##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 000-50348
 NATIONSHEALTH, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    06-1688360(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)13630 N.W. 8th Street, Suite 210, Sunrise, Florida
    
    33325(Address of principal executive offices)
    
    (Zip Code)
 (954) 903-5000  (Registrants telephone number, including area code)
 N/A  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




---



##### 



NATIONSHEALTH, INC.
 FORM 10-Q
 FOR THE QUARTER ENDED MARCH 31, 2009
 INDEX
 PagePART I.Item 1. Financial StatementsCondensed Consolidated Balance Sheets  as of March 31, 2009 (Unaudited) and
December 31, 2008
    
    
    2Condensed Consolidated Statements of Operations (Unaudited)  for the Three Months
Ended March 31, 2009 and 2008
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited)  for the Three Months
Ended March 31, 2009 and 2008
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 4. Controls and Procedures
    
    
    22PART II.Item 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 6. Exhibits
    
    
    23Signatures
    
    
    24Exhibit 10.81Exhibit 31.1Exhibit 31.2Exhibit 32.1




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NATIONSHEALTH, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,626
    
    
    $
    1,056Accounts receivable, net of allowances of $8,391 and $7,365, respectively
    
    
    15,288
    
    
    
    16,507Inventory
    
    
    2,750
    
    
    
    3,236Prepaid expenses and other current assets
    
    
    2,404
    
    
    
    2,128Total current assets
    
    
    22,068
    
    
    
    22,927Property and equipment, net
    
    
    2,656
    
    
    
    3,155Customer contract intangible, net
    
    
    5,121
    
    
    
    5,487Acquired customer lists, net
    
    
    1,819
    
    
    
    2,032Other intangible assets, net
    
    
    482
    
    
    
    567Goodwill
    
    
    2,375
    
    
    
    2,375Restricted cash
    
    
    1,899
    
    
    
    1,899Other assets, net
    
    
    961
    
    
    
    1,051Total assets
    
    $
    37,381
    
    
    $
    39,493LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    5,811
    
    
    $
    5,892Accrued expenses
    
    
    5,791
    
    
    
    7,168Current portion of long-term debt
    
    
    3,618
    
    
    
    3,591Line of credit
    
    
    8,763
    
    
    
    8,736Total current liabilities
    
    
    23,983
    
    
    
    25,387Long-Term Liabilities:Convertible notes, related party, net
    
    
    9,924
    
    
    
    9,435Long-term debt
    
    
    897
    
    
    
    1,809Other long-term liabilities
    
    
    1,630
    
    
    
    1,588Total long-term liabilities
    
    
    12,451
    
    
    
    12,832Stockholders Equity:Common stock
    
    
    3
    
    
    
    3Additional paid-in capital
    
    
    75,388
    
    
    
    75,243Accumulated deficit
    
    
    (74,444
    )
    
    
    (73,972
    )Total stockholders equity
    
    
    947
    
    
    
    1,274Total liabilities and stockholders equity
    
    $
    37,381
    
    
    $
    39,493
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  2




---



##### Table of Contents



NATIONSHEALTH, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
 For the Three Months EndedMarch 31,2009
    
    
    2008Revenue:Net product sales
    
    $
    15,081
    
    
    $
    14,998Service revenue
    
    
    7,508
    
    
    
    8,49322,589
    
    
    
    23,491Cost of product sales
    
    
    9,423
    
    
    
    7,778Cost of services
    
    
    2,956
    
    
    
    3,160Gross Profit
    
    
    10,210
    
    
    
    12,553Operating Expenses:Patient acquisition and related costs
    
    
    319
    
    
    
    519Patient service and fulfillment
    
    
    2,611
    
    
    
    3,273General and administrative
    
    
    4,339
    
    
    
    6,666Provision for doubtful accounts
    
    
    1,004
    
    
    
    970Depreciation and amortization
    
    
    1,007
    
    
    
    1,763Restructuring costs
    
    
    209
    
    
    
    Gain on insurance recovery
    
    
    (206
    )
    
    
    9,283
    
    
    
    13,191Income (Loss) from Operations
    
    
    927
    
    
    
    (638
    )Other Income (Expense):Interest expense , related party
    
    
    (816
    )
    
    
    (724
    )Other interest expense, net
    
    
    (583
    )
    
    
    (532
    )(1,399
    )
    
    
    (1,256
    )Net Loss
    
    $
    (472
    )
    
    $
    (1,894
    )Loss per share  basic and diluted
    
    $
    (0.02
    )
    
    $
    (0.07
    )Weighted average shares outstanding  basic
and diluted
    
    
    28,394
    
    
    
    29,001
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




---



##### Table of Contents



NATIONSHEALTH, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 For the Three Months EndedMarch 31,2009
    
    
    2008Cash Flows from Operating Activities:Net Loss
    
    $
    (472
    )
    
    $
    (1,894
    )Adjustments to reconcile net loss to net cash and cash equivalents used in
operating activities:Provision for doubtful accounts
    
    
    1,004
    
    
    
    970Provision for sales allowances and returns
    
    
    190
    
    
    
    374Depreciation and amortization
    
    
    1,220
    
    
    
    2,015Amortization of note discount and other non-cash interest charges, net
    
    
    687
    
    
    
    606Stock-based compensation
    
    
    144
    
    
    
    271Changes in operating assets and liabilities:(Increase) decrease in:Accounts receivable
    
    
    13
    
    
    
    (3,706
    )Inventory
    
    
    486
    
    
    
    (389
    )Prepaid expenses and other assets
    
    
    (291
    )
    
    
    (384
    )Increase (decrease) in:Accounts payable and accrued expenses
    
    
    (1,496
    )
    
    
    1,587Net cash and cash equivalents provided by (used in) operating activities
    
    
    1,485
    
    
    
    (550
    )Cash Flows from Investing Activities:Acquisition of property and equipment
    
    
    (57
    )
    
    
    (165
    )Net cash and cash equivalents used in investing activities
    
    
    (57
    )
    
    
    (165
    )Cash Flows from Financing Activities:Net draws on line of credit
    
    
    27
    
    
    
    2,119Principal payments on long-term debt
    
    
    (885
    )
    
    
    (397
    )Payment of promissory note
    
    
    
    
    
    
    (1,500
    )Payment of debt issuance costs
    
    
    
    
    
    
    (20
    )Net cash and cash equivalents (used in ) provided by financing activities
    
    
    (858
    )
    
    
    202Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    570
    
    
    
    (513
    )Cash and Cash Equivalents, Beginning of Period
    
    
    1,056
    
    
    
    1,925Cash and Cash Equivalents, End of Period
    
    $
    1,626
    
    
    $
    1,412
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  4




---



##### Table of Contents



NATIONSHEALTH, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)
 1. BASIS OF PRESENTATION
   2. MERGER AGREEMENT
   5




---



##### Table of Contents



3. REVENUE RECOGNITION
      6




---



##### Table of Contents



4. CIGNA AGREEMENT
    5. CREDIT FACILITY
    7




---



##### Table of Contents



Balance Sheet Classification
of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective
Acceleration Clause and a Lock-Box Arrangement.
       8




---



##### Table of Contents



6. CONVERTIBLE NOTES
      7. RESTRUCTURING COSTS
   9




---



##### Table of Contents



8. COMMITMENTS AND CONTINGENCIES
       10




---



##### Table of Contents




    
    An amount equal to the then current annual base salary for twenty-four months;
    
    In the event of Dr. Parkers disability, medical insurance during the period he or his
spouse are eligible to receive benefits under COBRA;
    
    Immediate vesting of all stock options or restricted stock previously granted to Dr.
Parker;
    
    Require the Company to purchase from Dr. Parker up to $3,000,000 worth of shares of the
Companys common stock. In lieu of a cash payment, the Company may arrange for the sale of
the shares to a third party or register the resale of the shares, in which case Dr. Parker
shall receive at least $3,000,000.
 9. SEGMENT INFORMATION
    Three Months Ended March 31,2009
    
    
    2008Revenue:Medical Products
    
    $
    15,081
    
    
    $
    14,998Insurance Services
    
    
    7,508
    
    
    
    8,493Consolidated revenue
    
    $
    22,589
    
    
    $
    23,491Segment profit:Medical Products
    
    $
    68
    
    
    $
    101Insurance Services
    
    
    3,566
    
    
    
    3,614Unallocated corporate expenses
    
    
    (2,707
    )
    
    
    (4,353
    )Consolidated income (loss) from operations
    
    $
    927
    
    
    $
    (638
    )
  11




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Important Factors That May Affect Future Operations and Results
   
    
    Expected future operations, revenue, gross margins and expenses;
    
    Available cash, credit facilities and projected cash needs;
    
    Sales opportunities, strategic relationships and marketing plans;
    
    Estimates of potential markets for our products and services, including the
anticipated drivers for future growth; and
    
    Assessment of the impact of future accounting pronouncements.
   
    
    Termination of the recently executed Merger Agreement with ComVest, in certain
circumstances, could result in significant cash obligations to the Company
    
    Restrictions imposed on us under our debt agreements may adversely affect our
ability to operate our business
    
    The heavy dependence of our Insurance Services segment on revenue derived under our
agreement with CIGNA
    
    Competitive bidding for durable medical equipment (DME) and supplies
    
    Reduction in reimbursement rates by Medicare for DME and supplies
    
    Increases in the costs of medical products dispensed
    
    Our history of operating losses and the possibility that we will incur significant
additional operating losses
    
    Our ability to raise the capital that we will need to sustain our operations
    
    Our ability to attract new patients and retain existing patients
    
    Identification of, and competition for, growth and expansion opportunities
  12




---



##### Table of Contents




    
    Compliance with, or changes in, government regulation and legislation, or
interpretations thereof, including, but not limited to, pharmacy licensing requirements
and healthcare reform legislation, including HIPAA
    
    An inability to establish and maintain successful collaborative relationships could
adversely affect our ability to generate revenue
    
    Competition and technological change that may make our products and technologies
less attractive or obsolete
    
    Our ability to obtain and maintain intellectual property protection for our
technologies
    
    Adverse resolution of current or future lawsuits or investigations
    
    Significant fluctuations in our revenue and operating results, which have occurred
in the past and which could continue to fluctuate in the future
    
    Any loss or inability to hire and retain qualified personnel
    
    Our exposure to product liability in excess of our insurance coverage
    
    Any failure to maintain an effective system of internal controls in the future could
adversely affect our ability to accurately report financial results or prevent fraud
    
    Compliance with changing regulation of corporate governance and public disclosure
may result in additional expenses
    
    Our common stock may continue to have a volatile public trading price and low
trading volume
    
    Anti-takeover provisions in our governing documents and under Delaware law may make
an acquisition of us more difficult
  Business
    13




---



##### Table of Contents



Merger Agreement
  Medical Products Segment
     14




---



##### Table of Contents



Insurance Services Segment
    Critical Accounting Policies
   15




---



##### Table of Contents



Results of Operations
  2009
    
    
    2008$
    
    
    %
    
    
    $
    
    
    %Revenue:Net product sales
    
    $
    15,081
    
    
    
    66.8
    %
    
    $
    14,998
    
    
    
    63.8
    %Service revenue
    
    
    7,508
    
    
    
    33.2
    
    
    
    8,493
    
    
    
    36.222,589
    
    
    
    100.0
    
    
    
    23,491
    
    
    
    100.0Cost of product sales
    
    
    9,423
    
    
    
    41.7
    
    
    
    7,778
    
    
    
    33.1Cost of services
    
    
    2,956
    
    
    
    13.1
    
    
    
    3,160
    
    
    
    13.5Gross Profit
    
    
    10,210
    
    
    
    45.2
    
    
    
    12,553
    
    
    
    53.4Operating Expenses:Patient acquisition and related costs
    
    
    319
    
    
    
    1.4
    
    
    
    519
    
    
    
    2.2Patient service and fulfillment
    
    
    2,611
    
    
    
    11.6
    
    
    
    3,273
    
    
    
    13.9General and administrative
    
    
    4,339
    
    
    
    19.2
    
    
    
    6,666
    
    
    
    28.4Provision for doubtful accounts
    
    
    1,004
    
    
    
    4.4
    
    
    
    970
    
    
    
    4.1Depreciation and amortization
    
    
    1,007
    
    
    
    4.5
    
    
    
    1,763
    
    
    
    7.5Restructuring costs
    
    
    209
    
    
    
    0.9
    
    
    
    
    
    
    
    Gain on insurance recovery
    
    
    (206
    )
    
    
    (0.9
    )
    
    
    
    
    
    
    9,283
    
    
    
    41.1
    
    
    
    13,191
    
    
    
    56.2Income (Loss) from Operations
    
    
    927
    
    
    
    4.1
    
    
    
    (638
    )
    
    
    (2.7
    )Other expense, net
    
    
    (1,399
    )
    
    
    (6.2
    )
    
    
    (1,256
    )
    
    
    (5.3
    )Net Loss
    
    $
    (472
    )
    
    
    (2.1
    %)
    
    $
    (1,894
    )
    
    
    (8.1
    %)
 Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 Revenue.
  16




---



##### Table of Contents



Cost of Product Sales .
 Cost of Services .
 Gross Profit .
 Patient Acquisition and Related Costs.
 Patient Service and Fulfillment Expenses .
  17




---



##### Table of Contents



General and Administrative Expenses .
 Provision for Doubtful Accounts.
 Depreciation and Amortization .
 Restructuring Costs.
 Other Expense, net.
 LIQUIDITY AND CAPITAL RESOURCES
      18




---



##### Table of Contents



19




---



##### Table of Contents



20




---



##### Table of Contents



Merger Agreement
   Off-Balance-Sheet Arrangements
  Recently Adopted Accounting Standards
 Fair Value Measurements
 Business Combinations
  21




---



##### Table of Contents



Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin No. 51
 Determination of the Useful Life of
Intangible Assets Goodwill and Other Intangible Assets
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures .
 Changes in Internal Control over Financial Reporting .
  22




---



##### Table of Contents



PART
II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 Termination of the recently executed Merger Agreement with ComVest, in certain circumstances, could
result in significant cash obligations to the Company
  
 Item 6. Exhibits
    23




---



##### Table of Contents



SIGNATURES
  NATIONSHEALTH, INC.Date: May 14, 2009
    By:
    /s/ Glenn M. ParkerName:
    Glenn M. ParkerTitle:
    Chief Executive Officer
(Principal Executive Officer)Date: May 14, 2009
    By:
    /s/ Bryan HappName:
    Bryan HappTitle:
    Chief Financial Officer
(Principal Financial Officer)  24




---



##### Table of Contents



NATIONSHEALTH, INC.
 
 EXHIBIT INDEX
 ExhibitNo.
    
    Description10.81
    
    
    First Amendment to Second Amended and Restated Preferred Vendor
Agreement by and among Connecticut General Life Insurance
Company, United States Pharmaceutical Group, L.L.C. and
NationsHealth, Inc., dated February 25, 2009*.31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
 *
    
    Portions of this Exhibit have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2
of the Securities Exchange Act of 1934.  25