<PAGE>
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 quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-21515
AMERICAN MEDSERVE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3925637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
184 SHUMAN BLVD., SUITE 200, NAPERVILLE, ILLINOIS 60563
(Address of principal executive offices) (Zip Code)
(630) 717-2904
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
The number of the registrant's shares of common stock outstanding as
of May 13, 1997 was 12,194,603.
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AMERICAN MEDSERVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets December 31, 1996 and
March 31, 1997 . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations - three months
ended March 31, 1996 and 1997 . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows - three months
ended March 31, 1996 and 1997 . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . 8
Part II - Other Information
Item 2 - Changes in Securities . . . . . . . . . . . . . . . . 10
Item 5 - Other Information . . . . . . . . . . . . . . . . . . 10
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN MEDSERVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1996 1997
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(NOTE) (UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $17,382 $2,617
Accounts receivable, net 20,768 27,459
Due from related parties 2,036 1,818
Income taxes receivable 975 359
Inventories 7,708 9,811
Prepaid expenses and other current assets 1,999 2,027
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Total current assets 50,868 44,091
Equipment, net 5,509 6,856
Excess of cost over net assets acquired, net 54,174 64,145
Deferred financing costs, net 1,897 1,797
Other assets 850 1,695
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Total assets $113,298 $118,584
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,635 $7,844
Accrued expenses 2,672 1,712
Current portion of long-term debt 3,067 4,692
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Total current liabilities 12,374 14,248
Long-term debt 6,087 7,290
Minority interest 1,197 1,149
Deferred income taxes 641 864
Stockholders' equity
Common Stock -- $.01 par value; 30,000,000
shares authorized; issued and outstanding --
12,000,464 at December 31, 1996 and
12,088,782 at March 31, 1997 120 121
Other stockholders' equity 92,879 94,912
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Total stockholders' equity 92,999 95,033
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Total liabilities and stockholders' equity $113,298 $118,584
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</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
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AMERICAN MEDSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
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1996 1997
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<S> <C> <C>
Revenues $15,291 $34,857
Cost of revenues 11,100 25,354
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Gross profit 4,191 9,503
Selling, general and administrative expenses 3,342 8,012
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Operating income (loss) 849 1,491
Other (income) expenses:
Interest expense 547 128
Minority interest (43) (48)
Other, net (34) (12)
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Income before income taxes and extraordinary 379 1,423
Income taxes 162 603
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Income before extraordinary item 217 820
Write off of deferred financing costs, net of income
tax benefit of $404 437 --
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Net income (loss) ($220) $820
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Income (loss) per share:
Before extraordinary item $0.03 $0.07
Extraordinary item 0.06 --
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Net income (loss) ($0.03) $0.07
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------------------
Shares used in computing net income (loss)
per share 6,466 12,178
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</TABLE>
See notes to condensed consolidated financial statements.
4
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AMERICAN MEDSERVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
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1996 1997
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OPERATING ACTIVITIES
<S> <C> <C>
Net cash provided by (used in) operating activities $1,473 ($1,037)
INVESTING ACTIVITIES:
Capital expenditures (344) (769)
Acquisition of entities, net of cash acquired (118) (15,265)
Other (213) 218
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Net cash used in investing activities (675) (15,816)
FINANCING ACTIVITIES:
Proceeds from (repayments of) revolving line of
credit, net (4,000) 1,000
Proceeds from long-term debt 25,053 1,108
Repayments of long-term debt and capital lease
obligations (20,583) (108)
Fees paid for financing arrangements (1,523) --
Other -- 88
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Net cash provided by (used in) financing activities (1,053) 2,088
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Net decrease in cash and cash equivalents (255) (14,765)
Cash and cash equivalents, beginning of period 1,437 17,382
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Cash and cash equivalents, end of period $1,182 $2,617
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</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
AMERICAN MEDSERVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(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 accruals) considered necessary for a fair presentation have
been included. Operating results for the three month periods ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
2. ACQUISITIONS
During the three months ended March 31, 1997, the Company acquired substantially
all of the assets of HMIS, Inc., based in Hunt Valley, Maryland and completed
three other less significant acquisitions. The aggregate purchase price for
these acquisitions was $16,690, including expenses. The Company may be required
to make an additional payment, in cash or common stock of the Company,
contingent upon future operating income of the acquired HMIS, Inc. business.
During 1996, the Company completed ten acquisitions, including one less
significant acquisition in the quarter ended March 31, 1996. In addition, in
1996 the Company acquired the controlling interest in Good Samaritan Supply
Services, Inc. (GSSS), through a 40.0% equity investment in April 1996 and a
10.1% equity investment in November 1996, and began consolidating the results of
operation of GSSS in November 1996. Between April 1996 and November 1996, GSSS
completed two acquisitions.
6
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Unaudited pro forma data as if (a) the Company had purchased each of these
businesses as of January 1, 1996 and (b) the Company had retired certain of its
long-term debt by applying a portion of the net proceeds of its initial public
offering ($46.1 million) in November 1996 as if such transaction had occurred on
January 1, 1996, are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1997
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<S> <C> <C>
Revenues $34,066 $35,981
Income before extraordinary item 905 926
Net income 468 926
Income per share before extraordinary item 0.07 0.08
Net income per share 0.04 0.08
Shares used in computation 12,178 12,178
</TABLE>
3. EXTRAORDINARY ITEM
In March 1996 the Company recorded an extraordinary charge of $841 ($437, net of
income taxes) reflecting the write off of deferred financing costs in connection
with the refinancing of the Company's credit facility.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1997 increased 128% to $34.9
million from revenues of $15.3 million for the comparable 1996 period. Of this
$19.6 million increase, $16.9 million was due to acquisitions and $2.7 million
was due to internal growth. Increased revenues reflect the acquisitions of
Pharmed, Inc. and Pharmed of Baton Rouge, Inc. in May 1996, Royal Care of
America, Inc. in August 1996 and HMIS, Inc. in January 1997, as well as ten
other less significant acquisitions. In addition, increased revenues reflect
the consolidation of Good Samaritan Supply Services, Inc. (GSSS), a 50.1% owned
subsidiary, beginning in November 1996 in connection with the Company's
acquisition of the controlling interest in GSSS. The Company's "internal
growth" consists of new customers in existing markets, acquired revenues in
established areas that are assimilated into existing operations, start-up
facilities in states where the Company is already established, and sales of new
products and services to existing customers.
Gross profit for the three months ended March 31, 1997 was $9.5 million compared
to $4.2 million for the comparable 1996 period. Gross profit as a percentage
of revenues was 27.3% and 27.4% for the three months ended March 31, 1997 and
1996, respectively. The decrease in gross profit as a percentage of revenues
was primarily the result of lower margins at GSSS related to its nonprescription
medical supply business. Lower reimbursement rates for certain products and
certain pharmaceutical price increases also contributed to margin decline. The
effect of these factors was partially offset by the acquisitions of certain
companies with higher margins and increased sales of higher margin products,
such as infusion therapy.
Selling, general and administrative expenses for the three months ended March
31, 1997 were $8.0 million compared to $3.3 million for the comparable 1996
period. As a percentage of revenues, selling, general and administrative
expenses were 23.0% and 21.9% in the three months ended March 31, 1997 and 1996,
respectively. The increase is primarily the result of the acquisitions completed
throughout the periods, including increased amortization of goodwill and
increased ongoing professional fees associated with the acquired companies, and
increased expenses associated with the expansion of the corporate office staff
in the second quarter of 1996 to support the Company's growth.
Interest expense for the three months ended March 31, 1997 was $0.1 million
compared to $0.5 million for the comparable 1996 period. Interest expense
decreased as a result of lower debt levels in 1997 which reflect the repayment
of substantially all of the Company's long-term debt in November 1996 with the
proceeds of the Company's initial public offering.
In March 1996, the Company recorded an extraordinary item in the amount of $0.4
million (net of an income tax benefit of $0.4 million) reflecting the write-off
of deferred financing charges in connection with the refinancing of the
Company's credit facility.
8
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LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1.0 million in the three months ended
March 31, 1997, as compared to $1.5 million net cash provided by operating
activities in the comparable 1996 period. The net use of cash in the 1997
period was primarily related to increases in inventory and accounts receivable
related to sales growth, as well as slower payments at certain of the Company's
operating subsidiaries, and payment of expenses related to the Company's initial
public offering in November 1996 that had been accrued at December 31, 1996.
Net cash used in investing activities was $15.8 million in the three months
ended March 31, 1997, as compared to $0.7 million in the comparable 1996 period.
The majority of the expenditures in the 1997 period ($15.3 million) were related
to acquisitions completed in that period. Capital expenditures were $0.8
million and $0.3 million in the three months ended March 31, 1997 and 1996,
respectively. The capital expenditures in the three months ended March 31, 1997
increased as a result of leasehold improvements at one location and increases in
computer equipment, transportation equipment, equipment leased to customers and
medication carts used in locations served.
Net cash provided by financing activities was $2.1 million in the three months
ended March 31, 1997, as compared to $1.1 million used in financing activities
in the comparable 1996 period. The primary source of funds in the three months
ended March 31, 1997 was funds available from the Company's credit facility for
acquisitions and operating needs of the Company. The net cash used in financing
activities in the three months ended March 31, 1996 reflect the refinancing of
the Company's credit facility and the fees paid for such refinancing.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the period from January 1, 1997 through March 31, 1997, the
Company sold the following securities that were not registered under the
Securities Act of 1933, as amended:
On January 13, 1997, the Company issued 88,318 shares of Common Stock
in exchange for a portion of a convertible promissory note for $2,000,000 issued
to Royal Care of America, Inc. ("Royal Care"), as partial payment for the
acquisition of the assets of Royal Care on August 5, 1996. The balance of the
convertible promissory note, and accrued interest thereon, was exchanged for
replacement nonconvertible promissory notes aggregating approximately $951,000.
Exemption from registration is claimed pursuant to Section 4(2) of the
Securities Act of 1933, no public sale having been involved.
No underwriters were involved in any of the foregoing sale of
securities.
ITEM 5. OTHER INFORMATION
In connection with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, the Company believes that a number of
important factors could cause the Company's actual results to differ from those
that may have been or may be projected in forward-looking statements made by or
on behalf of the Company from time to time. These factors are described under
the heading "Risk Factors" in the Company's Registration Statement on Form S-1
(File No. 333-11667) filed with the Securities and Exchange Commission on
November 12, 1996. Specific reference is made to the Risk Factors set forth
therein entitled "Limited Operating History," "Impact of Acquisitions and
Management of Growth," "Capital Requirements Relating to Growth Strategy,"
"Industry is Highly Competitive," "Regulation and Reimbursement" and
"Uncertainty Due to Potential Changes in National and State Health Care
Policies."
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
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10.1 * Asset Purchase Agreement by and among HMIS, Inc., the
Stockholders of HMIS, Inc. And HMIS Acquisition Co.,
dated as of January 15, 1997. **
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 1997, the Company did not file
any Report on Form 8-K other than the following:
Current Report on Form 8-K dated January 17, 1997 reporting under Item
2 the Company's acquisition of substantially all of the assets of HMIS, Inc.,
including the audited financial statements of HMIS, Inc. as of December 31,
1995, 1994 and 1993 and the related statements of income, retained earnings and
cash flows for the years then ended and the unaudited financial statements of
HMIS, Inc. as of September 30, 1996 and the related statements of income,
retained earnings and cash flows for the nine months then ended.
- ----------
* Incorporated by reference from the Company's Current Report on Form
8-K, dated January 17, 1997.
** The Company agrees to supplementally furnish a copy of the schedules
of this Agreement to the Securities and Exchange Commission upon
request.
11
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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.
AMERICAN MEDSERVE CORPORATION
Dated: May 13, 1997 By: /s/ Timothy L. Burfield
-------------------------------
Timothy L. Burfield
Chief Executive Officer, President
and Director
Dated: May 13, 1997 By: /s/ Charles R. Wallace
--------------------------------
Charles R. Wallace
Vice President - Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
12
<PAGE>
EXHIBIT 11.1
AMERICAN MEDSERVE CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
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1996 1997
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Average number of shares outstanding 4,421 12,077
Net effect of common shares and common
equivalent shares issued in an initial public
offering under SAB 83 390 --
Net effect of common shares issued in
connection with a preferential mandatory
distribution 1,655 --
Net effect of dilutive stock options based on
the treasury stock method using average stock price -- 101
------------------
Total 6,466 12,178
------------------
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Income (loss) before extraordinary item $217 $820
Write off of deferred financing costs, net of
income tax benefit of $404 437 --
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Net income (loss) ($220) $820
------------------
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Income (loss) before extraordinary item per share $0.03 $0.07
Write off of deferred financing costs, net of
income tax benefit of $404, per share 0.06 --
------------------
Net income (loss) per share ($0.03) $0.07
------------------
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</TABLE>
13
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN MEDSERVE CORPORATION AT
MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED (UNAUDITED) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,617
<SECURITIES> 0
<RECEIVABLES> 29,297
<ALLOWANCES> 1,838
<INVENTORY> 9,811
<CURRENT-ASSETS> 44,091
<PP&E> 9,759
<DEPRECIATION> 2,903
<TOTAL-ASSETS> 118,584
<CURRENT-LIABILITIES> 14,248
<BONDS> 7,290
0
0
<COMMON> 121
<OTHER-SE> 94,912
<TOTAL-LIABILITY-AND-EQUITY> 118,584
<SALES> 34,857
<TOTAL-REVENUES> 34,857
<CGS> 25,354
<TOTAL-COSTS> 25,354
<OTHER-EXPENSES> 8,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> 1,423
<INCOME-TAX> 603
<INCOME-CONTINUING> 820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 820
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
