UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission File No. 033-97034
HELP AT HOME, INC.
DELAWARE 36-4033986
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
223 W. Jackson Blvd., Suite 500
Chicago, IL 60606
(Address of principal executive offices) (Zip Code)
(312)663-4244
(Issuer's telephone number, including area code)
Indicate by checkmark whether the issuer (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
Common Stock, par value $.02 per share, 1,869,375 shares outstanding
as of February 16, 1997.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
Help at Home, Inc.
Index
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets at
June 30, 1997 and December 31, 1997 1
Consolidated Statements of Income
for the three month periods ended
December 31, 1996 and 1997 2
Consolidated Statements of Income
for the six month periods ended
December 31, 1996 and 1997 3
Consolidated Statements of Cash Flows
for the six month periods ended
December 31, 1996 and 1997 4
Notes to the Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
PART II: OTHER INFORMATION 15
ITEM 1 LEGAL PROCEEDINGS 15
ITEM 2 CHANGES IN THE RIGHTS OF THE COMPANY'S
SECURITY HOLDERS 16
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF 16
SECURITY HOLDERS
ITEM 5 OTHER INFORMATION 16
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
<PAGE>
HELP AT HOME, INC.
Consolidated Balance Sheets
<TABLE>
December 31 June 30
1997 1997
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 176,561 $ 870,634
Accounts receivable (net of
allowance for doubtful accounts of
$364,000 and $167,000, respectively 6,132,845 5,055,469
Prepaid expenses and other 119,037 154,774
Federal income tax receivable 279,259 119,000
Deferred income taxes - current 175,930 281,052
------------ ------------
Total current assets 6,783,632 6,480,929
Furniture and equipment, net 439,127 474,979
Other Assets:
Due from officer 127,806 121,564
Goodwill (net of amortization of
$222,000 and $154,000, respectively) 2,333,663 2,401,816
Other assets 88,275 88,275
------------ ------------
Total other assets 2,549,744 2,611,655
------------ ------------
Total Assets $ 9,772,503 $ 9,567,563
============ ============
Liabilities
Current Liabilities:
Accounts payable $ 493,441 $ 685,466
Accrued expenses 1,617,179 1,142,735
Due to third party payors 584,008 239,436
Current maturities of long term debt 1,381,091 1,290,485
Income taxes payable 151,337 151,337
Deferred income taxes - current 146,000 146,000
------------ ------------
Total current liabilities 4,373,056 3,655,459
Deferred income taxes - noncurrent 173,463 242,000
long-term debt, less current portion 139,451 162,475
------------ ------------
Total Liabilities 4,685,970 4,059.934
Stockholders' Equity
Preferred stock, par value $.01 per share;
1,000,000 share authorized, none outstanding
Common stock, par value $.02 per share;
14,000,000 shares authorized, 1,869,375
issued and outstanding 37,388 37,388
Additional paid in capital 3,694,406 3,694,406
Retained earnings 1,354,739 1,775,835
------------ ------------
Total Stockholders' Equity 5,086,533 5,507,629
------------ ------------
Total Liabilities and
Stockholders' Equity $ 9,772,503 $ 9,567,563
============ ============
</TABLE>
The accompanying notes to the financial statements
are an integral part hereof.
<PAGE>
HELP AT HOME, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
Three Months Ended December 31
1997 1996
<S> <C> <C>
Service fees $ 6,503,848 $ 6,043,360
Direct costs of services 4,367,710 3,792,679
------------ -----------
Gross margin 2,136,138 2,250,681
Selling, general and
administrative expenses 2,363,714 1,947,768
------------ -----------
(Loss)income from operations (227,576) 302,913
Interest income (expense) (27,203) 14,764
------------ -----------
(Loss) income before income taxes (254,779) 317,677
Federal and state income tax (benefit)
expense (48,462) 108,104
------------ -----------
Net (Loss) income $ (206,317) $ 209,573
============ ===========
Earnings per common share:
Basic $ (.11) $ .11
Weighted average number of shares: 1,869,375 1,869,375
</TABLE>
The accompanying notes to these financial statements
are an integral part hereof.
<PAGE>
HELP AT HOME, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
Six Months Ended December 31
1997 1996
<S> <C> <C>
Service fees $ 12,696,823 $ 10,803,255
Direct costs of services 8,599,591 6,949,062
------------ -----------
Gross margin 4,097,232 3,854,193
Selling, general and
administrative expenses 4,613,823 3,272,444
------------ -----------
(Loss) income from operations (516,591) 581,749
Interest income (expense) (56,261) 36,019
------------ -----------
(Loss) income before income taxes (572,852) 617,768
Federal and state income taxes (151,755) 235,104
------------ -----------
Net (loss) income $ (421,097) $ 382,664
============ ===========
Earnings per common share:
Basic $ (.22) $ .20
Weighted average number of shares: 1,869,375 1,869,375
</TABLE>
The accompanying notes to these financial statements
are an integral part hereof.
<PAGE>
HELP AT HOME, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended December 31
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (421,097) $ 382,664
Adjustments to reconcile net (loss)
income to cash used in operating
activities:
Depreciation and amortization 140,519 132,820
Deferred taxes (25,467) (129,206)
Changes in:
Accounts receivable (1,077,376) (1,462,400)
Prepaid expenses and other 35,736 (181,953)
Accounts payable (192,019) 120,085
Other current liabilities 474,444 434,876
Due to third party payors 344,572
Income taxes payable 1,793 (780,309)
---------- ---------
Net cash used in
operating activities (718,899) (1,483,423)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment (36,514) 7,309
Acquisitions of subsidiaries (199,012)
Increase in notes payable (16,475)
Expiration of investment deposit 149,000
Increase in shareholder loans (6,242) (9,409)
Other (96,479)
---------- ---------
Net cash used in
investing activities (42,756) (165,066)
---------- ---------
Cash flows from financing activities:
Increase (decrease) in long-term
liabilities 67,582 (161,709)
---------- ---------
Net cash provided by
(used in)financing
activities 67,582 (161,709)
---------- ---------
Net decrease in cash (694,073) (1,810,198)
Cash and cash equivalents:
Beginning of period 870,634 2,734,705
End of period 176,561 924,507
========== =========
Cash flow information:
Cash payments for:
Interest 62,289 2,026
Income taxes 233,000
</TABLE>
The accompanying notes to these financial statements are an
integral part hereof.
<PAGE>
HELP AT HOME, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
These unaudited Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in Help at Home, Inc.'s (the Company) Annual Report on Form 10-
KSB for the fiscal year ended June 30, 1997 (1997 Form 10-KSB). The
following Notes to the Consolidated Financial Statements highlight
significant changes to the Notes included in the 1997 Form 10-KSB and
such interim disclosures as required by the Securities and Exchange
Commission. Certain financial information that is normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles but is not required for interim reporting
purposes has been omitted. The accompanying unaudited Consolidated
Financial Statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
The financial results for interim periods may not be indicative of
financial results for the full year.
Note 2: Debt
Effective December 30, 1997, the Company entered into a one-year
revolving credit agreement with Harris Trust and Savings Bank ( Harris
Bank ), Chicago, IL. The Company expects to utilize the credit
facility to fund ongoing working capital requirements. The credit
facility, collateralized by the entirety of the Company's accounts
receivable together with the capital stock of the Company's subsidiaries
(other than Homemakers of Montgomery, Inc.), has a maximum allowable
loan limit of $3.5 Million or 75% of eligible accounts receivable,
whichever is less. The Company must, during the life of the credit
facility, maintain defined tangible net worth of at least $2,625,000 and
a defined current ratio of no less than 1.25:1. The transaction with
Harris Bank replaces the Company's previous credit facility in the
amount of $1 Million which was collateralized with the accounts
receivable and capital stock of the Company's Help at Home (IL)
subsidiary.
Note 3: Commitments and Contingencies
Litigation. The Company has been named in several legal proceedings in
connection with matters that arose during the normal course of its
business and related to certain acquisitions. While the ultimate result
of the litigation or claims cannot be determined, it is management's
opinion, based upon information it presently possesses, that it has
adequately provided for losses that may be incurred related to these
claims.
<PAGE>
Settlements Due to Medicare: As a Medicare provider, the Company
continually has estimated settlements due to and from Medicare.
Estimated settlements due to Medicare in the accompanying financial
statements are the result of interim reimbursement rates (rates at which
the Company has been paid for its services throughout the year) in
excess of actual costs of providing home health care services to the
Medicare beneficiaries it serves. Historically, the Company has funded
settlements due to the Medicare program when they become due in
conjunction with filing of year-end cost reports. Among the Company s
four Medicare certified home health providers, the estimated amounts due
to the Medicare program are as follows:
Lakeside Home Health Agency, Inc. $ 15,037
Rosewood Home Health, Inc. 33,479
Homemakers of Montgomery, Inc. 535,492
--------
Total $584,008
========
Medicare Provider Status: The Company operates Homemakers of Montgomery,
Inc. pursuant to an established Certificate of Need (CON) that has,
historically, enabled the Company to offer home health care services
only to Medicare beneficiaries residing in Montgomery County, Alabama.
In August 1997 the Company prevailed in a long-standing effort to secure
an additional CON that allows the Company to extend its service area to
include Macon County, Alabama. The Company intends to provide service
to residents of Macon County under its current Medicare provider number.
The Company established Lakeside Home Health Agency, Inc., an Illinois
corporation (Lakeside IL), in fiscal 1997 for the purpose of providing
Medicare home health services to patients residing in and around
metropolitan Chicago. In August 1997, Lakeside IL received notification
of its certification as a Medicare provider. Pursuant to its
certification and prior to the announcement of the President' s
moritorium, Lakeside IL applied for its Medicare provider number. To
date, Lakeside IL has not received its Medicare provider number and
cannot, as a result, bill the Medicare program for services rendered to
Medicare home health patients. As a result, even though the Company
believes that Lakeside IL's provider number will be retroactive to the
agency's initial certification date, no revenues have been recognized
for Lakeside IL and services are being kept to a minimum pending further
notification of Lakeside IL's provider status.
Effective February 27, 1998 the Company's Medicare home health agencies
must, pursuant to federal regulations finalized and published on January
2, 1998, secure surety bonds equal to 15% of total Medicare costs for
the last period for which a cost report has been filed or $50,000,
whichever is more. Under the current regulation, failure to secure the
surety bond and properly notify the Medicare intermediary thereof, will
result in revocation of Medicare provider status as of February 27,
1998. As a result of the stringent requirements imposed by Medicare on
bond underwriters, the majority of home care providers have been unable
to secure the required bonds. In response to the difficulties being
encountered by the majority of industry providers, the Health Care
Financing Administration has recently indicated its intention to review
and revise the surety bond regulations. Final rules are expected in the
Spring of 1998. In the meantime, providers unable to secure bonds must
notify their Medicare intermediary of that fact no later than February
27. The Company's Medicare home health agencies have a total bonding
requirement of approximately $400,000 and are among those agencies
unable to secure a bond, thus far.
<PAGE>
Termination and Benefits Agreements:
As of October 1997, the Company's Compensation Committee established a
termination and benefits policy with respect to key employees which
provides for payment of severance and benefits in the event of
involuntary termination and/or a change in control to promote adherance
to the Company's non-competition policies affecting certain executives.
The maximum aggregate salary commitment pursuant to this policy would be
approximately $435,000.
Self Funded Insurance Plan:
The Company instituted a partially-self-funded employee health coverage
program on July 1, 1997. The Company is required, under the program, to
fund claims for its participating employees up to an established per-
employee limit. Claims in excess of such limits are insured by a third-
party reinsurer. The Company estimates its liability for both
outstanding as well as incurred, but not reported, claims based on
historical loss experience. Differences between actual losses and
reserve estimates are recognized in the period in which such differences
become known. Management believes that any difference between actual
losses reported after December 31, 1997 (and related to the period then
ended) and available reserves will not be material.
Note 4: Earnings Per Share
Earnings per share have been determined by dividing earnings by the
weighted-average number of shares of Common Stock outstanding during
each period. The modified treasury method of calculating earnings per
share has been utilized by the Company for reporting purposes.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW:
H e lp at Home, Inc. (the Company) provides skilled nursing and
therapeutic services together with general homemaker services to the
elderly, medically fragile and disabled in their homes. The Company has
engaged in the provision of unskilled homemaker services for over two
decades and entered the skilled services market in 1995. Help at Home
operates 40 locations in Illinois, Missouri, Indiana, Alabama and
Mississippi. The Company derives a significant portion of its revenues
from 15 contracts with the Illinois Department on Aging. Similarly, the
Company contracts with other state, regional and municipal agencies for
the provision of custodial home care services. The Company also
provides Medicare home health services to homebound persons through its
four Medicare certified home health agencies located in Illinois,
Missouri and Alabama.
<PAGE>
The statements which are not historical facts contained in this Form 10-
QSB are forward looking statements that involve risks and uncertainties,
including, but not limited to, the integration of new acquisitions into
the operations of the Company, the ability of the Company to locate
attractive acquisition candidates, the effect of economic conditions and
interest rates, general labor costs, the impact and pricing of
competitive services, regulatory changes and conditions, the results of
financing efforts, the actual closing of contemplated transactions and
agreements, the effect of the Company's accounting policies, and other
risks detailed in the Company's Securities and Exchange Commission
filings. No assurance can be given that the actual results of
operations and financial condition will conform to the forward-looking
statements contained herein.
This report covers the Company's operations for the second quarter of
its 1998 fiscal year which will end on June 30, 1998.
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1996:
Reportable Segments: In keeping with the adoption of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information ,
the Company has identified reportable segments based on the geographic
areas (states) generally disclosed above. Revenues in all four segments
are derived from the provision of both skilled nursing services and
unskilled homemaker/respite services. In addition to the disclosures
made elsewhere herein, the following table presents a quarter to quarter
comparison (in thousands) of the Company's segments:
<TABLE>
Alabama Illinois Missouri Mississippi Total
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,500 $1,506 $3,894 $3,584 $358 $254 $751 $699 $6,503 $6,043
Direct
Costs 1,002 808 2,666 2,326 210 176 489 483 4,367 3,793
------------- ------------ --------- ----------- -------------
Gross
Margin 498 698 1,228 1,258 148 78 262 216 2,136 2,250
Operating
Expenses 384 689 866 679 104 81 362 143 1,716 1,592
------------ ------------ --------- ----------- -------------
Operating
Income
(Loss) $114 $9 $362 $579 $44 $(3) $(100) $73 $420 $658
============ =========== ========== ============ =============
Total
Assets $2,758 $2,764 $3,630 $3,955 $ 219 $196 $2,350 $1,667 $8,957 $8,582
============= =========== =========== ============= =============
</TABLE>
<PAGE>
Reconciliation of segments' operating income to consolidated net income
(loss) is as follows:
<TABLE>
1997 1996
<S> <C> <C>
Segments' Operating Income $ 421 $ 659
Less:
Income tax (benefit) expense (48) 108
Corporate overhead expense 676 341
---- -----
Net (loss) income $(206) $ 210
===== =====
</TABLE>
Reconciliation of segments' total assets to consolidated net assets is
as follows:
<TABLE>
<S> <C> <C>
Segments' total assets $8,957 $8,582
Plus:
Corporate/support entities
total assets 815 681
------ ------
$9,773 $9,263
====== ======
</TABLE>
Client Service Revenue: Revenues derived from services to the Company's
c l ients for the three months ended December 31, 1997 grew to
approximately $6.5 Million reflecting an increase of $460,000 or 8% over
the same quarter of the previous fiscal year. Custodial and homemaker
services accounted for approximately $555,000 (120%) of the revenue
growth while a decrease of $95,000 (20%) was attributable to services
provided to Medicare beneficiaries. The Company's Medicare census was
reduced during the quarter as certain patients receiving limited skilled
services no longer covered by the Medicare program were transitioned to
self-care status or other providers. This, in turn, caused a reduction
i n t he overall number of Medicare visits being performed, a
proportionate reduction in the level of corporate expenses that are
allocable to the Medicare program and the resultant reduction of
Medicare revenues which are limited to allowable costs.
A comparison of the second quarter of fiscal 1998 as contrasted to the
same period in fiscal 1997, by state, shows the greatest concentration
of revenue growth ($310,000 or 9%) in Illinois followed by Missouri
($104,000 or 41%), and Mississippi ($53,000 or 8%). Total revenues
derived from Alabama operations during the quarter decreased by $6,000
or .5% due to the reduction of Medicare revenues experienced by
Homemakers of Montgomery.
Of the Company's second quarter 1998 revenues, approximately $3,386,000
(52%) was realized through 15 service contracts with the Illinois
Department on Aging as compared to $2,835,000 (47%)the previous year.
Homemaker services reimbursed through other state, regional and/or
municipal sources represented $2,372,000 or 36% of total 1998 revenues
as compared to $2,397,000 (36%) during the previous year. The
remaining $746,000 (11%) of the Company's second quarter 1998 revenues
came from the Medicare program as compared to $811,000 (14%) for this
category during the same quarter of the previous year.
<PAGE>
Direct Costs of Providing Services: Direct costs of providing services
to clients, comprised primarily of wages and related expenses paid to
field staff members, increased by 15% ($575,000) to $4,368,000 in the
second quarter of fiscal 1998 and constituted 67% of revenues. Overall
direct costs, as a percentage of revenues, increased by 4% for the three
months ended December 31, 1997 due in large part to the increase in the
federal minimum wage that became effective on September 1, 1997. A
comparison of direct costs by segment shows that, as a percentage of
revenue, second quarter direct costs rose to 67% in Alabama as compared
to 54% for the same quarter last year. A portion of the 13% increase is
the result of a reclassification of certain wages from administrative to
direct cost of providing services as certain employees moved from full-
time to per diem employment relationships with Homemakers of Montgomery.
In addition, Medicare revenue for Homemakers of Montgomery was adjusted
to take into account reduced Medicare reimbursement for corporate office
support services. Illinois direct costs, as a percentage of revenue grew
by 3% from 65% to 68% due to the increase in the federal minimum wage.
Missouri direct costs were reduced by 10% from 69% in the second quarter
of fiscal 1997 to 59% in the quarter ended December 31 due primarily
to a rate increase from the Missouri Department on Aging. Direct costs
associated with provision of services to Medicare beneficiaries
grew, as a percentage of revenue, from 52% as of December 31, 1996 to
54% as of the same date in 1997.
The gross margin on services declined by 5% or $115,000 and reached
$2,136,000 for the quarter ended December 31, 1997 as compared to
$2,251,000 as of December 31, 1996. Gross margin contributions by state
include $1,228,000 for Illinois (as compared to $1,258,000 for the same
quarter in 1996), $498,000 for Alabama (as compared to $698,000 for the
same quarter in 1996), $262,000 for Mississippi (as compared to $215,000
for the same quarter in 1996) and $148,000 for Missouri (as compared to
$79,000 for the same quarter in 1996).
Selling, General and Administrative Expense: The decrease in the
Company's gross margin was accompanied by a $416,000 (18%) increase in
selling, general and administrative costs which caused operating
expenses to grow from $1,948,000 to $2,364,000 from the corresponding
quarter in fiscal 1997.
Selling, general and administrative expense for the second quarter of
fiscal 1998 represented 36% of revenues as compared to 32% of revenues
for the corresponding quarter in fiscal 1997. The increase in
administrative expenses caused the second quarter 1998 loss of $206,000
as compared to a second quarter 1997 profit of $210,000, producing a
negative quarter to quarter variance of $416,000.
Administrative salaries and benefits grew by $368,000 from $948,000 as
of December 31, 1996 to $1,316,000 for the quarter ended December 31,
1997. Expenditures associated with growth of the Company's Illinois-
based staff in the amount of $453,000 were only partially offset by
reductions of similar positions in the Oxford companies amounting to
$85,000. Growth in Illinois salary expenditures is the direct result of
increases in the number of clients being served. Salaries and benefits
comprised 20% and 16% of associated revenues in fiscal 1998 and 1997,
respectively.
Professional fees and insurance grew from $138,000 for the quarter ended
December 31, 1996 to $150,000 for the quarter ended one year later. The
increase is due to litigation settlement costs ($20,000) in excess of an
amount previously reserved therefor.
<PAGE>
Occupancy and general office expenses realized in the second quarter of
fiscal 1998 decreased by $175,000 (from $619,000 to $444,000) over the
same quarter a year earlier. Savings of $279,000 realized by the
Company's operating subsidiaries (Illinois, $110,000; Missouri, 3,000;
and the Oxford companies, $166,000) were offset by an increase of
$104,000 for corporate office occupancy costs.
Travel expenses grew from $75,000 to $88,000 during the quarters ended
December 31, 1996 and 1997, respectively. The entirety of the $13,000
(1%) increase stems from efforts to develop new business in Mississippi.
Advertising and promotional expense grew from $108,000 to $193,000
during the second quarters of fiscal 1997 and 1998, respectively.
Approximately 49% ($41,000) of the increase stems from new business
d e v e lopment activities among the Oxford companies locations.
Approximately $26,000 of growth is attributable to the new office
locations in Illinois with the remainder (18,000 or 21%) coming from
increased promotional efforts in other locations.
Interest expense increased by $42,000, quarter to quarter, due entirely
to diminishment of the Company's cash reserves on deposit in interest
bearing accounts and debt service associated with the Company' s
$ 1 , 000,000 bank line of credit. Non-cash expenses, including
amortization, depreciation and bad debt reserves increased by $112,000
to $172,000 for the quarter ended December 31, 1997 due to the Company's
decision to routinely increase its available bad debt reserves.
Overall, operating expenses increased, as a percentage of revenues, from
32% ($1,948,000) for the quarter ended December 31, 1996 to 36%
($2,364,000) for the same quarter one year later.
With respect to the Company's identified segments, Illinois operations
realized increased selling, general and administrative expenses of
$187,000 as operating expenses grew from $679,000 to $866,000. The
increase is attributable to growth in administrative salaries. Alabama
operating expenses declined by $305,000 (from $689,000 to $384,000) due
to the elimination of certain administrative positions, closure of two
offices and rent reductions in other locations. Mississippi selling,
general and administrative expenses increased by $218,000 from $143,000
to $362,000 due to the addition of new offices in that state. Missouri
selling, general and administrative expenses increased by $23,000 from
$81,000 to $104,000 due to revenue increases that necessitated more
staff. Operating expenses associated with the corporate offices
increased by $335,000, moving from $341,000 to $676,000 for the quarter
ended December 31, 1997. Approximately $204,000 of the increase is
derived from additional salary expense, $103,000 from occupancy, and
$28,000 from advertising and promotional efforts related to development
of new operations in Illinois and Mississippi.
Earnings: The net loss of $206,000 in the second quarter of fiscal 1998
compares to net income of $210,000 for the quarter ended December 31,
1996. Basic earnings per share of common stock were $(.11) and $.11 for
the quarters, respectively. The EPS calculation is based on the Modified
Treasury Method of computing earnings in accordance with FAS 128. The
Company has 1,710,000 warrants outstanding as a result of its initial
public offering, 71,250 of which are underwriter's warrants.
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THE SIX MONTHS ENDED
DECEMBER 31, 1996:
Reportable Segments: In keeping with the adoption of SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, the
Company has identified reportable segments based on the geographic areas
(states) generally disclosed above. Revenues in all four segments are
derived from the provision of both skilled nursing services and
unskilled homemaker/respite services. In addition to the disclosures
made elsewhere herein, the following table presents a year to year
comparison (in thousands) of the Company's segments:
<TABLE>
Alabama Illinois Missouri Mississippi Total
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $2,998 $2,435 $7,689 $6,612 $655 $459 $1,356 $1,297 $12,698 $10,803
Direct
Costs 2,133 1,361 5,187 4,398 393 311 887 880 8,600 6,950
------------ ------------- --------- ----------- -------------
Gross
Margin 865 1,074 2,502 2,214 262 148 469 417 4,098 3,853
Operating
Expenses 839 1,195 1,682 1,091 207 140 628 269 3,356 2,695
----------- ------------- --------- ------------ -------------
Operating
Income
(Loss) $26 $(121) $820 $1,123 $55 $8 (159) 148 742 1,158
=========== ============== ========= =========== =============
Total
Assets $2,758 $2,764 $3,630 $3,955 $ 219 $196 $2,350 $1,667 $8,957 $8582
============ =============== ======== ============= =============
</TABLE>
Reconciliation of segments' operating income to consolidated net income
(loss) is as follows:
<TABLE>
1997 1996
<S> <C> <C>
Segments' operating income $ 742 $1,159
Less:
Income tax (benefit) expense (151) 235
Corporate overhead expense 1,315 541
----- ------
Net (loss) income $( 422) $ 383
====== ======
</TABLE>
Reconciliation of segments' total assets to consolidated net assets is
as follows:
<TABLE>
<S> <C> <C>
Segments' total assets $8,957 $8,582
Plus:
Corporate/support entities
total assets 815 681
------ ------
$9,773 $9,263
====== ======
</TABLE>
<PAGE>
Client Service Revenue: Revenues derived from services to the Company s
clients for the six months ended December 31, 1997 grew to $12,697,000
from $10,803,000 representing revenue growth of $1,894,000 or 18% over
the same six month period the previous year. Custodial and homemaker
services represented 100% of the increase.
A comparison of the first half of fiscal 1998 to the same period in
fiscal 1997, by state, shows the greatest concentration of revenue
growth in Illinois ($1,076,000 or 16%) followed by Alabama ($563,000 or
23%), Missouri ($196,000 or 43%), and Mississippi ($58,000 or 5%). Of
the Company's year-to-date revenues, approximately $5,889,000 (46%) was
derived from 15 contracts with the Illinois Department on Aging as
compared to $5,337,000 (50%) for the same period one year earlier.
Homemaker services reimbursed through other state, regional and/or
municipal sources represented $3,752,000 (30%) of total revenues while
services to Medicare beneficiaries of $1,545,000 represented 12% of the
total as compared to $3,899,000 and $1,564,000 for the same period in
fiscal 1997.
Direct Costs of Providing Services: Direct costs of providing services
to clients are primarily comprised of wages and related expenses paid to
field staff members. Direct costs increased by 24% to $8,600,000. The
increase is attributable to the September 1, 1997 increase in the
federal minimum wage and service volume increases. A comparison of
direct service costs by segment shows that, as a percentage of revenue,
Alabama year-to-date direct costs rose to 71% from a level of 56% for
the previous year-to-date period. The proportionate increase is the
result of reclassification of certain full-time staff members to per
diem field status and revenue decreases emanating from reduced levels of
Medicare allowable costs. Direct costs in Illinois (67%) remained
unchanged as a percent of revenue from year to year. Missouri and
Mississippi posted decreased in direct cost to revenue percentages of of
8% (from 68% to 60%) and 3% (from 68% to 65%), respectively. Direct
costs associated with provision of services to Medicare beneficiaries
was 53% for the six months ended December 31, 1997 versus 31% of
revenues for the six month period ended December 31, 1996.
The gross margin on services grew by 6% or $243,000 from $3,854,000 to
$4,097,000 for the six months ended December 31, 1996 and 1997,
respectively. Gross margin contributions by state were led by Illinois
($2,501,000 in 1997 versus $2,214,000 in 1996), representing overall
growth in the gross margin of 13%. Gross margin contributions by
Alabama locations were $1,074,000 in 1996 and $865,000 in 1997 for a
decline of 19%. Missouri gross margin contribution grew from $148,000
in 1996 to $262,000 in 1997 for an increase of 77% while Mississippi
gross margins grew from $418,000 in 1996 to $469,000 in 1997 for overall
growth of 12%.
<PAGE>
Selling, General and Administrtive Expense: The year-to-date increase in
the gross margin was consumed by a $1,341,000 increase in selling,
general and administrative expense representing an increase of 40% over
the same period one year earlier. Total selling, general and
administrative expenses as of December 31, 1997 reached $4,600,000 as
compared to $3,272,000 for the same period ended December 31, 1996.
Operating expenses in Alabama were reduced by 29% or $355,000 from 1996
levels of $1,195,000 to $839,000 in 1997. Illinois operating expenses
grew by 54% from 1,091,000 to $1,682,000 for the six month periods ended
December 31, 1996 and 1997, respectively, due to increased client
volume. Missouri and Mississippi operating expenses grew by 47% and
133%, respectively. Missouri operating expenses reached $207,000 for
the six month period as opposed to $140,000 for the same six months the
year before. Mississippi operating expenses posted significant gains
from $269,000 in 1996 to $628,000 in 1997 due to start up expenses
associated with the 10 new Mississippi offices that opened during the
first quarter of fiscal 1998.
Administrative salaries grew by $782,000 from $1,737,000 to $2,519,000
f o r the six month periods ended December 31, 1996 and 1997,
respectively. The bulk of the increase ($578,000) is attributable to
growth in the Company's Illinois operations with the remainder
attributable to expansion of revenues in Alabama and Mississippi.
Professional fees grew by $237,000 from $88,000 in 1996 to $326,000 in
1997 with the increase largely attributable to pending litigation and
the need to update securities filings. Occupancy costs increased by
$46,000 from $855,000 to $901,000 with the additional cost entirely due
to opening of new locations in Mississippi. For the six month period,
travel expenses increased by $46,000 from $133,000 to $179,000 with the
entirety of the increase stemming from efforts to increase marketshare
in Mississippi. Advertising and promotional expenditures rose by
$182,000 ($167,000 to $349,000) for the six months ended December 31,
1997. Approximately $140,000 of the increase is derived from marketing
efforts in Mississippi. The remainder of the increase ($42,000) is the
result of similar marketing efforts for the four new offices in
Illinois. Bad debt reserves were increased by $170,000 from 1996 to
1997 with the majority of the increase ($94,000) in Illinois. Bad debt
reserves, as of December 31, 1997 totalled $364,000. Interest expense
increased by $20,000 from $36,000 in 1996 to $56,000 in 1997 due
entirely to the outstanding borrowings under the Company's line of
credit.
Overall, operating expenses increased, as a percentage of revenues, from
30% ($3,272,000) for the six months ended December 31, 1996 to 36%
($4,614,000) for the same quarter ended in 1997.
Earnings: The net loss of $421,000 for the year-to-date at December 31,
1997 compared to net income of $383,000 for the same six months ended
December 31, 1996. Basic earnings per share of common stock were $(.22)
and $.20 for the six month periods, respectively, based on 3.8 Million
and 3.5 Million shares outstanding. The EPS calculation is based on the
Modified Treasury Method of computing earnings in accordance with the
provisions of FAS 128. The Company has 1,710,000 warrants outstanding
as a result of its initial public offering, 71,250 of which are
underwriter's warrants.
<PAGE>
EARNINGS OUTLOOK:
As noted in its 10-KSB for the year ended June 30, 1997, the Company has
invested in the establishment of approximately 14 new offices in
Mississippi and Illinois in anticipation of securing clients pursuant to
new contracts with state and/or area agencies on aging. During the
first and second quarters of fiscal 1998, the Company invested in
several promotional campaigns designed to establish name recognition and
awareness in the new communities it serves. While the Company
anticipates the realization of projected new business in Illinois and
Mississippi, there can be no assurance that such business will actually
materialize within the time frames projected by the Company. As a
result, the Company will continue to closely monitor each of its
operating locations and may elect to consolidate one or more such
locations if operating losses exceed planned thresholds.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's basic cash requirements are for operating expenses,
generally comprised of labor, occupancy and administrative costs. The
Company relied in 1997 on remaining cash proceeds from its initial
public offering and borrowed capital to augment cash flows from
operations for the purpose of expanding its business. For the remainder
of fiscal 1998 the Company has secured expansion capital by financing
certain of its accounts receivable. The Company's net working capital
as of December 31, 1997 stood at $2,098,000. The ratio of current
assets to current liabilities as of December 31, 1997 was 1.55:1. As of
December 31, 1997, the accrued obligations that may require large or
unusual amounts of cash include payment of amounts that may be owed to
the Medicare program on the part of Homemakers of Montgomery, Inc.
($535,492) and payment of the note now due and arising from the purchase
of the Oxford companies ($325,000). It should be noted, however, that
the indebtedness related to purchase of the Oxford companies remains the
subject of pending litigation as further disclosed in the Company's 10-
KSB for the year ended June 30, 1997.
In addition to the accrued obligations noted above, the surety bond
requirement for the Company' s Medicare home health agencies may
n e cessitate a substantial deposit. Currently, underwriters are
requiring underlying bond collateral of up to 100% of the face of
Medicare surety bonds. Pending finalization of revised regulations, the
Company's bonding requirement could approximate $400,000.
The Company' s indebtedness was $1,521,000 as of December 31, 1997
divided among a bank loan secured by certain receivables in the amount
of $1 Million, a $325,000 note secured by the capital stock of
Homemakers of Montgomery, Inc. arising from the purchase of Oxford
Health Care, a $162,500 secured note used to finance the purchase of an
airplane, capital leases and automobile installment loans in the amount
of $33,000. The Company, on December 30, 1997, entered into a revolving
credit agreement that will provide working capital in an amount equal to
the lesser of $3.5 Million or 75% of eligible accounts receivable
subject to compliance with certain financial covenants including
maintenance of a defined current ratio of at least 1.25:1 and defined
tangible net worth of not less than $2,625,000. In addition to the
entirety of its accounts receivable, the capital stock of the Company's
subsidiaries forms the collateral basis for the loan. Subsequent to
December 31, 1997, in connection with establishment of its replacement
credit facility, the Company has incurred approximately $1.3 Million of
additional indebtedness bringing the total drawn on the facility to $2.3
Million as of February 17, 1998.
<PAGE>
Cash used by operations for the first half of fiscal 1998 amounted to
$719,000 as compared to $1,483,000 of cash used for operations in the
same two quarters of the previous year. Cash used by investing
activities in the amount of $43,000 compares to $149,000 for the
quarters ended December 31, 1996. Cash realized from an increase of the
Company's indebtedness in October reached $68,000, yielding an overall
decrease in the Company's cash position of $694,000. For the same
period a year earlier, the Company used $178,000 of cash to pay down
indebtedness of the Oxford companies which yielded an overall decrease
in the Company's cash position of $1,810,000. The Company's cash
position at December 31, 1997 stood at $177,000 as compared to $925,000
for the six months ended December 31, 1996.
The Company presently has 1,638,750 Warrants outstanding with an
exercise price of $6.00. The Warrants can be exercised at any time
subsequent to the public offering and can be called anytime after
December 5, 1996 provided the closing price of the Company's Common
Stock is equal to or greater than $9.00 for ten consecutive days. The
Company stands to realize a maximum of approximately $9.8 Million from
the exercise of its Warrants. There can be no assurance, however, that
the closing price of the Company's common stock will reach a level
sufficient to precipitate exercise of the Warrants. As of the close of
business February 16, 1997, the closing price of the Common Stock on the
NASDAQ Stock Market was $1.75.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings which it believes
may have a materially adverse effect on the Company' s financial
condition or results of operations.
The Company has been named as a party to a suit filed by the family of
Oxford Health Care's former owner (now deceased) in which the family
seeks to claim, for the decedent s estate, approximately $300,000 in
life insurance proceeds payable under two key-man insurance policies
owned by the Company. The insurance proceeds are being held in escrow
pending resolution of the asserted claim. In the meantime, the company
has responded with a counter claim in which it seeks to reduce the
amount of the $325,000 note payable to the former owner by approximately
$209,000. The proposed reduction in the principal of the note, which
was due in January 1998, is the result of bad debts arising from periods
prior to the acquisition date, balance sheet adjustments arising from a
post closing audit of the Oxford companies and other extraordinary
expenses. The transaction agreement memorializing the acquisition of
Oxford by the Company contemplates each of the proposed adjustments to
the principal of the note. The Company has not made entries in its
financial statements to effect either recognition of the insurance
proceeds or the proposed reduction of the note.
<PAGE>
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
<PAGE>
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.
HELP AT HOME, INC.
Registrant
Date: February 17, 1998 /s/ Louis Goldstein
Louis Goldstein
CEO/Chairman
Date: February 17, 1998 /s/ Sharon S. Harder
Sharon S. Harder
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001001109
<NAME> HELP AT HOME, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 176
<SECURITIES> 0
<RECEIVABLES> 6133
<ALLOWANCES> 364
<INVENTORY> 0
<CURRENT-ASSETS> 6784
<PP&E> 439
<DEPRECIATION> 72
<TOTAL-ASSETS> 9773
<CURRENT-LIABILITIES> 4373
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9773
<SALES> 12697
<TOTAL-REVENUES> 12697
<CGS> 8600
<TOTAL-COSTS> 13214
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> (572)
<INCOME-TAX> (152)
<INCOME-CONTINUING> (420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (421)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
