FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1997
OR
[ ] 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 0-28134
HOUSECALL MEDICAL RESOURCES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2114917
- ---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1000 Abernathy Road, Building 400, Suite 1825, Atlanta, Georgia 30328
----------------------------------------------------------------------
(Address of principal executive offices and zip code)
(770) 379-9000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No
--- ---
Shares outstanding of each of the issuer's classes of common stock at
November 12, 1997: 10,399,915 shares of Common Stock, $0.01 par value
share.
<PAGE>
INDEX
Housecall Medical Resources, Inc.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets at June 30, 1997 and September 30,
1997
Condensed consolidated statements of operations - Three months ended
September 30, 1996 and 1997
Condensed consolidated statement of stockholders' equity - Three
months ended September 30, 1997
Condensed consolidated statements of cash flows - Three months ended
September 30, 1996 and 1997
Notes to condensed consolidated financial statements - September 30,
1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information.
Item 6. Exhibits and Reports on Form 8-K
Signatures
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOUSECALL MEDICAL RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,074,000 $ 3,048,000
Accounts receivable -- less allowance for doubtful accounts of
$6,394,000 in June 30, 1997 and $ 6,541,000 at September 30, 1997 28,927,000 24,234,000
Income taxes receivable 2,368,000 3,147,000
Deferred income taxes 3,956,000 4,152,000
Other current assets 2,269,000 2,988,000
-------------- -------------
Total current assets 39,594,000 37,569,000
Property and equipment, net 9,032,000 9,373,000
Excess of cost of acquired businesses over fair values of net assets 80,192,000 79,817,000
acquired
Deferred financing costs 1,361,000 1,264,000
Other assets 587,000 587,000
-------------- -------------
$ 130,766,000 $ 128,610,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,383,000 $ 5,119,000
Accrued payroll and related expenses 7,965,000 7,434,000
Other accrued liabilities 3,830,000 2,887,000
Current portion of long-term debt 3,517,000 5,507,000
Current portion of capital lease obligations 759,000 1,076,000
-------------- -------------
Total current liabilities 21,454,000 22,023,000
Long-term debt 43,214,000 41,230,000
Capital lease obligations 2,053,000 1,751,000
Other long-term liabilities 1,370,000 1,212,000
Deferred income taxes 828,000 828,000
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized, and
10,285,000 and 10,400,000 shares issued and outstanding 103,000 104,000
Additional paid-in capital on common stock 66,714,000 66,882,000
Retained earnings (deficit) (4,970,000) (5,420,000)
-------------- -------------
Total stockholders' equity 61,847,000 61,566,000
-------------- -------------
$ 130,766,000 $ 128,610,000
============== =============
</TABLE>
See accompanying notes.
2<PAGE>
HOUSECALL MEDICAL RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1996 1997
----------- -----------
<S> <C> <C>
Net revenue $48,525,000 $48,171,000
Operating expenses:
Patient care 21,820,000 18,441,000
General and administrative 24,683,000 26,859,000
Provision for doubtful accounts 569,000 1,087,000
Depreciation and amortization 770,000 1,140,000
----------- -----------
Total operating expenses 47,842,000 47,527,000
----------- -----------
Income from operations 683,000 644,000
Interest expense, net 494,000 1,290,000
----------- -----------
Income (loss) before income taxes 189,000 (646,000)
Provision (benefit) for income taxes 81,000 (196,000)
----------- -----------
Net income (loss) attributable to common
stockholders $ 108,000 $ (450,000)
=========== ===========
Income (loss) per common share $0.01 $(0.04)
=========== ===========
Weighted average common and common
equivalent shares outstanding 11,186,000 10,353,000
=========== ===========
</TABLE>
See accompanying notes
3<PAGE>
<TABLE>
<CAPTION>
HOUSECALL MEDICAL RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Retained
----------------------- Paid-in Earnings
Shares Amount Capital (Deficit) Total
---------- ---------- ----------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 10,285,000 $ 103,000 $ 66,714,000 $ (4,970,000) $ 61,847,000
Exercise of common stock 115,000 1,000 168,000 169,000
Net loss (450,000) (450,000)
---------- ----------- ------------ ------------ ------------
Balance at September 30, 1997 10,400,000 $ 104,000 $ 66,882,000 $ (5,420,000) $ 61,566,000
========== =========== ============ ============ ============
</TABLE>
See accompanying notes.
4<PAGE>
HOUSECALL MEDICAL RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1996 1997
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 108,000 $ (450,000)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 770,000 1,140,000
Amortization of deferred financing costs 110,000 150,000
Deferred income taxes 6,000 (196,000)
Changes in operating assets and liabilities:
Accounts receivable 2,119,000 4,693,000
Other current assets and inventory (398,000) (719,000)
Accounts payable (1,127,000) (264,000)
Accrued payroll and related expenses 458,000 (531,000)
Other accrued liabilities 173,000 (942,000)
Income taxes payable / receivable 67,000 (779,000)
---------- ----------
Net cash provided by operating activities 2,286,000 2,102,000
INVESTING ACTIVITIES
Additions to property and equipment (231,000) (994,000)
Other, net (372,000) (112,000)
---------- ----------
Net cash used by investing activities (603,000) (1,106,000)
FINANCING ACTIVITIES
Repayments of long-term debt (27,000) -
Proceeds from issuance of common stock - 169,000
Principal payments under capital lease obligations (198,000) 14,000
Deferred financing costs (106,000) (47,000)
Decrease in other long-term liabilities (185,000) (158,000)
---------- ----------
Net cash used by financing activities (516,000) (22,000)
---------- ----------
Net increase in cash and cash equivalents 1,167,000 974,000
Cash and cash equivalents at beginning of period 7,785,000 2,074,000
---------- ----------
Cash and cash equivalents at end of period $8,952,000 $3,048,000
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
HOUSECALL MEDICAL RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair
presentation have been included. Operating results for the three
month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year
ending June 30, 1998. For further information, refer to the
company's consolidated financial statements and footnotes thereto
for the year ended June 30, 1997.
2. ACQUISITIONS
The following unaudited pro forma information for the three
months ended September 30, 1996 is presented as if the fiscal 1997
acquisitions of Messick Homecare and Healthfirst, described in
Note 2 to the Company's consolidated financial statements for the
year ended June 30, 1997, had been effected as of July 1, 1996.
The pro forma information is in thousands, (except per share
amounts):
THREE MONTHS ENDED
SEPTEMBER 30,
1996
-------------
Net revenue $ 54,242
Net loss (430)
Net loss per common share (0.04)
3. COMMITMENTS AND CONTINGENCIES
At July 1, 1997, the Company maintained general and
professional liability insurance with independent insurance
carriers primarily on an occurrence basis. Beginning August 1,
1997, the Company purchased professional liability insurance with
terms which are similar. Prior to August 1, 1996, the Company
maintained general and professional liability insurance primarily
on a claims made basis. Claims based on occurrences during the
term of the policy, but asserted subsequently, would be insured.
Additionally, the Company's risk management system has procedures
for identifying and reporting claims on a timely basis. Based on
the claims history to date and the risk management system,
management believes any incurred but not reported claims at
September 30, 1997, would not be material to the Company's
financial position or its results of operations.
6
<PAGE>
HOUSECALL MEDICAL RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
On August 30, 1996, two lawsuits were filed by certain
persons who seek to represent a class of shareholders who
purchased shares of the Company's common stock in the April 1996
public offering or in the subsequent after market. In September
and November 1996 two additional lawsuits were filed with similar
representations. The individual plaintiffs in all four cases
allege that they were induced to purchase the Company's stock on
the basis of misrepresentations about the Company and its
prospects. The complaints assert claims under Section 11, 12(2),
and 15 of the Securities Act of 1933. The complaints name as the
defendants the Company, its Directors and certain of its
officers, and the lead underwriters associated with the public
offering. By an order dated December 5, 1996, The United States
District Court for the Northern District of Georgia consolidated
all four actions. In January 1997 a Consolidated Amended
Complaint was filed in the Northern District of Georgia. On
March 13, 1997, the Company moved to dismiss the Consolidated
Amended Complaint. The Company intends to vigorously defend this
lawsuit.
The Company is a party to a number of legal actions arising
in the ordinary course of its business. In management's opinion,
after consultation with legal counsel, settlement of these
actions, will not have a material adverse effect on the Company's
consolidated financial position, liquidity or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the following discussions, most percentages and dollar
amounts have been rounded to aid presentation; as a result all
such figures are approximations. References to such
approximations have generally been omitted.
In addition to the historical information contained in this
Management's Discussion and Analysis of Financial Condition and
Results of Operations, certain matters set forth below may
contain forward-looking statements. Such forward-looking
statements involve a number of risks and uncertainties that could
cause results to differ materially from any such statements,
including the risk and uncertainties discussed in the Company's
annual report on Form 10-K for its fiscal year ended June 30,
1997 under the caption "Certain Factors Affecting Forward-Looking
Statements" Item 1, Business, which discussion is incorporated
herein by this reference.
RESULTS OF OPERATIONS
Housecall's results of operations during the three-month
period ended September 30, 1997 reflect the performance of the
Messick Homecare and Healthfirst acquisitions (collectively
referred to as the "1997 Acquisitions") for the entire period,
but Housecall's results of operations during the three-month
period ended September 30, 1996 do not reflect the performance by
these companies.
7<PAGE>
The following table sets forth, for the periods indicated,
selected financial information as a percentage of net revenue:
PERCENTAGE OF NET REVENUE
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1997
Net revenue 100.0% 100.0%
Operating expenses:
Patient care 45.0 38.3
General and administative 50.9 55.8
Provision for doubtful accounts 1.1 2.3
Depreciation and amortization 1.6 2.3
----- -----
Total operating expenses 98.6 98.7
----- -----
Income from operations 1.4 1.3
Interest expense, net 1.0 2.6
----- -----
Income (loss) before income taxes 0.4 (1.3)
Provision (benefit for income taxes 0.2 (0.4)
----- -----
Net income (loss) attributable to common
stockholders 0.2% (0.9)%
===== ======
NET REVENUE. Net revenue decreased 1% in the first quarter
of fiscal 1998 to $48.2 million compared to $48.5 million for the
first quarter of fiscal 1997. The decrease in net revenue is
mainly due to the decline in Medicare visits. This decline
caused Medicare cost-based nursing net revenue to decrease $4.8
million or 15.3%. This decline was offset by the increases in
respiratory therapy/home medical equipment (RT/HME) and
management services net revenue. The decrease in Medicare visits
is due to efforts by management to closely review patient
admissions in order to ensure that the patients meet the
homebound criteria for program benefits; increased Government
scrutiny of the home health care industry; and closure of branch
offices that do not have sufficient activity to provide cost
efficient services. The acquisition of Messick Homecare on
October 31, 1996 accounted for the increase in the RT/HME segment
from 1.5% to 5.4% of net revenue for the quarters ended September
30, 1996 and 1997, respectively. The Healthfirst acquisition on
May 13, 1997 accounted for the increase in management services as
a percent of net revenue from 3.7% to 12.6% for the first
quarters ended September 30, 1996 and 1997, respectively.
PATIENT CARE COSTS. Patient care costs are comprised of
salaries and related benefits for patient care personnel and cost
of sales for home medical equipment, infusion products, and
supplies. Patient care costs decreased 16% in the first quarter
of fiscal 1998 to $18.4 million compared to $21.8 million for the
first quarter of fiscal 1997. The decrease in patient care costs
is primarily attributable to the same factors mentioned above
with respect to the decline in Medicare visits. As a percentage
of net revenue, patient care cost decreased significantly
reflecting the change in the Company's business mix. RT/HME has
a significantly lower patient care cost percentage of net revenue
than nursing services and the management services segment does
not generate any patient care cost.
8<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses are comprised of salaries and benefits
for administrative and support staff, occupancy expenses, and
other non-patient care operating costs. General and
administrative expenses increased 9% in the first quarter of
fiscal 1998 to $26.9 million compared to $24.7 million for the
first quarter of fiscal 1997. As mentioned above, much of the
increase is attributable to the fact that all management services
expenses are classified as general and administrative and this
segment increased as a percentage of net revenues from 3.7% to
12.6% for the first quarters ended September 30, 1996 and 1997,
respectively. Also, part of the increase is attributable to the
addition of marketing and sales staff to support implementation
of the Company's expansion and growth plans.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful
accounts increased in the first quarter of fiscal 1998 to $1
million compared to $.6 million for the first quarter of fiscal
1997. The increase is primarily a result of the Company's change
in business mix whereby the decrease in cost-based nursing
revenue has been shifted to increased RT/HME revenues which incur
a higher incident of bad debt.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation is
provided on the Company's property and equipment. Amortization
expense includes the amortization, over a 40-year period, of the
excess of the purchase price over the fair market value of the
net identifiable assets acquired by the Company (goodwill) and
the amortization of other intangibles. Depreciation and
amortization expense increased in the first quarter of fiscal
1998 to $1.1 million compared to $.8 million for the first
quarter of fiscal 1997. The increase is the result of the fiscal
year 1997 acquisitions.
INTEREST EXPENSE, NET. Interest expense, net, reflects the
net result of interest income earned from short-term investments
of cash and the interest paid by the Company on indebtedness. Net
interest expense increased in the first quarter of fiscal 1998 to
$1.3 million compared to $.5 million for the first quarter of
fiscal 1997. The increase is the result of the fiscal year 1997
acquisitions, which were financed by debt.
NET INCOME. The Company had a net loss of $450,000 for the
first quarter of fiscal 1998 compared to net income of $108,000
for the first quarter of fiscal 1997. The $558,000 decrease is
attributable to the above factors, primarily increased interest,
depreciation and amortization expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had cash and cash equivalents
of $2.1 million and working capital of $18.1 million. At
September 30, 1997, these amounts were $3.0 million and $15.5
million, respectively. Cash provided by operating activities was
$2.1 million for the three months ended September 30, 1997. Cash
provided by operations was positively affected by a decrease in
accounts receivable of $4.7 million. The decrease in receivables
is a result of increased collections from payors and the timing
of Medicare reimbursement under the periodic interim payments
system. Current portion of long-term debt increased $2.0 million
as a result of maturities scheduled for September 30, 1998.
9
<PAGE>
During the three months ended September 30, 1997, the
Company's investing activities used $1.1 million in cash. The
investing activities consisted of both additions to property,
plant and equipment as well as other assets. Financing activities
used $22,000 of cash during the three months ended September 30,
1997.
As of October 31, the Company had approximately $1.6
million of available borrowing capacity under its $18 million
Credit Line with Toronto - Dominion Bank.
10
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Form 8-K/A filed August 27, 1997 with respect to the
Acquisition of Healthfirst, Inc. Including:
The Report of Independent Auditors, Audited Combined
Balance Sheet as of December 31, 1996, and
Unaudited Combined Balance Sheet as of March 31, 1997.
Audited Combined Statement of Income for the year
ended December 31, 1996 and Unaudited Combined
Statement of Income for the three months ended as of
March 31, 1996 and 1997.
Audited Combined Statement of Owners' Capital
Deficiency for the Three months ended March 31, 1997.
Audited Combined Statement of Cash Flow for the year
ended December 31, 1996 and
Unaudited Combined Statement of Cash Flow for the three
months ended as of March 31, 1996 and 1997.
Notes to Combined Financial Statements.
Unaudited Pro Forma Financial information
Unaudited Pro Forma Condense Balance Sheet, as of March 31, 1997
Unaudited Pro forma Statement of Operations For the
Year Ended June 30, 1996
Unaudited Pro forma Statement of Operations For the
Nine Months ended March 31, 1997
Pro Forma Balance Sheet Adjustments
11
<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.
Housecall Medical Resources, Inc.
(Registrant)
Date: November 13, 1996 by: /s/ Fred C. Follmer
Fred C. Follmer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001006604
<NAME> HOUSECALL MEDICAL RESOURCES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,048,000
<SECURITIES> 0
<RECEIVABLES> 30,775,000
<ALLOWANCES> 6,541,000
<INVENTORY> 1,157,000
<CURRENT-ASSETS> 37,569,000
<PP&E> 12,581,000
<DEPRECIATION> 3,208,000
<TOTAL-ASSETS> 128,610,000
<CURRENT-LIABILITIES> 22,023,000
<BONDS> 41,230,000
0
0
<COMMON> 104,000
<OTHER-SE> 66,882,000
<TOTAL-LIABILITY-AND-EQUITY> 128,610,000
<SALES> 48,171,000
<TOTAL-REVENUES> 48,171,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,440,000
<LOSS-PROVISION> 1,087,000
<INTEREST-EXPENSE> 1,290,000
<INCOME-PRETAX> (646,000)
<INCOME-TAX> (196,000)
<INCOME-CONTINUING> (450,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (450,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
