax rate for the nine months ended June 30, 2002 and the
statutory tax rate is due to our recording of an additional valuation
allowance for the tax benefit associated with the current year U.S.
operating loss.
We had been previously committed to implementing tax strategies that
provided for the sale of appreciated assets, including a portion of our
ownership interest in our U.K. subsidiary, to generate sufficient taxable
income to realize the tax net operating losses prior to their expiration.
While we believe we will eventually realize the value of our tax losses,
current developments, including the continued expansion of our U.K.
operations has increased the uncertainty as to both the execution of the
original strategy and the appropriateness of a tax strategy which may not
align with our current business strategy. These uncertainties have
impaired our ability to determine whether it is more likely than not that
our deferred tax assets will be realized. Accordingly, in the fourth
quarter of fiscal 2001, a full valuation allowance for all remaining
deferred tax assets was provided.
Minority Interest
-----------------
We recorded a charge for minority interest of $120,000 for the nine months
ended June 30, 2002 compared to $12,000 for the nine months ended June 30,
2001. The minority interest represents the 1,050,000 ordinary shares of TW
UK issued as part of the Nightingale consideration.
Net Loss
--------
As a result of the foregoing, we recorded a net loss of $2,382,000 for the
nine months ended June 30, 2002 compared to a net loss of $3,204,000 for
the nine months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
General
For the nine months ended June 30, 2002, we generated $4,260,000 from
operating activities. Cash requirements for the nine months ended June 30,
2002 for capital expenditures ($3,069,000), payments on acquisition
payable ($1,774,000), payments on notes payable ($3,379,000) and payments
on long-term debt ($5,056,000), were met through operating cash flows and
cash on hand.
On April 22, 2002, we issued 684,258 shares of common stock to Timothy M.
Aitken, chairman and chief executive officer, and 487,099 shares of common
stock to Sarah L. Eames, president and chief operating officer, as a bonus
for, among other things, services rendered through the date of issuance.
Page 25
Simultaneously with this issuance, we entered into agreements with Mr.
Aitken and Ms. Eames in which we agreed to provide them (through cash
bonuses and loans) with substantially all of the cash necessary for them
to pay the income taxes that they are expected to incur as a result of the
issuances. Pursuant to these agreements, we made a cash bonus payment to
Mr. Aitken of $1,401,000 and loaned him $550,000 and made a cash bonus
payment to Ms. Eames of $846,000 and loaned her $390,000. The loans, which
have been issued on a recourse basis, provide for interest at the rate of
4.65% compounded annually. All outstanding principal and accrued interest
will be due on the earlier of April 30, 2007 or the date on which the
employee disposes of the common shares received in accordance with the
agreements. As collateral for the loans the employees have pledged an
aggregate of 1,155,000 fully vested non-qualified stock options held by
the employees and any proceeds received from the sale of the underlying
securities. In addition, pursuant to these agreements, TW UK agreed to
indemnify Mr. Aitken and Ms. Eames for certain income tax liabilities that
they may incur as a result of these share issuances, subject to a maximum
aggregate amount of $1,000,000. These executive bonuses and loans have
been approved by the Company's Board of Directors. We recognized an
aggregate expense of $6,558,000 related to these transactions in the
quarter ended June 30, 2002.
In addition, on April 22, 2002, we entered into a Stock Purchase Agreement
with Hyperion TWH Fund II LLC, Triumph Partners III, L.P. and Triumph III
Investors, L.P pursuant to which we agreed to issue an aggregate of
750,000 shares of our common stock at a per share purchase price of $4.25
per share. Such shares were issued on April 30, 2002.
We have agreed to register, at our expense, the resale of all of the
foregoing shares.
In January 2001, we initiated a stock repurchase program, whereby we may
purchase up to approximately $1,000,000 of our outstanding common stock in
open market transactions or in privately negotiated transactions. As of
June 30, 2002, we had acquired 266,200 shares for an aggregate purchase
price of $720,000 which are reflected as treasury stock in the
consolidated balance sheet at June 30, 2002.
We believe the existing capital resources and those generated from
operating activities and available under existing borrowing arrangements
will be adequate to conduct our operations for the next twelve months.
Restricted Cash
Restricted cash represents cash and cash equivalents, advanced under the
Refinancing (as defined under "Borrowings" - "General"), available for
payment of consideration for certain permitted acquisitions under the
Senior Credit Facility, including the payment of contingent consideration
for completed transactions.
Accounts Receivable
We maintain a cash management program that focuses on the reimbursement
function, as growth in accounts receivable has been the main operating use
of cash historically. At June 30, 2002 and September 30, 2001, $31,627,000
(12.2%) and $29,555,000 (11.9%), respectively, of our total assets
consisted of accounts receivable. The increase in the accounts receivable
from fiscal year end is mainly due to timing of cash collections.
Our goal is to maintain accounts receivable levels equal to or less than
industry average, which would tend to mitigate the risk of recurrence of
negative cash flows from operations by reducing the required investment in
accounts receivable and thereby increasing cash flows from operations.
Day's sales outstanding ("DSOs") is a measure of the average number of
days taken by our company to collect its
Page 26
accounts receivable, calculated from the date services are rendered. At
June 30, 2002 and September 30, 2001, our average DSOs were 44 and 60,
respectively. Excluding the impact of the acquisition of Staffing
Enterprise as of September 27, 2001, DSOs as of September 30, 2001 were
44.
Borrowings
General
-------
As described more fully below, on December 17, 1999, as amended on
September 27, 2001, our company's U.K. subsidiaries, TW UK and its
subsidiary obtained new financing denominated in pounds sterling, which
aggregates approximately $206,173,000 at June 30, 2002. The financing
consists of a $146,382,000 senior collateralized term and revolving credit
facility (the "Senior Credit Facility"), $16,723,000 in mezzanine
indebtedness (the "Mezzanine Loan") and $43,068,000 of senior subordinated
notes (the "Notes") (each of the foregoing are sometimes referred to
collectively herein as the "Refinancing").
Senior Credit Facility
----------------------
The Senior Credit Facility consists of the following:
o $42,918,000 term loan A, maturing December 17, 2005;
o $19,160,000 acquisition term loan B, maturing December
17, 2006, which may be drawn upon during the first nine
years following closing;
o per the September 27, 2001 amendment, $76,640,000 term
loan C, maturing June 30, 2007; and
o $7,664,000 revolving facility, maturing December 17,
2005.
Repayment of the loans commenced on July 30, 2000 and continues until
final maturity. The loans bear interest at rates equal to LIBOR plus 2.25%
to 3.50% per annum. As of June 30, 2002, we had outstanding borrowings of
$107,756,000 under the Senior Credit Facility that bore interest at a rate
of 6.34% to 7.59%.
Subject to certain exceptions, the Senior Credit Facility prohibits or
restricts the following:
o the incurrence of liens;
o the incurrence of indebtedness;
o certain fundamental corporate changes;
o dividends (including distributions to us);
o the making of specified investments; and
o certain transactions with affiliates.
In addition, the Senior Credit Facility contains affirmative and negative
financial covenants customarily found in agreements of this kind,
including the maintenance of certain financial ratios, such as senior
interest coverage, debt to earnings before interest, taxes, depreciation
and amortization, fixed charge coverage and minimum net worth.
The loans under the Senior Credit Facility are collateralized by, among
other things, a lien on substantially all of TW UK's and its subsidiaries'
assets, a pledge of TW UK's ownership interest in its subsidiaries and
guaranties by TW UK's subsidiaries.
Mezzanine Loan and Mezzanine Warrants
-------------------------------------
The Mezzanine Loan is a term loan maturing December 17, 2007 and bears
interest at the rate of LIBOR plus 7% per annum, where LIBOR plus 3.5%
will be payable in cash, with the remaining interest being added to the
principal amount of the loan. The Mezzanine Loan contains other terms and
conditions substantially similar to those contained in the Senior Credit
Facility. The lenders of
Page 27
the Mezzanine Loan also received warrants to purchase an aggregate of 2%
of the fully-diluted ordinary shares of TW UK. As of June 30, 2002, we had
outstanding borrowings under the Mezzanine Loan of $15,062,000, which bore
interest at a rate of 10.99%.
The warrants issued to the mezzanine lenders (the "Mezzanine Warrants")
are detachable and can be exercised at any time without condition for an
aggregate exercise price of approximately $125,000. The fair value of the
Mezzanine Warrants ($2,430,000) issued to the mezzanine lenders has been
recorded as a discount to the Mezzanine Loan and is being amortized over
the term of the loan using the interest method.
In the Reorganization, the Mezzanine Warrants will be exercised and the
ordinary shares of TW UK received upon such exercise will be exchanged at
the Exchange Ratio for up to an aggregate of 572,032 shares of our common
stock in accordance with the terms of the Reorganization Agreement.
Senior Subordinated Promissory Notes and Equity Warrants
--------------------------------------------------------
The Notes consist of an aggregate of $34,162,000 principal amount of
senior subordinated promissory notes of UK Parent purchased by several
institutional investors and certain members of management (collectively,
the "Investors"), plus equity warrants issued by TW UK concurrently with
the sale of the Notes (the "Equity Warrants") which are exercisable for
ordinary shares of TW UK (Warrant Shares") representing, in the aggregate,
approximately 27.0% of the fully-diluted ordinary shares of TW UK.
The Notes bear interest at the rate of 9.375% per annum payable quarterly
in cash subject to restrictions contained in the Senior Credit Facility
requiring UK Parent to pay interest in-kind through the issuance of
additional notes ("PIK Notes") for the first 18 months, with payment of
interest in cash thereafter subject to a fixed charge coverage test
(provided that whenever interest cannot be paid in cash, additional PIK
Notes shall be issued as payment in-kind of such interest). As of June 30,
2002, $8,906,000 of PIK Notes has been recorded as additional principal
due in our consolidated balance sheet. The Notes and related PIK Notes
mature nine years from issuance.
UK Parent will not have the right to redeem the Notes and the PIK Notes
except as provided in, and in accordance with, the securities purchase
agreement and the related documents governing the issuance of the Notes
and the Equity Warrants (collectively, the "Securities Purchase
Documents"). The redemption price of the Notes and the PIK Notes will
equal the principal amount of the Notes and the PIK Notes plus all accrued
and unpaid interest on each.
The Investors have the right, at their option, to require UK Parent to
redeem all or any portion of the Notes and the PIK Notes under certain
circumstances and in accordance with the terms of the Securities Purchase
Documents. The redemption price of the Notes and the PIK Notes shall be
equal to the principal amount of the Notes and the PIK Notes, plus all
accrued and unpaid interest on each.
UK Parent's redemption obligation of the Notes and the PIK Notes is
guaranteed by TW UK, which guarantee is subordinated to the existing
senior indebtedness of TW UK to the same extent as the Notes and the PIK
Notes are subordinated to senior indebtedness of UK Parent. If UK Parent
fails to perform in full its obligations following exercise of the
Investors put of Notes and TW UK fails to perform its obligations as a
guarantor of such obligations, the Investors shall have the right, among
other things, to exercise directly (through the voting trust described
below) the drag-along rights described in the Securities Purchase
Documents without the requirement that the board of directors of TW UK
first take any action.
The Equity Warrants may be exercised, in whole or in part, at any time,
unless previously purchased or cancelled upon a redemption of the Notes,
at the option of the holders prior to the time of
Page 28
maturity of the Notes for Warrant Shares representing approximately 27.0%
of TW UK's fully-diluted ordinary share capital, subject to antidilution
adjustment as contained in the Securities Purchase Documents.
The exercise price of the Equity Warrants shall equal the entire principal
amount of the Notes (other than PIK Notes and excluding any accrued unpaid
interest) for all Equity Warrants in the aggregate and can be exercised
for cash or through the tender of Notes (other than PIK Notes) to TW UK,
whereby TW UK shall issue to the Investors the appropriate number of
Warrant Shares and pay to the Investors in cash an amount equal to the
principal amount of the PIK Notes and all accrued unpaid interest on the
Notes and the PIK Notes. In the event that any Equity Warrants are
exercised by tendering cash, UK Parent shall have the right, at its option
(which it intends to exercise), to redeem the aggregate principal amount
of Notes equal to the number of Equity Warrants so exercised multiplied by
the warrant exercise price.
The Equity Warrants will automatically be exercised for Warrant Shares in
the event that TW UK consummates a public offering of shares valuing the
Investors' ordinary shares of TW UK issuable upon a voluntary exercise of
the Equity Warrants at or above 2.5x the initial investment made by the
Investors.
The Investors will have the right, at their option, to require UK Parent
to purchase all or any portion of the Equity Warrants or the Warrant
Shares under certain circumstances and in accordance with the terms of the
Securities Purchase Documents. The purchase price of the Equity Warrants
shall be equal to the difference, if a positive number, between (1) the
fair market value of the Warrant Shares which the Investors have the right
to acquire upon exercise of such Equity Warrants and (2) the exercise
price of such Equity Warrants. The purchase price of the Warrant Shares
shall be equal to the fair market value of the Warrant Shares.
UK Parent's purchase obligation of the Equity Warrants is guaranteed by TW
UK, which guarantee is subordinated to existing senior indebtedness of TW
UK. If UK Parent fails to perform in full its obligations following
exercise of the Investors put of Equity Warrants and TW UK fails to
perform its obligations as a guarantor of such obligations, the Investors
shall have the right, among other things, to exercise directly through the
voting trust the drag-along rights described in the Securities Purchase
Documents without the requirement that the board of directors of TW UK
first take any action.
If UK Parent fails to perform in full its obligations following exercise
of the Investors put of Warrant Shares, the Investor shall have the right,
among other things, to exercise directly through the voting trust the
drag-along rights described in the Securities Purchase Documents without
the requirement that the board of directors of TW UK first take any
action.
Following an initial public offering and upon exchange of the Equity
Warrants, the Investors shall be entitled to two demand rights and
unlimited piggyback registrations with respect to the Warrant Shares. The
Warrant Shares shall be listed for trading on any securities exchange on
which the ordinary shares of TW UK are listed for trading.
All of the ordinary shares of UK Parent that we own and all of the
ordinary shares of TW UK owned by UK Parent are held in a voting trust for
the benefit of the holders of the ordinary shares of TW UK and the holders
of the Equity Warrants, with the trustee of the trust (G. Richard Green, a
director of our company and TW UK) being obligated to vote the shares held
in trust as follows:
o To elect to the board of directors of UK Parent and TW UK
individuals designated in accordance with the Securities
Purchase Documents and on any other matter, pursuant to
instructions approved by the required majority of the board of
directors of TW UK as contemplated by the Securities Purchase
Documents.
Page 29
o Following the breach by UK Parent and TW UK of their
obligations to honor an Investor put of Notes, an Investor put
of Equity Warrants or an Investor put of Warrant Shares, the
Investors have the right to exercise drag-along rights with
respect to the shares held in the voting trust, without any
action of the board of directors of TW UK, on a transaction to
which such drag-along rights apply.
o The voting trust includes provisions to the effect that under
certain circumstances the shares held in the voting trust
shall thereafter be voted on all matters, including the
election of directors, pursuant to instructions from a
majority of those members of the board of directors of TW UK
who are not affiliated or associated with our company, UK
Parent or Hyperion Partners II, L.P., a large stockholder of
our company, or any of their successors.
The articles of association of TW UK and the Securities Purchase Documents
provide that neither UK Parent nor TW UK will enter into any transaction
with or make contributions to us or UK Parent, except as required by the
terms of the Notes, the Equity Warrants or the Warrant Shares, in the form
of dividends, fees, re-charges, loans, guarantees or any other benefit, in
any form, unless they have been previously agreed upon by all
shareholders.
The Securities Purchase Documents also provide that the Investors will
have the benefit of customary shareholder rights for a transaction of this
type including, without limitation:
o pre-emptive rights with respect to new securities;
o rights of first refusal with respect to proposed transfers of
ordinary shares of TW UK;
o drag-along rights;
o tag-along rights; and
o the exercise of voting rights by the holders of the Equity
Warrants as therein described including the right to elect one
director to the TW UK board of directors.
The Securities Purchase Documents also include limitations on TW UK's
ability to do the following, among others, without the consent of the
Investors:
o issue additional equity securities of TW UK;
o pay dividends or make other restricted payments, except as
required by the terms of the Notes, the Equity Warrants or the
Warrant Shares;
o sell, lease or otherwise dispose of assets exceeding specified
values;
o enter into any transactions with affiliates;
o amend the memorandum or articles of association; or
o merge or consolidate with another entity.
In the Reorganization, all of the outstanding Notes will be surrendered in
payment of the exercise price of the Equity Warrants. The Equity Warrants
will be exercised and each resulting Warrant Share of TW UK will be
exchanged at the Exchange Ratio for up to an aggregate of 7,773,660 shares
of Series A preferred stock. All of the PIK Notes will be surrendered in
the Reorganization in exchange for shares of our common stock. In
addition, accrued and unpaid PIK interest, less amount we will withhold as
withholding taxes, will be exchanged for up to an aggregate of 1,006,857
shares of our common stock.
At June 30, 2002, we had, through TW UK, outstanding notes payable of
$16,905,000, net of $660,000 of unamortized discount, issued in connection
with the acquisition of certain U.K. flexible staffing agencies. The notes
payable are secured by our senior credit lender which requires us to keep
an amount on deposit for the sole purpose of repaying the notes payable.
These notes bear interest at rates ranging from 5.25% to 5.50%. In
general, we may not redeem the notes on or before three years after the
date of issuance; however, such notes may be redeemed by the holder
Page 30
within one year from the first interest payment due date upon giving not
less than sixty days written notice. Accordingly, the notes and related
cash restricted to the payment of such notes have been classified as
current in the accompanying Condensed Consolidated Balance Sheet included
in our financial statements for the fiscal quarter ended June 30, 2002.
Commitments
Acquisition Agreements
----------------------
Related to our acquisitions of flexible staffing agencies, we have entered
into agreements to pay additional amounts, payable in cash, of up to
$46,112,000, at June 30, 2002, in contingent consideration dependent upon
future earnings of such acquired entities.
Employment Agreements
---------------------
We have two employment agreements with certain executive officers that
provide for minimum aggregate annual compensation of $745,000 in fiscal
2002. The agreements contain, among other things, customary
confidentiality and termination provisions and provide that in the event
of the termination of the executive following a "change of control" of our
company (as defined therein), or significant change in their
responsibilities, such person will be entitled to receive a cash payment
of up to 2.9 times their average annual base salary during the preceding
twelve months.
Operating Leases
----------------
The Company has entered into various operating lease agreements for office
space and equipment. Certain of these leases provide for renewal options
with extension dates in fiscal 2002, 2008 and 2013.
Contractual Cash Obligations
As described under "Borrowings," "Acquisition Agreements," and "Operating
Leases" above, the following table summarizes our contractual cash
obligations as of June 30, 2002:
Total Debt Total Lease Total Other Total
Fiscal Obligations Obligations Obligations Obligations
------ --------------------------------------------------------------------------
2002 $ $ 426,000 $ 11,080,000 $ 11,506,000
2003 23,039,000 1,123,000 35,032,000 59,194,000
2004 8,584,000 815,000 9,399,000
2005 10,730,000 757,000 11,487,000
2006 28,357,000 753,000 29,110,000
Thereafter 112,081,000 1,482,000 113,563,000
------------------------------------------------------------------------
$ 182,791,000 $ 5,356,000 $ 46,112,000 $ 234,259,000
========================================================================
Lease obligations reflect future minimum rental commitments required under
operating leases that have non-cancelable lease terms as of June 30, 2002.
Contingencies
-------------
Some of our subsidiaries are or were Medicare Part B suppliers who
submit/submitted claims to the designated carrier who is the government's
claims processing administrator. From time to time, the carrier may
request an audit of Medicare Part B claims on a prepayment or postpayment
basis. Currently, some of our subsidiaries have pending audits. If the
outcome of any audit results in a denial or a finding of an overpayment,
then the affected subsidiary has appeal rights. Under postpayment
Page 31
audit procedures, the supplier generally pays the alleged overpayment and
can pursue appeal rights for a refund of any paid overpayment incorrectly
assessed against the supplier. Some of the subsidiaries currently are
responding to these audits and pursuing appeal rights in certain
circumstances.
Litigation
----------
During the normal course of business, we continue to carefully monitor and
review our submission of Medicare, Medicaid and all other claims for
reimbursement. We believe that we are substantially in compliance, in all
material respects, with the applicable provisions of the Federal statutes,
regulations and laws and applicable state laws. Because of the broad and
sometimes vague nature of these laws, there can be no assurance that an
enforcement action will not be brought against our company, or that our
company will not be found to be in violation of one or more of these
provisions. At present, we cannot anticipate what impact, if any,
subsequent administrative or judicial interpretation of the applicable
Federal and state laws may have on our consolidated financial position,
cash flows or results of operations.
We are involved in various other legal proceedings and claims incidental
to our normal business activities. We are vigorously defending our
position in all such proceedings. We believe these matters should not have
a material adverse impact on our consolidated financial position, cash
flows or results of operations.
Impact of Recent Accounting Standards
-------------------------------------
In July 2001, the Financial Accounting Standards Board issued FAS 142. The
provisions of FAS 142 are effective for fiscal years beginning after
December 15, 2001. Under FAS 142, all existing and newly acquired goodwill
and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests. Effective
October 1, 2001, we adopted FAS 142 and suspended the amortization of
goodwill. In accordance with the transitional provisions of FAS 142,
previously recognized goodwill was tested for impairment. Based on our
fair-value analysis of goodwill, the carrying amount of goodwill did not
exceed its fair value. Therefore, no impairment to goodwill was
recognized.
In October 2001, the FASB issued FAS No. 144, "Accounting for Impairment
or Disposal of Long-lived Assets." FAS No. 144 supersedes FAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of", and addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This
statement is effective for fiscal years beginning after December 15, 2001.
Adoption of this statement is not expected to have a material impact on
our consolidated financial position or results of operations.
Page 32
In April 2002, the FASB issued FAS No. 145, "Rescission of FASB Statements
No. 4 (Reporting Gains and Losses From Extinguishment of Debt), 44
(Accounting for Intangible assets of Motor Carries), and 64
(Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements),
Amendment of FASB Statement No.13 (Accounting for Leases), and Technical
Corrections." FAS No. 145 addresses gain or loss on the extinguishment of
debt and sale-leaseback accounting for certain lease modifications. This
statement is effective for fiscal years beginning after May 15, 2002. We
are currently reviewing the impact of FAS 145 on our consolidated
financial position and results of operations.
In June 2002, the FASB issued FAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." FAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This statement is effective for exit and disposal
activities initiated after December 15, 2002. Adoption of this statement
is not expected to have a material impact on our consolidated financial
position or results of operations.
Page 33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange
-------------------------
We face exposure to adverse movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and
could have a material adverse impact on our consolidated financial
results. Our primary exposures relate to non-U.S. dollar denominated sales
in the U.K. where the principal currency is Pounds Sterling and to the
Pounds Sterling debt denominated obligations. See "Interest Rate Risk" for
debt obligations principal cash flows and related weighted average
interest rates by expected maturity dates. Currently, we do not hedge
foreign currency exchange rate exposures.
Interest Rate Risk
------------------
Our exposure to market risk for changes in interest rates relate primarily
to our cash equivalents and the U.K. subsidiaries' December 20, 1999
Refinancing which includes the Senior Credit Facility and Mezzanine Loan.
Our cash equivalents include highly liquid short-term investments
purchased with initial maturities of 90 days or less. We are subject to
fluctuating interest rates that may impact, adversely or otherwise, our
consolidated results of operations or cash flows for its variable rate
Senior Credit Facility, Mezzanine Loan and cash equivalents. In accordance
with provisions of the Refinancing, on January 25, 2000, we hedged the
interest rate (LIBOR cap of 9%) on approximately $41,935,000 of our
floating rate debt in a contract which expires December 31, 2003. The
approximate notional amount of the contract adjusts down (consistent with
debt maturity) as follows:
June 30, 2002 $ 32,855,000
December 31, 2002 $ 30,378,000
As of June 30, 2002, the Notes ($34,162,000) and PIK Notes ($8,906,000)
mature on December 31, 2008 and bear interest at a fixed rate of 9.375%.
In addition, we had notes payable of $16,905,000, net of $660,000 debt
discount, which were issued in connection with the acquisition of several
U.K. flexible staffing agencies. The notes payable are redeemable, at the
holder's option, in fiscal 2003 and bear interest ranging from 5.25% to
5.50% at June 30, 2002. The table below represents the expected maturity
of our variable rate debt and their weighted average interest rates at
June 30, 2002.
EXPECTED WEIGHTED AVERAGE
FISCAL MATURITY RATE
------ -----------------------------------------------
2003 $ 6,134,000 LIBOR +2.01%
2004 8,584,000 LIBOR +2.25%
2005 10,730,000 LIBOR +2.25%
2006 28,357,000 LIBOR +3.26%
Thereafter 69,013,000 LIBOR +4.28%
-----------------
$ 122,818,000 LIBOR +3.61%
=================
The aggregate fair value of the our debt was estimated based on quoted
market prices for the same or similar issues and approximated $163,814,000
at June 30, 2002.
Page 34
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(b) On June 26, 2002, we filed a Certificate of Amendment (relating to the
Series A preferred stock) to our Certificate of Incorporation. Pursuant to
the Certificate of Amendment, our company is authorized to issue up to
eight million shares of Series A preferred stock.
The following is a brief description of the terms of the Series A
preferred stock:
Dividends. Each share of Series A preferred stock is entitled to receive
cumulative, compounding dividends at the per share rate of 9.375% of
(pound)2.857 per year commencing on June 18, 2002. The shares of Series A
preferred stock are entitled to receive dividends at a higher rate under
certain circumstances. Any accrued but unpaid dividends will be paid upon
liquidation, redemption or conversion of the Series A preferred stock. We
may not declare or pay any dividends, make any distributions, or set aside
any funds or assets for payment or distribution with regard to our common
stock or any other class or series of our stock ranking junior to the
Series A preferred stock until all accumulated dividends on the Series A
preferred stock have been paid.
Voting Rights. Each outstanding share of Series A preferred stock is
entitled to that number of votes equal to the number of shares of common
stock into which such share of Series A preferred stock is convertible.
The Series A preferred stock and the common stock will vote as a single
class on all matters submitted to a vote of our shareholders. Until
Triumph Partners III, L.P. (or any of its affiliates) beneficially owns
less than 50% of the shares of Series A preferred stock that will be
issued to it in the Reorganization, the holders of Series A preferred
stock will be entitled, voting as a separate class, to elect one director
to our board of directors. In addition, the Series A preferred stock and
our common stock will vote as a single class in the election of all other
directors of our board of directors. In the event of a Covenant Breach (as
that term is defined in the Certificate of Amendment), the holders of the
Series A preferred stock will be entitled to elect one additional director
to our board of directors.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of our company, the holders of Series A preferred stock will be
entitled to receive, before the holders of common stock or any other class
or series of stock ranking junior to the Series A preferred stock will be
entitled to receive anything in respect of their shares, a liquidation
preference equal to (pound)2.867 per share (subject to adjustment for
stock splits, stock dividends, recapitalizations and similar
transactions), plus any accrued or declared but unpaid dividends on such
shares of Series A preferred stock, which we refer to as the "Series A
Preference Amount"; provided, however, that in the event that the holders
of Series A preferred stock would have received an amount greater than the
Series A Preference Amount had they converted their Series A preferred
stock into shares of common stock immediately prior to the liquidation,
dissolution or winding up of our company, such holders will be entitled to
receive an amount per share equal to the amount they would received had
they effectuated such a conversion.
Conversion into Common Stock. Each share of Series A preferred stock is
currently convertible, at the option of the holder thereof, into one share
of common stock without the payment of additional consideration. Subject
to the satisfaction of certain conditions, we have the right to require
the holders of the Series A preferred stock to convert all, but not less
than all, of their shares into common stock.
Redemption. Subject to certain limitations, a majority in interest of the
holders of the Series A preferred stock have the right to require our
company to redeem their shares of Series A preferred stock. The redemption
right can be exercised up to three times, but for not less than (pound) 5
million on any one occasion (or such lower amount as is necessary to
redeem all of the shares of Series A preferred stock then outstanding).
Upon such a redemption, the holders of the Series A preferred stock will
be entitled to receive an amount equal to the Series A Preference Amount.
Page 35
(c) On April 22, 2002, we issued 684,258 shares of our common stock to
Timothy M. Aitken, our chairman and chief executive officer, and 487,099
shares of common stock to Sarah L. Eames, our president and chief
operating officer, as a bonus for, among other things, services rendered
to our company through the date of issuance. The shares were issued in a
transaction exempt from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, because, among other things, we issued
the shares to executive officers of our company, there were no other
offerees, there was no general solicitation and standard Securities Act
legends were placed on the stock certificates representing the shares.
On April 22, 2002, we entered into a Stock Purchase Agreement with
Hyperion TWH Fund II LLC, Triumph Partners III, L.P. and Triumph III
Investors, L.P. pursuant to which we agreed to issue an aggregate of
750,000 shares of our common stock to these investors at a purchase price
of $4.25 per share, which represented a premium to the then current market
price. Hyperion TWH Fund II LLC is an affiliate of the three other
Hyperion funds that are investors in our company. Triumph Partners III,
L.P. and Triumph III Investors, L.P. are existing investors in TW UK. We
issued the 750,000 shares on April 30, 2002 and received proceeds of an
aggregate of $3,187,500. The shares were issued in a transaction exempt
from registration pursuant to Section 4(2) under the Securities Act of
1933, as amended, because, among other things, we sold the shares to
sophisticated investors who had (or whose affiliates had) a pre-existing
relationship with our company, there was no general solicitation and
standard Securities Act legends were placed on the stock certificates
representing the shares.
Page 36
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We held our annual meeting of shareholders on June 7, 2002 (the "Annual
Meeting"). The proposals voted upon at the Annual Meeting were as follows:
(1) To consider and approve the Reorganization Agreement and the
Reorganization.
(2) To elect seven directors to serve for a term of one year and until
their respective successors are duly elected and qualified.
(3) To consider and approve a proposal to amend our Certificate of
Incorporation and our Bylaws, which would:
(a) change our company's name to Allied Healthcare
International Inc.;
(b) increase the number of authorized shares of capital
stock we may issue from 40 million shares of common
stock and two million shares of preferred stock to 62
million shares of common stock and ten million shares
of preferred stock; and
(c) eliminate provisions requiring supermajority board
approval for certain actions.
(4) To ratify and adopt our 2002 Stock Option Plan.
(5) To ratify the appointment by the Company's board of directors of Ernst
& Young LLP, as independent auditors for the fiscal year ending September
30, 2002.
The voting results with respect to each proposal are set forth below:
ABSTAIN/
PROPOSAL FOR AGAINST NON-VOTING
-------- --- ------- ----------
No. 1 14,490,944 200 -
No. 3 14,483,044 7,100 1,000
No. 4 14,411,900 78,044 1,200
No. 5 14,490,144 - 1,000
Proposal 2: Each of the seven nominees for director (Timothy M. Aitken,
Sarah L. Eames, Scott A. Shay, Jeffery S. Peris, G. Richard Green, David
J. Macfarlane and John W. Matthews) received 14,490,244 votes,
representing a plurality of votes cast at the Annual Meeting.
Page 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of the
Company filed on December 12, 1990, as amended
on August 7, 1992 (incorporated herein by
reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended April 30, 1997).
3.2 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company
filed on June 28, 1995 (incorporated herein by
reference to Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended April 30, 1997).
3.3 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company
filed on October 9, 1996 (incorporated herein
by reference to Exhibit 3.3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended April 30, 1997).
3.4 Certificate of Amendment to the Restated
Certificate of Incorporation of the Company
filed on May 6, 1997 (incorporated herein by
reference to Exhibit 3.4 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended April 30, 1997).
3.5 Certificate of Amendment to the Certificate of
Incorporation of the Company filed on April 16,
1998 (incorporated herein by reference to
Exhibit 3.5 of the Company's Registration
Statement on Form S-4 (Reg. St. No. 333-87304)
filed with the Securities and Exchange
Commission on May 21, 2002).
3.6 Certificate of Amendment to the Certificate of
Incorporation of the Company filed on June 7,
2002 (incorporated herein by reference to
Exhibit 3.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on June 10, 2002).
3.7 Restated Bylaws of the Company, as amended
(incorporated herein by reference to Exhibit
3.4 to the Company's Annual Report on Form 10-K
for the year ended October 31, 1996).
3.8 Amendment to the Bylaws of the Company,
effective June 7, 2002 (incorporated herein by
reference to Exhibit 3.2 of the Company's
Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 10,
2002).
4.1 Specimen Certificate of Common Stock of the
Company (incorporated herein by reference to
Exhibit 4.1 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on June 10, 2002).
4.2 Specimen stock certificate for the Series A
Convertible Preferred Stock of the Company
(incorporated herein by reference to
Exhibit 4.2 of the Company's Current Report on
Form 8-K filed with the Securities and Exchange
Commission on August 9, 2002).
4.3 Certificate of Amendment to the Certificate of
Incorporation of the Company relating to its
Series A Convertible Preferred Stock, as filed
with the Secretary of State of the State of
New York on June 26, 2002 (incorporated herein
by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 9,
2002).
Page 38
10.1 Master Reorganization Agreement, dated as of
April 24, 2002, among the Company, UK Parent,
TW UK and the Investors named therein
(incorporated herein by reference to Annex A-1
to the proxy statement/prospectus forming a
part of the Company's Registration Statement on
Form S-4 (Reg. St. No. 333-87304) filed with
the Securities and Exchange Commission on May
1, 2002).
10.1A First Amendment to Master Reorganization
Agreement, dated as of May 16, 2002, by and
among the Company, UK Parent, TW UK and the
Investors named therein (incorporated herein by
reference to Exhibit 10.17A of Amendment Number
1 to the Company's Registration Statement on
Form S-4 (Reg. St. No. 333-87304) filed with
the Securities and Exchange Commission filed
with the Securities and Exchange Commission on
May 21, 2002).
10.1B Second Amendment to the Master
Reorganization Agreement, dated as of June
26, 2002, by and among the Company, UK
Parent, TW UK and the Investors named
therein (incorporated herein by reference to
Exhibit 10.3 to the Company's Current Report
on Form 8-K filed with the Securities and
Exchange Commission on August 9, 2002).
10.2 Amendment No. 1, dated as of July 25, 2002,
among UK Parent, TW UK and the purchasers
named therein to the Securities Purchase
Agreement dated December 17, 1999
(incorporated herein by reference to Exhibit
10.4 to the Company's Current Report on Form
8-K filed with the Securities and Exchange
Commission on August 9, 2002).
10.3 Registration Rights Agreement, dated as of
July 25, 2002, among the Company and the
persons named therein (incorporated herein
by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission
on August 9, 2002).
10.4 Amendment No. 1, dated as of July 25, 2002,
among TW UK, UK Parent, Richard Green,
Triumph Partners III, L.P. and the Company
to the Voting Trust Agreement dated December
17, 1999 (incorporated herein by reference
to Exhibit 10.6 to the Company's Current
Report on Form 8-K filed with the Securities
and Exchange Commission on August 9, 2002).
10.5 Tax Bonus, Tax Loan and Tax Indemnification
Agreement, dated as of April 22, 2002, between
TW UK, the Company and Timothy M. Aitken
(incorporated herein by reference to Exhibit
10.21 of the Company's Registration Statement
on Form S-4 (Reg. St. No. 333-87304) filed with
the Securities and Exchange Commission on May
1, 2002).
10.6 Tax Bonus, Tax Loan and Tax Indemnification
Agreement, dated as of April 22, 2002, between
TW UK, the Company and Sarah L. Eames
(incorporated herein by reference to Exhibit
10.22 of the Company's Registration Statement
on Form S-4 (Reg. St. No. 333-87304) filed with
the Securities and Exchange Commission on May
1, 2002).
10.7A Promissory Note, dated April 30, 2002, executed
by Timothy M. Aitken in favor of the Company.
10.7B Promissory Note, dated April 30, 2002, executed
by Sarah L. Eames in favor of the Company.
10.8A Pledge and Security Agreement, dated as of
April 30, 2002, between Timothy M. Aitken and
the Company.
10.8B Pledge and Security Agreement, dated as of
April 30, 2002, between Sarah L. Eames and the
Company.
Page 39
10.9 Registration Rights Agreement entered into by
the Company, Timothy M. Aitken and Sarah L.
Eames dated April 30, 2002 (incorporated herein
by reference to Exhibit 10.25 of the Company's
Registration Statement on Form S-4 (Reg. St.
No. 333-87304) filed with the Securities and
Exchange Commission on May 1, 2002).
10.10 Irrevocable Undertaking, dated April 22, 2002,
of Timothy M. Aitken relating to the redeemable
shares of TW UK (incorporated herein by
reference to Exhibit 10.26 of the Company's
Registration Statement on Form S-4 (Reg. St.
No. 333-87304) filed with the Securities and
Exchange Commission on May 1, 2002).
10.11 Irrevocable Undertaking, dated April 22, 2002,
of Sarah L. Eames relating to the redeemable
shares of TW UK (incorporated herein by
reference to Exhibit 10.27 of the Company's
Registration Statement on Form S-4 (Reg. St.
No. 333-87304) filed with the Securities and
Exchange Commission on May 1, 2002).
10.12 Stock Purchase Agreement, dated as of April 22,
2002, among the Company, Hyperion TWH Fund II
LLC, Triumph Partners III, L.P. and Triumph III
Investors, L.P. (incorporated herein by
reference to Exhibit 10.28 of the Company's
Registration Statement on Form S-4 (Reg. St.
No. 333-87304) filed with the Securities and
Exchange Commission on May 1, 2002).
10.13 Registration Rights Agreement entered into by
the Company, Triumph Partners III, L.P. and
Triumph III Investors, L.P. dated April 30,
2002 (incorporated herein by reference to
Exhibit 10.29 of the Company's Registration
Statement on Form S-4 (Reg. St. No. 333-87304)
filed with the Securities and Exchange
Commission on May 1, 2002).
10.14 Transworld Healthcare, Inc. 2002 Stock Option
Plan (incorporated herein by reference to Annex
D to the proxy statement/prospectus forming a
part of Amendment Number 1 to the Company's
Registration Statement on Form S-4 (Reg. St.
No. 333-87304) filed with the Securities and
Exchange Commission on May 21, 2002).
99.1 Certification of Chairman and Chief
Executive Officer pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Vice President and Chief
Financial Officer pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to ss.906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
The Company filed on June 10, 2002 a Report on Form
8-K dated June 7, 2002, which included information
required by Items 5 and 7 of Form 8-K. The Form 8-K
disclosed the results of the vote at the Company's
Annual Meeting and the change of the Company's name
from Transworld Healthcare, Inc. to Allied Healthcare
International Inc. No financial statements were
filed.
Page 40
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.
Dated: August 14, 2002
ALLIED HEALTHCARE INTERNATIONAL INC.
By: /s/ John B. Wynne Jr.
----------------------
John B. Wynne Jr.
Vice President and Chief Financial
Officer (Principal Financial Officer
and Duly Authorized to Sign on Behalf
of Registrant)
Page 41