<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 COMMISSION FILE NO. 0-28379
HEALTHCOMP EVALUATION SERVICES CORPORATION
NEVADA 88-0395372
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2001 SIESTA DRIVE, SUITE 302
SARASOTA, FLORIDA 34239
-----------------------------------------------------
(Address and zip code of principal executive offices)
941-925-2625
----------------------------------------------------
(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.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
COMMON STOCK 14,277,458 SHARES OUTSTANDING
$0.001 PAR VALUE AS OF MAY 8, 2000
<PAGE> 2
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
REPORT ON FORM 10-QSB
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of March 31, 2000 and December 31, 1999
Consolidated statements of operations for the three months ended
March 31, 2000 and March 31, 1999.
Consolidated statements of cash flows for the three months ended
March 31, 2000.
Notes to consolidated financial statements.
Item 2.:
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information
<PAGE> 3
ITEM 1. FINANCIAL INFORMATION
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 170 $ 58
Accounts receivable, net of allowance for doubtful accounts of 2,043 1,623
$88,000 and $248,000 in 2000 and 1999, respectively
Inventory 105 123
Prepaid expenses and other current assets 281 273
------- -------
Total current assets 2,599 2,077
PROPERTY AND EQUIPMENT, net 1,740 1,658
INTANGIBLES, net 2,970 3,023
OTHER ASSETS 665 334
------- -------
Total Assets $ 7,974 $ 7,092
======= =======
CURRENT LIABILITIES:
Current portion of long-term debt and notes payable $ 1,357 $ 1,440
Accounts payable 2,301 1,866
Accrued liabilities 1,122 1,030
Interest payable 21 32
Deferred tax liabilities 103 75
Other 381 12
------- -------
Total current liabilities 5,284 4,456
LONG-TERM DEBT, less current portion 963 972
------- -------
Total liabilities 6,247 5,428
------- -------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value, 50,000,000 shares authorized, 14,277,458 14 14
and 13,846,902 share issued during 2000 and 1999 respectively
Paid-in capital 9,847 9,639
Treasury stock, 946,000 shares (142) (142)
Accumulated deficit (7,992) (7,847)
------- -------
Total shareholders' equity (deficit) 1,727 1,664
------- -------
$ 7,974 $ 7,092
======= =======
</TABLE>
<PAGE> 4
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
-------- -------
<S> <C> <C>
NET SALES $ 3,355 $ 2,061
COST OF SALES 1,863 1,067
-------- -------
Gross Profit 1,492 994
-------- -------
OPERATING EXPENSES
Selling, general, and administrative expenses 1,324 1,029
Depreciation and amortization expense 129 112
-------- -------
Total operating expenses 1,453 1,141
-------- -------
OPERATING INCOME (LOSS) 40 (147)
INTEREST EXPENSE 152 110
OTHER EXPENSE 33 455
-------- -------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) (146) (712)
INCOME TAX PROVISION -- --
-------- -------
NET LOSS $ (146) $ (712)
======== =======
BASIC AND DILUTED EARNINGS PER SHARE $ (0.01) $ (0.08)
======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING 14,206 9,359
======== =======
</TABLE>
<PAGE> 5
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $(146) $ (712)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 129 112
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net (421) (233)
Prepaid expenses and other current assets 10 (2,605)
Accounts payable and accrued expenses 911 205
----- -------
Net cash used in operating activities 484 (3,233)
----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (158) (33)
Acquisitions - (6)
Change in other assets (331) 26
----- -------
Net cash used in investing activities (489) (13)
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of notes payable (93) 164
Proceeds from the issuance of common stock 209 3,547
Purchase of treasury stock - -
----- -------
Net cash provided by financing activities 116 3,711
----- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS 112 465
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 58 457
----- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 170 $ 922
===== =======
</TABLE>
SUPPLEMENTAL NON-CASH DISCLOSURE:
During 1999, the Company converted $1.3 million in long-term debt to
common stock.
<PAGE> 6
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB. Therefore, they do not include
all information and footnotes necessary for a complete presentation of
financial position, results of operations, and cash flows, in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature. Operating results for the quarter ended March
31, 2000 are not necessarily indicative of the results that can be expected for
the entire year.
The Company filed a Form-10SB on December 8, 1999 which became
effective on February 8, 2000, pursuant to which the Company is subject to the
reporting requirements of the Securities Exchange Act of 1934. These statements
should be read in conjunction with information provided in the Form 10-SB
filing and related amendments thereto.
Basic earnings per share ("EPS") are computed based on the weighted
average number of shares of the Company's common stock outstanding. Since the
impact of the Company's common equivalent shares from stock options, warrants
and convertible securities is antidilutive, they are not included in the
computation of diluted EPS.
Comprehensive income includes all changes in a company's equity during
the period that result from transactions and other economic events other than
transactions with its stockholders. For the Company, comprehensive income
(loss) equals net income (loss).
NOTE 2 - BUSINESS COMBINATION
On March 15, 1999, the Company acquired all of the outstanding shares
of Afton, Inc. ("Afton") in a reverse merger transaction accomplished through
the issuance of 5.4 million shares of the Company's $0.001 par value common
stock in exchange for all of Afton's outstanding common stock. In addition, the
Company issued 4.1 million warrants to purchase its common stock in exchange
for all of Afton's outstanding warrants to purchase common stock. Until its
acquisition of Afton, the Company had no operating activities; accordingly, all
comments concerning the Company's operating activities prior to March 15, 1999
included in these notes and the related consolidated financial statements
included herein pertain to the operating activities of Afton.
NOTE 3 - DEBT
During March 1999, notes totaling $1.3 million were converted into
1.04 million shares of common stock, and related accrued interest totaling
$176,072 was forgiven. In connection with the conversion, the Company issued
five-year warrants to purchase 520,000 shares of common stock at an exercise
price of $0.01 per share. In addition, 532,500 warrants related to the
converted notes (comprising 520,000 held by the debtholders and 12,500 held by
a financial advisor) were repriced to $0.01 per share, resulting in a charge
against second quarter earnings in 1999 of $173,000.
<PAGE> 7
NOTE 4 - OPERATING SEGMENTS
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that an enterprise disclose certain information about
operating segments. The Company operates in two segments - Substance Abuse
Screening Services and Mobile Health Screening Services. In evaluating
financial performance, management focuses on a segment's earnings before
interest, taxes, depreciation and amortization ("EBITDA").
Segment Information
(In thousands)
Three Months Ended
March 31,
-----------------------
2000 1999
------- -------
SEGMENT REVENUES
Substance Abuse $ 1,810 $ 1,340
Mobile Screening 1,398 753
Corporate items and eliminations 148 (32)
------- -------
CONSOLIDATED REVENUES $ 3,355 $ 2,061
======= =======
SEGMENT EARNINGS (LOSS) (EBITDA)
Substance Abuse $ 271 $ 104
Mobile Screening 175 7
Corporate items and eliminations (278) (145)
------- -------
CONSOLIDATED EARNINGS (LOSS) (EBITDA) $ 169 $ (35)
======= =======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Cautionary Statement Identifying Important Factors
That Could Cause the Company's Actual Results to Differ
From Those Projected in Forward Looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document and any
document incorporated by reference herein, are advised that this document and
documents incorporated by reference into this document contain both statements
of historical facts and forward looking statements. Forward looking statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earnings or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or
Board of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business.
<PAGE> 8
This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ
materially from those indicated by the forward looking statements. These risks
and uncertainties include price competition, the decisions of customers, the
actions of competitors, the effects of government regulation, possible delays
in the introduction of new products, customers acceptance of products and
services, the possible effects of acquisitions and related financings and other
factors which are described herein and/or in documents incorporated by
reference herein.
The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be
construed as exhaustive or as nay admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act.
Forward looking statements are beyond the ability of the Company to control and
in many cases the Company cannot predict what factors would cause results to
differ materially from those indicated by the forward looking statements.
Introduction
The Company specializes in data management services for employers'
worker populations, and provides substance abuse, worksite medical
surveillance, and related employee health, wellness and screening and
compliance services. The Company provides these services at their customers'
place of business or through a network of clinics and other fixed sites.
Screening examinations are completed in accordance with recognized protocols
established by federal or state mandates, clients or generally accepted medical
screening procedures. While the Company provides screening services, it does
not provide diagnostic or treatment services, if necessary, based on the test
results. If further action is required (e.g., treatment or further testing),
examination or testing results are provided to the employees' personal
physician (if requested by the employee) or to the Company's customer.
The Company operates in two reportable segments: Substance Abuse and
Mobile Medical Screening. Substance Abuse includes the collection of urine
samples and the administration of the testing, reporting and compliance process
for client companies. Mobile Medical Screening entails the operation of a fleet
of vehicle equipped with various medical screening and testing equipment that
perform a variety services customers' places of business. The Company was
formed in 1993, and through acquisitions and internal growth, delivers its
services throughout the United States.
Capital and Sources of Liquidity
The Company has invested heavily in infrastructure to service its
customers and in the development of information systems, data base management
software and customer reporting applications software. As a result, the
Company's cash flow from operations has historically been negative and has
required the Company to raise substantial additional capital in the form of
bank financing (as described below), long-term debt provided by private
investors and equity in order to continue operations. The Company believes that
it will begin realizing benefits, in the form of increased revenues, during the
years 2000 and beyond through acquisition of new clients and sales of
information services to existing customers.
The Company has entered into a financing arrangement with Bank of
America to provide working capital to support the Company's operations and
growth. Under the terms of this facility, the Bank advances 70% of the face
value of the invoice upon presentation with the balance being remitted to the
Company upon payment of the amount due by the Company's customer. Based on the
funding available under the bank facility and the increasing volume of business
with existing customers, the Company believes that it will have the resources
to meet its capital requirements for its current
<PAGE> 9
operations. To the extent that the Company enters into significant new customer
contracts, additional cash may be required during the start up phases of those
contracts.
For the three months ended March 31, 2000, cash flow from operations
generated $484,000 as increases in accounts receivable were more than offset by
increases in other expense accruals, primarily as a result of extended payment
terms negotiated with certain large vendors. In addition, for the three months
ended March 31, 2000, the Company made repayments of notes payable of $93,000
and received $209,000 from the issuance of common stock. As a result, the
Company had net cash provided from financing activities of $116,000 for the
three months ended March 31, 2000. Capital expenditures during the first
quarter totaled $158,000, and other assets, principally prepaid insurance and
deposits, increased $331,000, resulting in a use of $489,000 in investing
activities.
For the three months ended March 31, 1999, cash flow from operations
declined $3.2 million as a result of a higher net loss and an increase in other
current assets as a result of (a) the deferred receipt (at the Company's
request) of a portion of capital raised by Afton, Inc. before its reverse
merger with the Company and (b) increases in prepaid expenses, sundry
receivables and other current items resulting from acquisitions by the Company
during 1999. Capital expenditures during the first quarter of 1999 aggregated
$33,000.
Results of Operations
In evaluating financial performance, management focuses on a segment's
earnings before interest, taxes, depreciation and amortization ("EBITDA"). Net
income, determined after corporate expenses, interest and depreciation and
amortization costs, is reviewed by management on a consolidated basis only. The
following paragraphs describe key operating measurements for each segment and
consolidated net income.
Substance Abuse
Substance Abuse revenues for the three months ended March 31, 2000
totaled $1.8 million compared with $1.3 million for the three months ended
March 31, 1999. The increase ($470,000 or 35%) was primarily attributable to
new customer contracts and increased volume from acquisition of Medical Drug
Testing, Inc. during fourth quarter 1999 and expansion of services within the
Company's existing customer base.
Gross profit for the three months ended March 31, 2000 aggregated
$738,000 compared with $528,000 for the three months ended March 31, 1999. This
increase was attributable to the higher volume described above and operating
efficiencies from consolidation of operations.
Selling, general and administrative expenses decreased 2.5% from
$479,200 for the three months ended March 31, 1999 to $467,100 during the same
period this year. This decrease was attributable principally to lower
compensation and benefit costs and professional fees.
EBITDA for the three months ended March 31, 2000 totaled $271,000
compared with $103,000 during the same period in 1999 as a result of higher
volumes and cost reductions.
Mobile Screening
Mobile Screening revenues for the three months ended March 31, 2000
totaled $1.4 million compared with $752,000 for the three months ended March
31, 1999. This increase (86%) was attributable to new contracts and higher
volume associated with businesses acquired during second and fourth quarters of
1999.
<PAGE> 10
Gross profits increased 52% during the three months ended March 31,
2000, from $625,000 in 2000 compared with $412,000 for the same period during
1999. This increase resulted from higher sales volumes described above and
operating efficiencies associated with improved utilization of the Company's
mobile vehicle fleet.
Selling, general and administrative expenses for the three months
ended March 31, 2000 totaled $450,000 compared with $405,000 for the same
period in 1999, primarily as a result of operating costs associated with
companies acquired during second and fourth quarters of 1999.
EBITDA for the period ended March 31, 2000 aggregated $175,000
compared with $7,000 for the same period in 1999. The improvement ($168,000) is
attributable to higher sales volumes and improved operating efficiencies,
offset, in part, by the higher selling, general and administrative expenses.
CORPORATE ITEMS AND NET LOSS
Corporate selling, general and administrative expenses, including
costs associated with the Company's executive offices, corporate sales and
marketing, accounting and information and data management operations, totaled
$359,000 for the period ended March 31, 2000 compared to $145,000 for the same
period in 1999. The increase resulted principally from higher travel costs
related to corporate sales activities, insurance expense and facility costs
related to the Company's new corporate offices.
Interest expenses ($152,000) increased $42,000 during first quarter
2000 compared with the same period last year. The increase was attributable
principally to financing (a) the higher level of operating activity associated
with sales volume growth and (b) prior period acquisitions.
Net loss decreased $566,000, from $712,000 during the three months
ended March 31, 1999 to $146,000 for the comparable period this year, primarily
as a result of improved operating performance ($204,000) and lower
acquisition-related costs ($412,000) offset partially by higher interest
expense.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company's officers and directors are aware of no threatened or
pending litigation which would have a material, adverse effect on the Company.
ITEM 6. EXHIBITS.
(3) Charter and by-laws.
(4) Instruments defining the rights of security holders.
(21) Subsidiaries of the registrant.
(27) Financial Data Schedule.
DESCRIPTION OF EXHIBITS
(3.1) Articles of Incorporation incorporated by reference to Form 10-SB
filed December 8, 1999
(3.2) Bylaws incorporated by reference to Form 10-SB filed December 8, 1999
(4) Common Stock Certificate incorporated by reference to Form 10-SB filed
December 8, 1999
(21) Subsidiaries of the registrant incorporated by reference to
Amendment 1 to Form 10-SB
(27) Financial Data Schedule.
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Healthcomp Evaluation Services Corporation
(Registrant)
Date: May 9, 2000 By: /s/ John F. Thomas
---------------------------------------
Name: John F. Thomas
Title: Chief Executive Officer
Date: May 9, 2000 By: /s/ Thomas M. Hartnett
---------------------------------------
Name: Thomas M. Hartnett
Title: Chief Financial Officer & Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 170,000
<SECURITIES> 0
<RECEIVABLES> 2,131,000
<ALLOWANCES> 88,000
<INVENTORY> 105,000
<CURRENT-ASSETS> 2,599,000
<PP&E> 1,740,000
<DEPRECIATION> 2,190,000
<TOTAL-ASSETS> 7,974,000
<CURRENT-LIABILITIES> 5,284,000
<BONDS> 0
0
0
<COMMON> 14,000
<OTHER-SE> 1,713,000
<TOTAL-LIABILITY-AND-EQUITY> 7,974,000
<SALES> 3,355,000
<TOTAL-REVENUES> 3,355,000
<CGS> 1,863,000
<TOTAL-COSTS> 1,863,000
<OTHER-EXPENSES> 1,453,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,000
<INCOME-PRETAX> (146,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (146,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,000)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
