IPS Begins a Restructuring in Struggle to Stay Solvent : Finances: Losses have pushed Irvine-based firm to the brink. Auditors are skeptical that the company can survive.
IPS Health Care Inc.’s financial slide continued unabated Tuesday with an announcement that the 3-year-old firm is struggling to restructure itself after a blistering $5-million loss for its 1991-92 fiscal year.
The company’s chief executive, Andrew Galligan, said the loss for the year ended April 30 is $1.5 million more than the company had predicted, chiefly because of an inability to collect from insurance companies for its health equipment services.
Despite the gloomy figures, which come on the heels of a $500,000 payment to the Internal Revenue Service for back taxes, the fledgling company is not considering closing shop.
“We don’t intend to go out of business,” Galligan said.
Nevertheless, the firm, which provides magnetic resonance imaging--MRI--services to doctors and hospitals, is essentially insolvent. Auditors are expected to say in IPS’ upcoming financial statements that they have doubts about the company as a “going concern,” which means in accounting terms that it is not expected to survive.
Stock in the once highly promising company, traded on the NASDAQ market, has lost about 90% of its value since May, 1991, while revenue is “significantly below a break-even level for the company’s continued operation,” according to a statement that the company issued late Monday.
Galligan, who took over the CEO spot in January after founder Todd Skulte resigned in the wake of poor quarterly performances, said that he has been negotiating a restructuring of debt on the company’s MRI equipment, and is “taking other steps to reduce expenses.”
Those steps include renegotiating various service agreements with clients, restructuring debts and reducing expenditures.
But before the company can return to the black, it has to deal with $1.2 million in bad debt from various insurance companies, Galligan said. That amount was charged to loss reserves, while an additional $262,000 in equipment was written off for the fourth quarter.
“Because of these collection shortfalls,” IPS said in a statement, “the company continues in default on its major equipment debt.”
Galligan would not say which insurance companies owe money to IPS or whether they are unable or unwilling to pay.
But the company’s ongoing problems are not all because of intransigent insurance payers. The company was recently forced to sell out its interest in a joint venture with Texas MRI JV in Houston to pay off its past-due federal income taxes, interest and penalties.
Under the joint venture, announced in February, 1991, the company provided mobile MRI units to a group of Texas doctors.
MRI systems, which are the size of pickup trucks, enable doctors to use magnets, radio waves and computers to reconstruct images of the body’s soft tissues to detect injuries.
The systems are commonly used by professional sports physicians and therapists.
The joint venture came a month after the company’s initial stock offering. The shares soared from $7 a share in January, 1991, to a high of $10.37 in May of that year.
But the recession and “growing pains” began to take their toll, compounding the company’s billing and tax problems.
Stock began declining in the midst of the recession and has been on the wane ever since. Now a virtual penny stock, IPS stock closed at $1.50 a share Tuesday, down 12 cents.
Despite the figures and the opinion of the auditors, Galligan said, the company is on the rise with an increase in revenue. He also said that, despite the early drop in its stock value in 1991, the company continued to produce cash, even if it was a trickle.
That year, the company posted a profit of $59,661, or 1 cent a share, on revenue of $9.7 million. Audited 1992 year-end financial statements are not yet available, Galligan said.
