SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] 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: 0-20881
HEALTHCOR HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 75-2294072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8150 North Central Expressway, 75206
Suite M-2000, Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 692-4663
---------------------------------------
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 [ ]
As of May 15, 1999 approximately 10,092,680 shares of Common Stock
were issued and outstanding.
Total number of sequentially numbered pages 18
Exhibit Index on sequentially numbered page 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -------------------------------------------------------------------------
The unaudited condensed consolidated financial statements include the
accounts of HealthCor Holdings, Inc. and subsidiaries (the "Company") and
have been prepared in accordance with generally accepted accounting
principles for interim financial information. 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 considered necessary for a fair presentation in
the following financial statements have been included. These condensed
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and the related notes for the
year ended December 31, 1998, included in the Company's Report on Form 10-
K, as filed with the Securities and Exchange Commission.
<PAGE>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
------------- ------------
1999 1998
------------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . $ 5,338,235 $ 5,947,953
Accounts receivable, net . . . . . . . . 26,941,683 28,462,019
Income tax receivable. . . . . . . . . . 87,892 107,264
Supplies inventory . . . . . . . . . . . 3,898,794 3,799,806
Prepaid expenses and other assets. . . . 1,559,482 1,059,117
------------- ------------
Total current assets . . . . . . 37,826,086 39,376,159
Property and equipment, net. . . . . . . . 20,047,510 21,340,745
Excess of cost of acquired businesses
over fair values of net assets
acquired, net. . . . . . . . . . . . . . 10,754,291 11,031,320
Other assets . . . . . . . . . . . . . . . 2,400,297 2,515,122
------------- ------------
Total assets . . . . . . . . . . $ 71,028,184 $ 74,263,346
============= ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued payroll and related expenses . . $ 5,305,896 $ 5,676,069
Accounts payable and accrued expenses. . 14,087,327 16,790,513
Accrued interest payable . . . . . . . . 7,896,341 5,369,526
Payable to third party . . . . . . . . . 7,734,000 7,734,000
Line of credit payable . . . . . . . . . 8,713,386 7,798,632
Current portion of long-term debt. . . . 94,978,413 86,641,015
Current portion of capital lease
obligations . . . . . . . . . . . . . 1,660,737 2,355,784
------------- ------------
Total current liabilities. . . . 140,376,100 132,365,539
Deferred income taxes and other. . . . . . 102,934 104,868
Long-term debt . . . . . . . . . . . . . . 421,673 109,929
Capital lease obligations. . . . . . . . . 596,050 689,781
------------- ------------
Total liabilities. . . . . . . . 141,496,757 133,270,117
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value,
40,000,000 shares authorized;
10,092,680 and 10,092,680 shares
issued and outstanding at March 31,
1999 and December 31,1998,
respectively . . . . . . . . . . . . . 100,926 100,926
Additional paid-in capital. . . . . . . . 39,908,781 39,908,781
------------- ------------
Retained deficit. . . . . . . . . . . . . (110,478,280) (99,016,478)
------------- ------------
Total stockholders' deficit . . . (70,468,573) (59,006,771)
------------- ------------
Total liabilities and
stockholders' deficit . . . . . $ 71,028,184 $ 74,263,346
============= ============
The accompanying notes are an integral part of these
consolidated balance sheets
<PAGE>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
-----------------------------
March 31,
-----------------------------
1999 1998
------------- ------------
(unaudited)
Net revenues . . . . . . . . . . . . . . . $ 22,774,643 $ 32,682,376
Direct expenses. . . . . . . . . . . . . . 10,094,981 17,801,443
------------- ------------
Gross profit . . . . . . . . . . . . . . . 12,679,662 14,880,933
Other costs and expenses:
General and administrative . . . . . . . . 12,138,787 14,232,689
Depreciation and amortization. . . . . . . 1,520,611 1,432,914
Provision for doubtful accounts. . . . . . 7,267,589 2,343,625
------------- ------------
Total costs and expenses . . . . . . . . 20,926,987 18,009,228
------------- ------------
Loss from operations . . . . . . . . . . . (8,247,325) (3,128,295)
Interest expense, net. . . . . . . . . . . 3,222,639 2,359,798
------------- ------------
Loss before income taxes . . . . . . . . . (11,469,964) (5,488,093)
Provision for income taxes . . . . . . . . (8,162) --
------------- ------------
Net loss . . . . . . . . . . . . . . . . . $ (11,461,802) $ (5,488,093)
============= ============
Net loss per common share. . . . . . . . . $ (1.14) $ (0.54)
============= ============
Net loss per common share - assuming
dilution. . . . . . . . . . . . . . . $ (1.14) $ (0.54)
============= ============
Weighted average common shares
outstanding. . . . . . . . . . . . . . . 10,092,680 10,090,057
============= ============
Weighted average common shares outstanding
and dilutive common stock options. . . . 10,092,680 10,090,057
============= ============
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
-----------------------------
March 31,
-----------------------------
1999 1998
------------- ------------
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . $ (11,461,802) $(5,488,093)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization . . . 2,297,729 2,302,041
Proceeds on disposition on assets. . . 70,270 --
Changes in operating assets and
liabilities, net of acquired
businesses:
Accounts receivable, net . . . . . . 1,520,336 (5,793,925)
Prepaid expenses and other assets. . (445,784) (944,220)
Deferred income taxes. . . . . . . . -- (6,983)
Accounts payable and accrued
expenses. . . . . . . . . . . . . (548,478) 324,054
Income taxes payable/receivable. . . (19,372) (23,473)
------------- ------------
Net cash used in operating
activities. . . . . . . . . . . (8,587,101) (9,630,599)
------------- ------------
Cash flows from investing activities:
Payments and adjustments for business
acquisitions, net of cash acquired . . -- 133,648
Additions to property and equipment. . . (797,734) (3,311,450)
------------- ------------
Net cash used in investing
activities . . . . . . . . . . (797,734) (3,177,802)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of debt . . . . . 26,879,023 --
Payments on debt and capital lease
obligations. . . . . . . . . . . . . . (18,103,905) (1,506,923)
Issuance of common stock . . . . . . . . -- 2,000
------------- ------------
Net cash provided by (used in)
financing activities. . . . . . 8,775,118 (1,504,923)
------------- ------------
Net decrease in cash and cash equivalents. (609,717) (14,313,324)
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . 5,947,952 21,820,308
------------- ------------
Cash and cash equivalents, end of period . $ 5,338,235 $ 7,506,984
============= =============
Supplemental disclosure of cash flow
information:
Cash paid for interest . . . . . . . . . $ 695,824 $ 162,113
Issuance of capital lease obligations. . 59,611
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed consolidated financial statements include the
accounts of HealthCor Holdings, Inc. and all of its subsidiaries (the
"Company") for the three months ended March 31, 1999 and 1998. All
significant intercompany transactions have been eliminated. Direct
expenses on the statements of operations include all costs directly related
to the production of net revenues, such as salary and related benefit
costs, depreciation of hand-held point-of-care computers, billable medical
supplies, product purchase costs, and rental equipment depreciation.
Depreciation costs not directly attributable to the generation of net
revenues are included in other costs and expenses. The accompanying
unaudited condensed consolidated financial statements and notes should be
read in conjunction with the Company's consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. Certain amounts in the statements of
operations have been reclassified from earlier presentations.
2. Basis of Reporting and Current Operating Environment
The unaudited condensed consolidated financial statements of the Company
have been prepared under generally accepted accounting principles assuming
that the Company will continue as a going concern. The Company recorded a
net loss of approximately $(98.3) million during 1998 and a net loss of
approximately $(11.5) million during the three months ended March 31, 1999
and had negative cash flow from operations for both periods. In addition,
at May 15, 1999, the Company is in default on its 11% Senior Notes due 2004
("11% Senior Notes"), (see Note 3). The Company does not have adequate
liquidity or available sources of financing to meet its contractual debt
obligations and settle its other liabilities. If the Company is unable to
generate sufficient cash flow levels and the principal holders of the 11%
Senior Notes do not continue to support the Company's current liquidity
needs or the Company does not obtain other financing, there is a substantial
prospect that the Company or one of its subsidiaries would be required to
seek protection under the U.S. Bankruptcy Code. These factors raise
substantial doubt about the Company's ability to continue as a going
concern. The unaudited condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities
that might result should the Company be unable to continue as a going concern.
The Company did not pay its December 1, 1998 interest obligation of
$4.4 million on the 11% Senior Notes. On December 23, 1998, the principal
holders of the 11% Senior Notes provided working capital advances of $6.0
million under a convertible loan agreement (see Note 3). Through May 15,
1999, the principal bond holders have amended the convertible loan
agreement six times to provide additional working capital advances of $10.1
million. Management continues to pursue a sale or merger of the Company.
On February 25, 1999, the Company announced that S. Wayne Bazzle, the
Company's Chairman of the Board and Chief Executive Officer, and Cheryl C.
Bazzle, the Company's President and Chief Operating Officer resigned from
all positions of the Company. In addition, two senior vice presidents have
also left the Company. The Bazzles will continue to provide consulting
services to the Company. The Company also announced that Michael D. Ayres,
the Chief Financial Officer, has been named acting Chief Executive Officer
and Philip C. Dowling has been appointed as Senior Vice President for
Operations. On April 12, 1999, the Company appointed Mr. Ayres as the
President and Treasurer of the Company. The Company has retained Victor
Palmieri of the Palmieri Company to assist the Board of Directors in
assessing the Company's business plans and financial viability. On April 12,
1999, the Palmieri agreement with the Company was amended to provide services
on a per diem basis instead of full time.
3. 11% Senior Notes:
On December 1, 1997, an offering of senior notes was completed to
refinance indebtedness outstanding under the previous bank credit facility.
The Company sold $80 million principal amount of 11% Senior Notes due
December 1, 2004 (the "Senior Notes") to qualified institutional buyers in
reliance on the exemption from the registration requirements of the
Securities Act of 1933 provided by Rule 144. The Senior Notes bear interest
at the rate of 11% per annum, payable in arrears on June 1 and December 1
of each year, commencing June 1, 1998. The Senior Notes bear interest at
the rate of 11.5% from March 1, 1998 through May 29, 1998. The Company
filed a Form S-4 registration statement with the Securities and Exchange
Commission to register the Senior Notes so the original restricted notes
may be exchanged, at the option of the holder, for identical notes without
resale or transfer restrictions. The exchange offer period was completed
during the second quarter of 1998.
The Company did not pay its December 1, 1998 interest obligation of
$4.4 million on the 11% Senior Notes. As a result, the Company is
currently in default of the indenture and has classified the 11% Senior
Notes as a current liability in the accompanying unaudited condensed
consolidated balance sheet. However, as of May 15, 1999, the noteholders
have not exercised the acceleration provisions under the indenture. The
indenture also effectively prohibits the Company from incurring additional
indebtedness (other than certain limited permitted indebtedness).
On December 23, 1998, the principal holders of the 11% Senior Notes
provided working capital advances of $6.0 million under a convertible loan
agreement. Through May 15, 1999, the principal holders have amended the
convertible loan agreement to provide aggregate additional working capital
advances of $10.1 million. The convertible loan is due December 31, 1999,
and accrues interest at 11% per annum increasing to 13% per annum in the
event of any non-payment of principal or interest amounts due. The
agreement is secured by a pledge of the stock of the Company, as well as a
security interest in substantially all of the assets of the Company and its
subsidiaries. As of May 15, 1999, the Company is in default of several of
the financial covenants in the convertible loan agreement.
4. Borrowings:
During the second quarter of 1998, the Company replaced its bank
credit facility with a two-year secured line of credit with a maximum
availability of $7.5 million at March 31, 1999. Advances are based on 80%
of the net collectible value of the Company's accounts receivable. "Net
Collectible Value" is defined as the amount the Company bills third-party
payors less patient co-payments and deductible obligations and contractual
allowances established by the Company and acceptable to the lender.
Interest on the outstanding balance of the facility is payable monthly at
an annual rate of the prime rate plus two percent. The Company also pays a
collateral management fee of 0.083% per month on the average outstanding
balance. Collections of accounts receivable by the Company are credited to
the facility on a daily basis. Advances under this facility may be used to
finance the working capital and general corporate requirements of the
Company. As of March 31, 1999, the Company had approximately $6.2 million
outstanding under the line and availability of $1.3 million. The Company
also separately had a $2.5 million loan outstanding, secured by the stock
of a subsidiary, from the same lender at March 31, 1999. The loan carries
the same interest rate as the line and is due on demand.
The secured line of credit, 11% Senior Notes (see Note 3) and the
convertible loan agreement (see Note 3) all contain cross default
provisions. In the event that there is default under one of the
agreements, these provisions trigger a cross default of the other
agreements. There has been no default under the provisions of the secured
line of credit, and the principal holders of the 11% Senior Notes and the
convertible loan agreement have issued forbearances to the Company. The
principal holders of the 11% Senior Notes are also the lenders under the
convertible loan agreement and therefore bear the risk of cross defaults
under both agreements.
5. Litigation
On March 20, 1998, the Company and several of its former officers were
named as defendants in a lawsuit alleging certain violations of federal
securities laws by the Company. The plaintiffs in the lawsuit seek to
represent a class of persons who purchased shares of the Company's common
stock from March 31, 1997 through and including March 31, 1998. The
Company has filed a motion to dismiss the lawsuit which is currently
pending determination by the court. Otherwise, the Company intends to
vigorously defend the lawsuit but is currently unable to assess the
likelihood of success in this litigation, which is in the early stages of
fact finding. An adverse result in the litigation could have a material
adverse effect on the Company's business and operations.
In addition, the Company, in the normal course of business, is party
to various other litigation matters. Management is of the opinion that
the eventual outcome of these matters will not have a material adverse
effect on the Company's financial position or results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -------------------------------------------------------------------------
OVERVIEW
The Company is a provider of comprehensive home health care services
including nursing, respiratory therapy/home medical equipment and infusion
therapy. The Company currently has 51 offices in eight states in the
southwestern and central United States.
Effective February 13, 1999, the Company assumed certain operations of
four of Home Healthcare Corporation of America's Texas based, respiratory
therapy/home medical equipment offices prior to the commencement of Home
Healthcare Corporation's bankruptcy proceedings. The Company expects that
the effect of acquiring these operations will be to increase the respiratory
therapy/home medical equipment net revenues for Texas operations.
The Company's revenue mix has changed dramatically as a result of the
Medicare branch closures, internal growth, shifting from predominantly
nursing services to respiratory therapy/home medical equipment and infusion
therapy businesses. Following is a breakdown of net revenue mix (dollars
in thousands):
Three Months Ended March 31,
------------------------------------
1999 1998
---------------- ----------------
Nursing $ 2,539 11.1% $ 10,323 31.6%
Respiratory therapy/medical
equipment 13,201 58.0 13,995 42.8
Infusion therapy 4,433 19.5 4,785 14.6
Other 2,602 11.4 3,579 11.0
-------- ----- -------- -----
$ 22,775 100.0% $ 32,682 100.0%
======== ===== ======== =====
The Company has engaged the consulting firm of Chanin, Kirkland, and
Messina (CKM) to act as financial advisor and agent to the Company in
connection with (a) the private placement or raising of (i) a revolving
Credit Facility; (ii) a term loan; (iii) subordinated notes; and (iv)
equity on a best efforts basis on terms satisfactory to the Company and (b)
the potential re-capitalization or restructuring of the balance sheet of
the Company. In that capacity, CKM has been engaged in contacting
individuals and companies that may be interested in acquiring all or parts
of the Company's assets and/or operations. As of May 15, 1999, the Company
was continuing to evaluate various inquiries but had not accepted any
offer. The Company continues to receive inquiries and requests for
information on its operations. The Company continues to seek buyers of
Quest Personnel Services (Quest), its personnel placement division and its
Texas Medicaid waivered nursing program. The Company has signed a letter
of intent to sell its Texas Medicaid waivered nursing program and
anticipates closing the sale within thirty days of this filing. There is
no assurance that the Company will be successful in finding a buyer for all
or part of the Company, Quest or CCS.
While CKM is marketing the Company, management has implemented an
operating strategy that is designed to position the Company to continue
operating in the event a suitable buyer is not found. Management is
evaluating the Company's current payor contracts to determine if it should
cancel, renegotiate or continue to accept the current terms and as a result
has canceled one major contract. Management is considering steps to
increase payor and provider awareness of the Company as an active provider
in each of the communities where it has a presence. Finally, management is
evaluating each of its offices by product line to determine what actions
need to be taken to increase productivity, volume, and efficiency of
operations. While these actions are designed to improve profitability by
product line, there is no assurance that the outcome will result in any
improvement of the Company's financial position.
RESULTS OF OPERATIONS
The following table sets forth certain items included in the Company's
unaudited condensed consolidated statements of operations as a percentage
of net revenues:
Three Months Ended
March 31,
-------------------
1999 1998
------- -------
Net revenues 100.0% 100.0%
Direct expenses 44.3 54.5
------- -------
Gross profit 55.7 45.5
Other costs and expenses:
General and administrative 53.3 43.5
Depreciation and amortization 6.6 4.4
Provision for doubtful accounts 32.0 7.2
------- -------
Total costs and expenses 91.9 55.1
------- -------
Loss from operations (36.2) (9.6)
Interest, net (14.2) (7.2)
------- -------
Loss before income taxes (50.4) (16.8)
Provision for income taxes (.1) --
------- -------
Net loss (50.3)% (16.8)%
======= =======
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998
NET REVENUES. Net revenues decreased from $32.7 million for the three
months ended March 31, 1998 to $22.8 million for the same period in 1999, a
decrease of $9.9 million, or 30.3%. This decrease is attributable to a
reduction in Medicare nursing revenues resulting from regulatory changes
and office closures and is partially offset by growth in revenue in the
respiratory therapy/medical equipment line of business.
DIRECT EXPENSES. Included in direct expenses are all costs directly
related to the production of net revenues, including salary and employee
benefit costs, depreciation of hand-held point-of-care computers, billable
medical supplies, product purchase costs, and rental equipment
depreciation. Direct expenses decreased from $17.8 million for the three
months ended March 31, 1998 to $10.1 million for the same period in 1999, a
decrease of $7.7 million, or 43.3%. This decrease is partially
attributable to the closing of Medicare nursing offices. As a percentage
of net revenues, direct expenses decreased from 54.5% for the three months
ended March 31, 1998 to 44.3% for the comparable period in 1999.
GENERAL AND ADMINISTRATIVE. Included in general and administrative
expenses are occupancy costs, field office administration, corporate office
salaries and benefits, legal and accounting fees, and other non-patient
care operating expenses. These costs decreased from $14.2 million for the
three months ended March 31, 1998 to $12.1 million for the same period in
1999, a decrease of $2.1 million, or 14.8%. The general and administrative
expenses increased as a percent of net revenues from 43.5% for the three
months ended March 31, 1998 to 53.3% for the comparable period in 1999.
The shift in business mix contributed to the increased general and
administrative expenses as a percent of net revenues. Respiratory
therapy/medical equipment and infusion therapy businesses are
proportionally higher because the majority of all personnel costs for these
businesses are classified in this category.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $1.4 million for the three months ended March 31, 1998, to
$1.5 million for the same period in 1999, an increase of $0.1 million, or
7.1%. The increase is primarily due to the depreciation of additional
capital expenditures for purchases of home medical equipment to service the
growing respiratory/infusion therapy business and an increased investment
in information technology equipment and costs capitalized as part of the
development of the Company's clinically based management information
system.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
increased from $2.3 million for the three months ended March 31, 1998, to
$7.3 million for the same period in 1999, an increase of $5.0 million, or
217.4%. Additional provisions for doubtful accounts are based on estimated
collection factors and are the result of increased difficulties in
collecting from certain managed care relationships, failure of the Company
to timely file claims with payors, difficulty in obtaining accurate patient
data, and maintenance of effective quality control and processes and
procedures in the revenue cycle.
INTEREST EXPENSE, NET. Interest expense, net increased from $2.4
million for the three months ended March 31, 1998, to $3.2 million for the
same period in 1999, an increase of $0.8 million, or 3.3%. Interest
expense, net increased as a percent of revenue from 7.2% for the three
months ended 1998 to 14.1% for the comparable period in 1999. The increase
is attributable to the additional working capital provided by the principal
holders of the 11% Senior Notes. On Decemeber, 23, 1998 the principal bond
holders provided working capital advances of $6,000,000 under a convertible
loan agreement (see Note 3). During the first quarter of 1999, the
principle bond holders amended the convertible loan agreement four times to
provide additional working capital advances of $6.9 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for debt service, for
additional working capital to fund the Company's managed care business and
accounts receivable. The Company recorded a net loss of $(11.5) million for
the first quarter of 1999 and had negative cash flow from operations. The
Company expects to report additional net losses and negative cash flow
amounts during the second quarter 1999. This has negatively impacted the
availability of the Company's current financing sources and is expected to
decrease the Company's overall liquidity position during 1999. In
addition, at May 15, 1999, the Company is in default on its 11% Senior
Notes. The Company does not have adequate liquidity or available sources
of financing to meet its contractual debt obligations and settle its other
liabilities. If the Company is unable to generate sufficient cash flow
levels and the principal holders of the 11% Senior Notes do not continue to
support the Company's current liquidity needs, there is a substantial
prospect that the Company or one of its subsidiaries would be required to
seek protection under the U.S. Bankruptcy Code.
Management is implementing actions that are designed to increase the
collection rate on current revenues and decrease direct, indirect, and
administrative and general costs by the second quarter of 1999. Management
is evaluating all of the current operating locations to determine if each
is operating at its optimum efficiency and has adequate volume to provide a
positive operating margin. Locations not meeting minimum performance
criteria will be considered for consolidation or closure. Additionally,
management is actively marketing for the sale of non-core operating
segments of the Company.
At March 31, 1999, the Company had negative working capital of
$(102.6) million as compared to negative working capital of $(93.0) million
as of December 31, 1998. The negative working capital is primarily a
result of the reclassification of the Company's 11% Senior Notes and its
related accrued interest as a short term liability as a result of the
Company's default on the indenture in 1998.
During the quarter ended March 31, 1999, the Company had capital
expenditures of $0.8 million.
Capital expenditures were used for home medical equipment to service the
respiratory therapy/infusion therapy business.
Accounts receivable at March 31, 1999, were $26.9 million, compared to
$28.5 million at December 31, 1998. Days of Sales Outstanding ("DSO"),
defined as trade accounts receivable divided by average daily net revenues
for the preceding three months, were 112 as of March 31, 1999, compared to
106 at December 31, 1998. Management has substantially increased the
Company's reserve for doubtful accounts as a result of its inability to
improve the collection of the accounts receivable. Efforts to automate the
process using Medisyn(TM) were unsuccessful, and control over the collection
of necessary information to bill and collect the accounts was not effective
in decreasing billed amounts during 1998 or in the first quarter of 1999.
As a result, the accounts aged beyond the dates allowed for timely filing,
and probability of collection was very low. The Company hired a Vice
President of Patient Accounting and a Director of Patient Accounting on
March 15, 1999. The sole responsibility of these employees is to implement
policies, procedures and controls to ensure that the Company's accounts
receivables are collected to the maximum amount allowed and within
specified time frames. The Company is continuing intensified initiatives
to address the increase in DSO, including commencing installation of an
electronic claims submission system and more closely managing the billing
and collecting processes to increase efficiency and effectiveness.
Net cash used in operating activities decreased from $9.6 million for
the three months ended March 31, 1998, to $8.6 million for the comparable
period in 1999, or a reduction in operating cash flow of $1.0 million.
The first quarter net loss was primarily responsible for the reduction in
operating cash. Net cash used in investing activities decreased from $3.2
million for the three months ended March 31, 1998 to $.8 million for the
same period in 1999. This is attributable to the decreased purchases of
home medical equipment and information technology equipment. Net cash
provided by (used in) financing activities decreased from $(1.5) million
for the three months ended March 31, 1998 to $13.2 million for the same
period in 1999.
As of March 31, 1998, the Company had a cash balance of $5.3 million.
The indenture under the Company's 11% Senior Notes prohibits the Company
from incurring additional indebtedness (other than limited permitted
indebtedness) or issuing preferred equity interests (as defined in the
indenture) unless the consolidated fixed charge ratio is greater than 2.0
to 1. At March 31, 1999, the Company's consolidated fixed charge ratio is
less than 2.0 to 1. In addition, the Company did not pay its December 1,
1998, interest obligation and is currently in default of the indenture. The
lender, however, has agreed to forbearances for the default. The indenture
does permit the Company to incur indebtedness under any credit facility in
an amount not to exceed $20.0 million.
The Company has a two-year secured line of credit with a maximum
potential availability of $7.5 million at March 31, 1999, subject to a
borrowing base with reference to accounts payable. The advances are based
on 80% of the net collectable value of the Company's accounts receivable.
"Net Collectable Value" is defined as the amount the Company bills third
party payors less patient co-payments and deductible obligations and
contractual allowances established by the Company and acceptable to the
lender. Interest on the outstanding balance of the facility is payable
monthly at an annual rate of the prime rate plus two percent. The Company
will also pay a collateral management fee of 0.083% per month on the
average outstanding balance. Collections of receivables by the Company
will be credited to the facility on a daily basis. Advances under this
facility may be used to finance the working capital and general corporate
requirements of the Company.
YEAR 2000 ISSUE
The statements in the following section include "Year 2000 Readiness
Disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.
Many existing computer programs and databases use two digits to
identify a year in the date field (i.e., 98 would represent 1998). These
programs and databases were not originally designed to operate after
December 31, 1999. If not corrected, many computer programs and databases
could fail or create erroneous results relating to the year 2000. If the
Company, its significant customers, or suppliers fail to make necessary
modifications and conversions on a timely basis, the Year 2000 issue could
have a material adverse effect on the Company operations. However, the
impact cannot be quantified at this time.
The Company has assessed the exposures related to the impact on its
computer programs and databases of the Year 2000 issue. Key management
information systems and operational systems, including equipment with
embedded microprocessors, have been inventoried and assessed, and detailed
plans have been or are currently being implemented for the required program
and database modifications or replacements. Progress against these plans
is monitored and reported to management on a regular basis. Implementation
of required changes to critical systems is expected to be completed during
fiscal 1999. The Company is also focusing on major payors, which consist
of third-party payors such as state and federal government, and managed
care plans and certain key software suppliers to assess their compliance.
The Company expects to complete such assessment by June 30, 1999. In the
event a material payor or supplier is not Year 2000 compliant, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
The costs incurred to date related to these programs have not been
material and the Company does not expect its future costs related to these
programs to be material. Such costs have been and will continue to be
funded through operating cash flows. The Company presently believes that
the total cost of achieving Year 2000 compliance will not be material to
its financial condition, liquidity, or results of operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to,
the availability and cost of trained personnel; the ability to locate and
correct all relevant computer code and systems; and remediation success of
the Company's payors and significant suppliers.
The proceeding "Year 2000 Readiness Disclosure" contains various
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 and the Section 27A Securities Act of 1933.
These forward-looking statements represent the Company's beliefs or
expectations regarding future events. When used in the "Year 2000
Readiness Disclosure," the words "believes," "expects," "estimates" and
similar expressions are intended to identify forward-looking statements.
Forward-looking statements include, without limitation, the Company's
expectations as to when it will complete the modification and testing
phases of its Year 2000 project plan as well as its Year 2000 contingency
plans; its estimated cost of achieving Year 2000 readiness; and the
Company's belief that its internal systems will be Year 2000 compliant in a
timely manner. All forward-looking statements involve a number of risks
and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences
include, but are not limited to, the availability of qualified personnel
and other information technology resources; the ability to identify and
remediate all date sensitive lines of computer code or to replace embedded
computer chips in affected systems or equipment, and the actions of
governmental agencies or other third parties with respect to Year 2000
problems.
FORWARD-LOOKING STATEMENTS
This report contains or may contain forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934 including
statements of the Company's and management's expectations, intentions, plans
and beliefs, including those contained in or implied by "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Notes to Condensed Consolidated Financial Statements. These forward-looking
statements, as defined in Section 21E of the Securities Exchange Act of 1934,
are dependent on certain events, risks and uncertainties that may be outside
the Company's control. These forward-looking statements may include statements
of management's plans and objectives for the Company's future operations and
statements of future economic performance; the Company's capital budget and
future capital requirements, and the Company's meeting its future capital needs;
and the assumptions described in this report underlying such forward-looking
statements. Actual results and developments could differ materially from those
expressed in or implied by such statements due to a number of factors,
including, without limitation, those described in the context of such forward-
looking statements, and the factors set forth in the Company's Form 10-K under
the caption "Risk Factors." All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by this section.
<PAGE>
PART II - OTHER INFORMATION
Items 1-5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------- ----------------------
11 Computation of net loss per common equivalent share
(b) The Company filed no reports on Form 8-K during the quarterly
period ended March 31, 1999.
<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.
HEALTHCOR HOLDINGS, INC.
Date: May 15, 1999 By: /S/MICHAEL D. AYRES
-------------------------------
Michael D. Ayres, President and
Treasurer
EXHIBIT 11.1
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED NET LOSS PER COMMON EQUIVALENT SHARES
Basic and diluted net loss per Three Months Ended
common share March 31,
---------------------------
1999 1998
------------ -----------
Numerator:
Net loss . . . . . . . . . . . . . . . . $(11,461,802) $(5,488,093)
Denominator:
Weighted average common shares
outstanding-basic . . . . . . . . . . 10,092,680 10,090,057
Effect of dilutive stock options:
Assuming exercise of options, reduced
by the number of common shares
which could have been purchased
with the proceeds from exercise of
such options. . . . . . . . . . . . -- --
------------- ------------
Weighted average number of common shares
outstanding and dilutive stock
options - diluted . . . . . . . . . . 10,092,680 10,090,057
============= ============
Net loss per common share. . . . . . . . . $ (1.14) $ (0.54)
Net loss per common share- assuming
dilution . . . . . . . . . . . . . . . . $ (1.14) $ (0.54)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM MARCH 31, 1999 10-Q BALANCE SHEET & INCOME STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 5,338,235
<SECURITIES> 0
<RECEIVABLES> 26,941,683
<ALLOWANCES> 0
<INVENTORY> 3,898,794
<CURRENT-ASSETS> 38,738,194
<PP&E> 20,047,510
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,028,184
<CURRENT-LIABILITIES> 140,376,100
<BONDS> 0
0
0
<COMMON> 100,926
<OTHER-SE> 39,908,781
<TOTAL-LIABILITY-AND-EQUITY> 71,028,184
<SALES> 22,774,643
<TOTAL-REVENUES> 22,774,643
<CGS> 10,094,981
<TOTAL-COSTS> 10,094,981
<OTHER-EXPENSES> 13,659,398
<LOSS-PROVISION> 7,267,589
<INTEREST-EXPENSE> 3,222,639
<INCOME-PRETAX> (11,469,964)
<INCOME-TAX> (8,162)
<INCOME-CONTINUING> (11,461,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,461,802)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
