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 March 31, 1998
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)
(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 Section 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 May 11, 1998
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
Help at Home, Inc.
Index
PART I. FINANCIAL INFORMATION
ITEM 1 Consolidated Balance Sheets at
June 30, 1997 and March 31, 1998 1
Consolidated Statements of Income
for the three month periods ended
March 31, 1997 and 1998 2
Consolidated Statements of Income
For the nine month periods ended
March 31, 1997 and 1998 3
Consolidated Statements of Cash Flows
for the nine month periods ended
March 31, 1997 and 1998 4
Notes to the Consolidated Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II: OTHER INFORMATION 17
ITEM 1 LEGAL PROCEEDINGS 17
ITEM 2 CHANGES IN THE RIGHTS OF THE COMPANY'S
SECURITY HOLDERS 17
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 18
ITEM 5 OTHER INFORMATION 18
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
<PAGE>
<TABLE>
HELP AT HOME, INC.
Consolidated Balance Sheets
March 31 June 30
1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,271,049 $ 870,634
Accounts receivable (net of
allowance for doubtful accounts of
$458,362 and $167,000, respectively 6,449,853 5,055,469
Prepaid expenses and other 504,728 154,774
Federal income tax receivable 279,259 119,000
Deferred income taxes - current 272,756 281,052
--------- ---------
Total current assets 8,777,645 6,480,929
Furniture and equipment, net 420,643 474,979
Other Assets:
Due from officer 130,705 121,564
Goodwill (net of amortization of
$242,667 and $154,000 respectively) 2,299,587 2,401,816
Other assets 88,275 88,275
--------- ---------
Total other assets 2,518,567 2,611,655
--------- ---------
Total Assets $11,716,855 $9,567,563
=========== ==========
Liabilities
Current Liabilities:
Accounts payable $ 765,328 $ 685,466
Accrued expenses 1,734,438 1,142,735
Due to third party payors 663,692 239,436
Current maturities of long-term debt 2,776,578 1,290,485
Income taxes payable 151,337 151,337
Deferred income taxes - current 146,000 146,000
--------- ---------
Total current liabilities 6,237,363 3,655,459
Deferred income taxes - noncurrent 173,463 242,000
Long-term debt, less current portion 124,170 162,475
--------- ---------
Total Liabilities 6,535,006 4,059,934
Stockholders' Equity
Preferred stock, par value $.01 per share;
1,000,000 shares 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 1,450,055 1,775,835
--------- ---------
Total Stockholders' Equity 5,181,849 5,507,629
Total Liabilities and
Stockholder's Equity $11,716,855 $9,567,563
=========== ==========
</TABLE>
The accompanying notes to these financial statements
are an integral part hereof.
<PAGE>
<TABLE>
HELP AT HOME, INC.
Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31
1998 1997
<S> <C> <C>
Service fees $6,241,368 $5,931,151
Direct cost of services 4,423,899 3,756,847
---------- ---------
Gross margin 1,817,469 2,174,304
Selling, general and
administrative expenses 2,428,134 1,874,874
--------- ---------
(Loss) income from operations (610,665) 299,430
Interest (expense) income - net (79,977) (15,638)
Other income 598,873
--------- ---------
(Loss) income before income taxes (91,769) 283,792
Federal and state income tax
(benefit) expense (187,089) 122,300
--------- ---------
Net income $ 95,320 $ 161,492
========== =========
Earnings per common share:
Basic $ .05 $ .09
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>
<TABLE>
HELP AT HOME, INC.
Consolidated Statements of Income
(Unaudited)
Nine Months Ended March 31
1998 1997
<S> <C> <C>
Service fees $18,938,191 $16,524,385
Direct cost of services 13,023,490 10,658,541
----------- ----------
Gross margin 5,914,701 5,865,844
Selling, general and
administrative expenses 7,041,957 5,014,937
----------- ----------
(Loss) income from operations (1,127,256) 850,907
Interest (expense) income - net (136,238) 1,684
Other income 598,873
----------- ----------
(Loss) income before income taxes (664,621) 852,591
Federal and state income tax
(benefit) expense (338,844) 356,808
----------- ----------
Net (loss) income $ (325,777) $ 495,783
=========== ==========
Earnings per common share:
Basic $ (.17) $ .27
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>
<TABLE>
HELP AT HOME, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended March 31
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (325,777) $ 495,783
Adjustments to reconcile net (loss)
income to cash used in operating
activities:
Depreciation and amortization 215,651 212,357
Deferred taxes (222,293) (705,560)
Debt adjustment (241,282)
Changes in:
Accounts receivable (1,394,387)(2,222,894)
Prepaid expenses and other (349,955) (215,207)
Accounts payable 79,863 153,902
Other current liabilities 623,985 497,776
Due to third party payors 424,256
Income taxes payable 1,793 24,690
--------- ---------
Net cash used in operating
activities (1,188,146)(1,808,533)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (59,086) (228,611)
Acquisition of subsidiaries (175,012)
Increase in shareholder loans (9,141) (12,329)
Return of investment deposit 149,000
Other investments (20,049)
--------- ---------
Net cash used in investing
activities (68,227) (287,001)
Cash flows from financing activities:
Proceeds from issuance of debt 2,704,487 1,052,546
Repayment of indebtedness (1,047,699) (740,995)
--------- ---------
Net cash provided by
financing activities 1,656,788 311,551
--------- ---------
Net increase (decrease) in cash 400,415 (1,783,983)
Cash and cash equivalents:
Beginning of period 870,634 2,734,705
--------- ---------
End of period $1,271,049 $ 950,722
========== ==========
Cash flow information:
Cash payments for:
Interest $ 142,972 $ 11,365
Income taxes $ 892,255
</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 normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles but 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 a 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
replaced 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 the filing of year-end cost reports. Among the
Company's Medicare certified home health providers, the estimated
amounts due to the Medicare program are as follows:
Lakeside Home Health Agency, Inc. $ 5,360
Rosewood Home Health, Inc. 16,533
Homemakers of Montgomery, Inc. 641,799
----------
Total $ 663,692
==========
On March 30, 1998 the Company filed, on behalf of Homemakers of
Montgomery, Inc., a year-end cost report as of October 31, 1997 which
established an amount due to the Medicare program of approximately
$475,000. In conjunction with the filing of the cost report, the
Company requested that the Medicare intermediary establish a repayment
schedule pursuant to which the Company can repay the amount owed over
a period of several months. To date, the Company has not been notified
of the decision regarding its request.
In conjunction with implementation of the Balanced Budget Act of 1997,
an interim payment system which alters the formula for reimbursement of
home health services has been established for cost reporting periods
beginning on or after October 1, 1997. Under the interim payment plan
home health agencies will be paid at the lowest of (1) actual costs;
(2)reduced per visit limits; or (3) a blended, provider-specific per
beneficiary limit based on 98 percent of 1994 costs. The interim
payment system will affect Homemakers of Montgomery as of November 1,
1997, Rosewood Home Health as of January 1, 1998 and Lakeside Home
Health Agency (MO) as of September 1, 1998. The Company has not yet
been advised of the final per visit or beneficiary limits for its
Medicare home health agencies; however, it expects to receive the
notification shortly. In the interim, the Company has estimated final
reimbursement taking into consideration the limits imposed by the new
Medicare formula and believes it has adequately provided for any
adjustments that may be related to lower Medicare reimbursement rates.
The interim payment plan is a temporary transition to a prospective
payment system.
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 to
Medicare beneficiaries residing in Montgomery County, Alabama. The
Company has prevailed in a long-standing effort to secure additional
CONs that allow the extension of its service area to include Macon and
Tallapoosa Counties.
<PAGE>
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 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.
Medicare Surety Bonds: The Company's Medicare home health agencies must,
pursuant to federal regulations published on January 2, 1998, obtain
surety bonds equal to 15% of total Medicare costs for the last filed
cost report or $50,000, whichever is more. Under the regulation,
failure to secure the surety bond and properly notify the Medicare
intermediary thereof, will result in revocation of Medicare provider
status. 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
encountered by providers, the Health Care Financing Administration
(HCFA) has indicated its intention to review and revise the surety bond
regulations. Final regulations are expected by mid-1998. In the
meantime, the Company has, in compliance with directives received from
HCFA, notified its Medicare intermediaries of the fact that it has not,
yet, secured surety bonds for its Medicare home health providers.
Termination and Benefits Agreements:
As of October 1997, the Company's Compensation Committee established a
termination and benefits policy with respect to key executive employees
which provides for payment of severance and benefits to promote
adherence to the Company's non-competition policies in the event of
involuntary termination without cause and/or a change in control. As of
March 1, 1998 the Company entered into employment agreements with the
Chief Operating and Chief Financial Officers. In the event of a change
in control the maximum aggregate salary commitment for these employees
would be approximately $900,000.
As of December 5, 1997 the Compensation Committee also approved a
revised, ten-year contract for the Chief Executive Officer which
provides for severance and a one-time change of control payment in the
event of involuntary termination without cause or termination arising
from a change in the ownership and/or management of the Company.
Assuming an effective date of June 1, 1998, the maximum aggregate
severance commitment pursuant to the this contract provision is
approximately $2,555,000. The change of control payment is defined as
an amount equal to 10% of excess market capitalization of the Company
on the 30th day following the change in control. Excess market
capitalization is defined as an amount equal to the Company's
outstanding capital stock multiplied by the closing per share price on
the 30th day following the change less $6 Million.
<PAGE>
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 March 31, 1998 (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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW:
Help 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 41 locations in Illinois, Missouri, Indiana, Alabama,
Mississippi and Arkansas. 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.
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 third quarter of its
1998 fiscal year which will end on June 30, 1998.
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1997:
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 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
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,131 $1,541 $3,863 $3,581 $325 $248 $ 922 $ 562 $ 6,241 $5,932
Direct
Costs 845 940 2,754 2,313 210 149 615 355 4,424 3,757
----- ----- ----- ----- --- --- --- --- ----- -----
Gross
Margin 286 601 1,109 1,268 115 99 307 207 1,817 2,175
Operating
Expenses 340 568 762 696 198 89 366 117 1,666 1,470
----- ------ ----- ----- --- --- --- --- ----- -----
Operating
Income
(Loss) $ (54) $ 33 $ 347 $ 572 $(83) $ 10 $(59) $ 90 $ 151 $ 705
====== ====== ====== ====== ==== ==== ==== ==== ======= ======
Total
Assets $3,380 $3,301 $4,405 $3,973 $240 $267 $2,090 $1,552 $10,115 $9,093
====== ====== ====== ====== ==== ==== ====== ====== ======= ======
</TABLE>
Reconciliation of segments' operating income to consolidated net
income is as follows:
<TABLE>
1998 1997
<S> <C> <C>
Segments' operating income $ 151 $ 705
Plus:
Nonoperating income 591
Less:
Income tax (benefit) expense (187) 122
Corporate overhead expense 834 421
----- -----
$ 95 $ 161
===== =====
</TABLE>
<PAGE>
Reconciliation of segments' total assets to consolidated net assets
is as follows:
<TABLE>
March 31 March 31
1998 1997
<S> <C> <C>
Segments' total assets $10,115 $ 9,093
Plus:
Corporate/support entities'
total assets 1,602 1,006
-------- -------
$ 11,717 $10,099
======== =======
</TABLE>
Client Service Revenue: Revenues realized from services to the Company's
clients for the three months ended March 31, 1998 grew to approximately
$6.2 Million from a level of $5.9 Million for the same quarter of the
previous year. The increase reflects overall growth of $310,000 (5%).
Custodial and homemaker services grew by $862,000, while services to
Medicare beneficiaries dropped by $552,000 reflecting the continued
effect of recent regulatory changes in reimbursement for the Company's
Medicare certified home health agencies.
A comparison of the third quarter of fiscal 1998 to the same period in
fiscal 1997, by state, shows the greatest concentration of revenue
growth ($360,000 or 64%) in Mississippi followed by Illinois ($281,000
or 8%), and Missouri ($78,000 or 32%). Revenues derived from Alabama
locations decreased by $410,000 due entirely to the reduction in
Medicare reimbursement for Homemakers of Montgomery.
Of the revenues realized in the third quarter, approximately $3,286,000
or 53% came from 15 service contracts with the Illinois Department on
Aging compared to $2,598,000 (43%) for the same period in fiscal 1997.
Homemaker services reimbursed through other state, regional and
municipal sources represented $2,450,000 (39%) of total 1998 revenues
as compared to $2,276,000 (38%) for the third quarter of 1997. The
remaining $505,000 (8%) of revenues came from Medicare as compared to
$1,057,000 (18%) for the quarter ended March 31, 1997.
Direct Costs of Providing Services: Direct costs of providing services
to clients, comprised of wages and related expenses paid to field staff
members, increased by 18% ($667,000) to $4,424,000. Direct costs
associated with delivery of custodial services increased by $693,000 due
to volume increases. Direct costs of services provided to Medicare
beneficiaries were $344,000 as compared to $370,000 for the same quarter
in 1997. The proportionate increase in costs of Medicare services (from
35% of revenues in 1997 to 68% of revenues in 1998) is largely the
result of a reclassification of certain positions at Homemakers of
Montgomery from full time administrative to per diem field positions.
Overall direct costs constituted 71% of revenues for the quarter ended
March 31, 1998 contrasted to 63% for the same quarter in 1997.
A comparison of direct costs by segment shows that, as a percentage of
revenues, third quarter direct costs rose to 75% in Alabama compared to
61% for the same quarter last year. In addition to wage increases, a
significant portion of the 14% increase reflects the reclassification
of certain wages as noted above for Homemakers of Montgomery. Illinois
direct costs, as a percentage of revenue, grew by 6% to 71% primarily
reflecting the increase in the minimum wage. Similarly, direct costs
increased, as a percentage of revenues, in Missouri and Mississippi by
5% and 4% respectively, due to wage increases.
<PAGE>
The gross margin on services declined by $357,000 or 16% to $1,817,000
(from $2,174,000) during the third quarter. Gross margin contributions
by state include $287,000 in Alabama (down from $601,000 during the
third quarter of 1997 due to reduced Medicare revenues), $1,109,000 in
Illinois (down from $1,268,000 during the third quarter of 1997 due to
minimum wage adjustments), $115,000 in Missouri (up from $98,000 for the
third quarter of 1997 due to volume and rate increases) and $307,000 in
Mississippi (as compared to $207,000 for the third quarter of 1997 due
to volume increases).
Selling, General and Administrative Expense: The decrease in the
company's gross margin was exacerbated by a $23% increase in selling,
general and administrative expense. Operating expenses grew from
$1,875,000 for the quarter ended in 1997 to $2,428,000 for the
corresponding quarter of 1998 representing an increase of $553,000.
Selling, general and administrative expense for the third quarter of
1998 represented 39% of revenues as compared to 32% for the same quarter
last year. The $357,000 drop in the gross margin combined with the
increase in selling, general and administrative expenses of $553,000
contributed to the $910,000 negative quarter to quarter variance in
operating income.
Administrative salaries and benefits grew by $283,000 from $1,030,000
to $1,313,000 for the quarter ended March 31, 1998. Illinois staffing
expansion accounted for the entirety of the increase. Approximately
$122,000 of the growth in Illinois administrative salaries relates to
increased numbers of clients requiring scheduling and other indirect
coordinative activities. The remainder of the increase ($188,000) is
attributable to other administrative support services.
Professional fees and insurance of $233,000 for the third quarter of
1998 remained relatively unchanged when compared with the third quarter
of 1997 which had $228,000 of similar expense. Occupancy and general
office expenses grew by $131,000 (39%) from $334,000 to $466,000 with
virtually all of the growth attributable to the establishment and
operation of new locations in Illinois and Mississippi. Travel expenses
decreased by $21,000 (from $96,000 to $74,000) representing a drop of
21% for the 1998 quarter. Advertising and promotional expenses increased
by $82,000 to $170,000 representing growth of 92% with virtually all of
the growth associated with direct mail and other promotional activities
in the Company's newly opened Mississippi and Illinois locations.
Other expenses including depreciation, amortization and reserves for bad
debts grew by $73,000 (from $97,000 to $170,000) representing a 65%
increase in routine reserves for bad debts. The increase is
attributable to revenue volume increases. Interest expense grew by
$64,000 to $80,000 representing increased debt service associated with
the Company's Harris Bank borrowing facility.
<PAGE>
Nonoperating income was recognized during the quarter in the amount of
$599,000 due to settlement of litigation involving the acquisition of
the Oxford companies in June 1996. The Company settled legal
proceedings instituted by the estate of Oxford Healthcare's former owner
which sought to collect approximately $350,000 in life insurance
proceeds payable under two key-man insurance policies owned by the
Company. Also at issue was a proposed $240,000 reduction in principal
on the $325,000 note payable in connection with the acquisition. As
noted in the Company's most recent 10-KSB, the proposed note reduction
was the result of a determination that certain accounts receivable with
origination dates prior to the acquisition were uncollectible.
The settlement agreement, entered into as of March 31, 1998, enabled the
Company to realize $350,000 in insurance proceeds and approximately
$249,000 of additional benefit arising from reduction of the note and
associated interest payable to Oxford Healthcare's former owner.
Earnings: The net gain of $95,000 for the third quarter of fiscal 1998
compares to net income of $161,000 for the same quarter of 1997. Basic
earnings per share of common stock were $.05 for the third quarter of
1998 compared to $.09 for the same quarter of 1997 based on 1,869,375
shares of common stock outstanding. 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 underwriters' warrants.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE NINE MONTHS ENDED
MARCH 31, 1997:
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 herein. 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
1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $4,129 $3,976 $11,551 $10,193 $980 $706 $ 2,278 $ 1,859 $18,938 $16,734
Direct
Costs 2,977 2,301 7,941 6,710 603 460 1,502 1,235 13,023 10,706
----- ----- ----- ----- --- --- ----- ----- ------ ------
Gross
Margin 1,152 1,675 3,610 3,483 377 246 776 624 5,915 6,028
Operating
Expense 1,180 1,762 2,444 1,787 405 229 994 386 5,023 4,164
----- ----- ----- ----- --- --- --- --- ----- -----
Operating
Income
(Loss)$ (28)$ (87) $ 1,166 $ 1,696 $(28) $ 17 $ (218) $ 238 $ 892 $ 1,864
====== ====== ======= ======= ==== ==== ======= ====== ======= =======
Total
Assets$3,380 $3,301 $ 4,405 $ 3,973 $240 $267 $ 2,090 $1,552 $10,115 $ 9,093
====== ====== ======= ======= ==== ==== ======= ====== ======= =======
</TABLE>
<PAGE>
Reconciliation of segments' operating income to consolidated net
income (loss) is as follows:
<TABLE>
1998 1997
<S> <C> <C>
Segments' operating income $ 893 $1,864
Plus:
Nonoperating income 591
Less:
Income tax (benefit) expense (339) 357
Corporate overhead expense 2,149 1,011
------ ------
$ (326) $ 496
====== ======
</TABLE>
Reconciliation of segments' total assets to consolidated net assets
is as follows:
<TABLE>
March 31 March 31
1998 1997
<S> <C> <C>
Segments' total assets $10,115 $9,093
Plus:
Corporate/support entities'
total assets 1,602 1,006
------- -------
$11,717 $10,099
======= =======
</TABLE>
Client Service Revenue: Revenues derived from services to the Company's
clients for the nine months ended March 31, 1998 grew to $18.9 Million
from $16.5 Million for the same period in fiscal 1997 representing an
increase of 15%. Custodial services increased by $3.0 Million
representing a 21% growth rate, while services to Medicare beneficiaries
over the nine month period diminished by 21% ($570,000) to $2.1 Million.
The reduction in Medicare services is a reflection of recent regulatory
changes.
A comparison of the nine months of fiscal 1998 to the same period in
fiscal 1997, by state, shows the greatest concentration of revenue
growth in Illinois ($1,358,000 or 13%) followed by Mississippi ($419,000
or 23%), Missouri ($274,000 or 39%) and Alabama ($153,000 or 4%). Of
the year to date revenues realized by the Company, approximately
$8,487,000 (45%) were derived from services provided to the Illinois
Department on Aging as compared to $8,284,000 (50%) for the same period
in fiscal 1997. Homemaker services reimbursed through other state,
regional and/or municipal sources represented $9,401,000 (50%) of
revenues while services to Medicare beneficiaries comprised $2.1 Million
or 11% of total revenues.
<PAGE>
Direct Costs of Providing Services: Direct costs or providing services
to clients are primarily comprised of wages and related expenses paid to
field staff members. Direct costs increased by 23% from $10,659,000 to
$13,032,000. Approximately $2 Million of the increase (84%) is
attributable to volume increases. The remainder is the result of wage
reclassifications at Homemakers of Montgomery (10% or $236,000) and
minimum wage increases (6% or $142,000).
The gross margin on services increased by 1% from $5,866,000 to
$5,915,000 for the nine months ended March 31, 1998. As a percentage
of revenues, the gross margin for the first three quarters of 1998 was
31% as compared to 35% for the previous year.
Selling, General and Administrative Expense: Administrative expenditures
increased by $2,027,000 (40%) from $5,015,000 to $7,042,000.
Administrative salaries and benefits increased by $1,008,000 over the
nine month period and reached $3,832,000 or 20 percent of associated
revenues. Administrative salaries comprised 17% of revenues for the
same period in the prior year. Illinois staffing expenses were up by
$1,191,000 for 1998 with approximately 54% ($637,000) of that amount
attributable to volume increases in the Company's Illinois offices. The
remainder of the increase ($554,000) in Illinois is attributable to
other administrative support services. All other locations accounted
for a cumulative reduction in administrative salary expense of $184,000.
Professional fees grew to $559,000 for the nine months ended March 31,
1998 as compared to $410,000 for the same period a year earlier. The
bulk of the increase is associated with securing two new CONs in Alabama
and legal fees incurred in the matter arising from acquisition of the
Oxford companies. General office and occupancy expenses for the nine
month period rose by $313,000 (22%) reflecting the increased cost of
occupancy for the newly established offices in Illinois and Mississippi.
For the nine month period, travel expenses rose by $55,000 or 27% with
the entirety of the increase attributable to travel associated with
promotion of new office locations. Depreciation and amortization
expenses were $216,000 in 1998 as compared to $212,000 for the same
period in 1997. Advertising and promotional expenses doubled from
$250,000 in 1997 to $520,000 for the same nine month period in 1998
reflecting expense associated with direct mail and other promotional
efforts. Interest expense for the nine months ended March 31, 1998
stood at $136,000 as opposed to $1,700 for the same period one year
earlier.
Overall, operating expenses increased, as a percentage of revenues, from
30% ($5,015,000) to 37% ($7,042,000) for the nine months ended March 31,
1998.
Earnings: The net loss of $326,000 for the year to date at March 31,
1998 compares to net income of $496,000 for the same period in 1997.
Basic earnings per share of common stock were $(.17) as compared to $.27
for the same period in 1997 based on 1,869,375 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 underwriters' 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, Missouri, Arkansas and Illinois in anticipation of securing
clients pursuant to new contracts with state and/or area agencies on
aging. During the first three quarters of fiscal 1998, the Company has
continued to invest significant resources in promotional campaigns aimed
at increasing revenues in the new communities it serves. While the
Company anticipates the realization of projected new business, 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. Funds borrowed in
1997 pursuant to the Company's line of credit with the Bronson Gore Bank
were repaid in full in December 1997. 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 March 31,
1998 stood at $2,243,000. The ratio of current assets to current
liabilities as of March 31, 1998 was 1.4:1. As of March 31, 1998 the
accrued obligations that may require large or unusual amounts of cash
include payment of amounts that are owed to the Medicare program on the
part of Homemakers of Montgomery, Inc. ($642,000).
In addition to the accrued obligations noted above, the surety bond
requirement for the Company's Medicare home health agencies may
necessitate a substantial deposit. The Company is unable to determine
the size of such a deposit in the absence of final regulations which
will significantly influence bond collateral requirements. The Company
believes that its bonding requirement will not exceed $400,000.
The Company's indebtedness was $2.9 Million as of March 31, 1998
divided among the bank loan secured by certain receivables in the amount
of $2,604,000, a $153,000 secured note used to finance the purchase of
an airplane, a $116,000 note secured by the capital stock of Homemakers
of Montgomery, Inc. arising from the purchase of Oxford Health Care,
capital leases and automobile installment loans in the amount of
$23,000.
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. The loan balance is currently
within approximately $64,000 of its maximum limit. Interest on the loan
is being charged at the rate of 8.5%.
<PAGE>
Cash used by operations for the first three quarters of fiscal 1998
amounted to $1.2 Million as compared to $1.8 Million of cash used for
operations in the same three quarters of the previous year. Cash used
by investing activities in the amount of $68,000 compares with $287,000
year to year. Proceeds derived from financing activities yielded
$1,657,000 compared to $312,000 for the same nine month period of 1997
due to the use of borrowed funds to finance new and existing operations.
The Company's cash position at March 31, 1998 stood at $1,271,000 as
compared to $951,000 as of March 31, 1997.
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 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 May 12, 1998, 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.
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: May 14, 1998 /s/ Louis Goldstein
Louis Goldstein
CEO/Chairman
Date: May 14, 1998 /s/ Sharon S. Harder
Sharon S. Harder
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001001109
<NAME> HELP AT HOME
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1271
<SECURITIES> 0
<RECEIVABLES> 6450
<ALLOWANCES> 458
<INVENTORY> 0
<CURRENT-ASSETS> 8778
<PP&E> 421
<DEPRECIATION> 113
<TOTAL-ASSETS> 11717
<CURRENT-LIABILITIES> 6237
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11717
<SALES> 18938
<TOTAL-REVENUES> 18938
<CGS> 13023
<TOTAL-COSTS> 03023
<OTHER-EXPENSES> 6442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> (665)
<INCOME-TAX> (339)
<INCOME-CONTINUING> (326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (326)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
