R. E. Bassie & Co.
Certified Public Accountants
A Professional Corporation
ComTech Consolidation Group, Inc.
and Subsidiaries
Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(With Independent Auditors'
Report Thereon)
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Index
Independent Auditors' Report
Consolidated Financial Statements:
Balance Sheets - December 31, 1998 and 1997
Statements of Operations - Years ended December 31, 1998, 1997 and 1996
Statements of Stockholders' Equity - Years ended December 31, 1998, 1997 and
1996
Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
All other schedules have been omitted because they are not applicable, not
required, or because the information is included in the financial statements
or notes thereto.
R. E. Bassie & Co.
Certified Public Accountants
A Professional Corporation
7171 Harwin Drive, Suite 306
Houston, Texas 77036-2197
Tel: (713) 266-0691 Fax: (713) 266-0692
E-Mail: [email protected]
Independent Auditors' Report
The Board of Directors
Comtech Consolidation Group, Inc.:
We have audited the consolidated financial statements of Comtech Consolidation
Group, Inc. and subsidiaries as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Comtech
Consolidation Group, Inc. and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the three-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
s/R. E. Bassie & Co.
Houston, Texas
March 26, 1999
<TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Balance Sheets
December 31, 1998 and 1997
<S> <C> <C>
Assets 1998 1997
Current assets:
Cash $ 150,624 2,523
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts of $4,310,771
in 1998 and $1,000 in 1997 1,997,506 9,081
Receivables from related parties 1,100,000
Prepaid expenses 262,463
Total current assets 3,510,593 11,604
Property and equipment, net of accumulated
depreciation and amortization (notes 4 and 5) 595,687 143,527
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$22,171 in 1998 and $2,354 in 1997 (note 2) 2,203,829 223,646
Other assets 244,457 1,830
Total assets $ 6,554,566 380,607
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 1,364,618 93,834
Accrued salaries and related liabilities 1,284,849 76,260
Due to third-party payors 1,503,623
Loans payable to shareholders 277,882 281,170
Notes payable 181,888
Convertible subordinated debentures (note 8) 195,000
Current installments of long-term debt (note 5) 24,242
Total current liabilities 4,832,102 451,264
Long-term debt, less current installments (note 5) 80,695
Total liabilities 4,912,797 451,264
Stockholders' equity (notes 2, 3, 6 and 8):
Preferred stock, $.01 par value. Authorized
1,000,000 shares: issued and outstanding,
29,410 shares in 1998
Class B, 8% cumulative and convertible
Common stock, $.00967 par value. Authorized
30,000,000 shares: issued and outstanding,
16,970,849 shares in 1998 and 12,926,200
shares in 1997 164,108 124,996
Additional paid-in capital 1,033,413 75,978
Retained earnings (deficit) 443,954 (271,631)
Total stockholders' equity (deficit) 1,641,769 (70,657)
Commitments and contingent liabilities (notes 6, 8, 9, 11, 12 and 13)
Total liabilities and stockholders' equity $ 6,554,566 380,607
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
<S> <C> <C> <C>
1998 1997 1996
Revenues $ 8,795,947 293,748
Operating expenses:
Health care operations 6,960,452
Internet operations 763,542 327,571
Corporate operations 251,687 100,793 2,051
Amortization 19,817 3,354
Depreciation 56,757 30,108
Total operating expenses 8,052,255 461,826 2,051
Operating income (loss) 743,692 (168,078) (2,051)
Other income (expenses):
Interest income 3,040
Interest expense (31,147)
Net earnings (loss) (note 8 $ 715,585 (168,078) (2,051)
Net earnings (loss) per share $ (0.03) (0.00)
Weighted average common shares 14,719,450 5,281,277 1,240,100
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
Total
<S> <C> <C> <C> <C> <C>
Additional Retained stockholders'
Preferred Common paid-in earnings equity
stock stock capital (deficit) (deficit)
Balance, December 31, 1995 11,992 88,710 (101,502) (800)
Net loss (2,051 (2,051)
Balance, December 31, 1996 11,992 88,710 (103,553) (2,851)
Issuance of 5,200,000 shares
for acquisition 50,284 49,988 100,272
Issuance of common stock in a
two-for-one stock split 62,720 (62,720)
Net loss (168,078) (168,078)
Balance, December 31, 1997 124,996 75,978 (271,631) (70,657)
Issuance of 1,029,410 shares
for acquisitions (note 2) 294 9,670 743,978 753,942
Issuance of 1,499,138 shares
under private placement
(note 3) 14,497 (12,998) 1,499
Issuance of 182,000 shares
for marketing services 1,760 34,640 36,400
Conversion of debentures
for 1,363,511 shares
of common stock (note 9) 13,185 191,815 205,000
Net earnings 715,585 715,585
Balance, December 31, 1998 294 164,108 1,033,413 443,954 1,641,769
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net earnings (loss) $ 715,585 (168,078) (2,051)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation and amortization of property
and equipment 56,757 30,108
Amortization of excess of cost over net
assets of businesses acquired 19,817 3,354
Bad debt expense 211,497
(Increase) decrease in accounts receivable (1,705,145) 31,333
Increase in prepaid expenses (210,137)
Increase in other assets (241,784)
Increase (decrease) in accounts payable
and accrued expenses (102,039) (78,899) 2,051
Increase in accrued salaries and related
liabilities 564,532
Decrease in amount due to third-party payors (40,532)
Net cash used in operating activities (731,449) (182,182)
Cash flows from investing activities:
Purchase of property and equipment (69,172) (47,945)
Cash received from acquired subsidiaries 520,034
Net cash provided by (used in)
investing activities 450,862 (47,945)
Cash flows from financing activities:
Proceeds from borrowing from shareholders 33,750 232,650
Repayments to shareholders (37,038)
Proceeds from long-term debt 79,850
Principal payments on long-term debt (30,477)
Principal payments on short-term notes payable (18,896)
Proceeds from issuance of shares under private placement 1,499
Proceeds from sales of subordinated debentures 400,000
Net cash provided by financing activities 428,688 232,650
Net increase in cash 148,101 2,523
Cash at beginning of year 2,523
Cash at end of year $ 150,624 2,523
Supplemental schedule of cash flow information:
Interest paid $ 31,147
Supplemental disclosures:
Noncash investing and financing activities (note 2)
</TABLE>
See accompanying notes to consolidated financial statements.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
The Company
ComTech Consolidation Group, Inc., a Delaware corporation, was incorporated on
July 13, 1987. The Company is a Houston, Texas based consolidation company
that is focused on acquiring and building growth oriented businesses through
acquisitions.
Principles of Consolidation
The consolidated financial statements include the accounts of Comtech
Consolidation Group, Inc. and its wholly-owned subsidiaries (the Company). All
material intercompany profits, transactions and balances have been eliminated.
The accounts of purchased companies are included in the consolidated financial
statements from the dates of acquisition. The excess of cost over the fair
value of net assets of businesses acquired is being amortized using the
straight-line method over a 40-year period commencing with the dates of
acquisition.
Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years.
Earnings Per Share
Earnings (losses) per common share have been computed by dividing net earnings
(losses) by the weighted average number of common shares outstanding during
the respective periods.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Patient Service Revenue
The Company's health care subsidiaries have agreements with third-party payors
(primarily Medicare and Medicaid programs) that provide for payments to the
Company at amounts different from its established rate for services and
supplies. Payment arrangements include prospectively determined rates
reimbursed costs, discounted charges, and other arrangements. Patient
service revenue is reported at the estimated net realizable amounts from
patients, third-party payors, and others for services rendered, including
estimated retroactive adjustments under reimbursement agreements with
third-party payors. Retroactive adjustments are recorded on an estimated
basis in the period the related services are rendered and adjusted in the
future periods as final settlements with the payors are determined.
Medicare and Medicaid Programs
Net revenue from the majority of the Company's subsidiaries is generated from
services rendered to Medicare and Medicaid program (the Programs)
beneficiaries. The reimbursement from the Programs is determined under
cost-based reimbursement formulas. The ultimate reimbursement to which the
Company is entitled is based on the submission of annual cost reports, which
are subject to audit, by the Programs through the Programs intermediaries.
Management has made allowances for potential cost disallowances. Differences
between allowances and final settlements are reported as modification to net
patient service revenue in the year of settlement. Since the Company
receives a substantial portion of its funding from the Programs, it is
dependent on funding from Medicare and Medicaid for its existence.
Reclassifications
Certain 1997 amounts have been reclassified to conform to the 1998 presentation.
(2) Acquisitions
Effective February 15, 1998, the Company issued 500,000 shares of its common
stock in exchange for all of the outstanding stock of Professional Management
Providers, Inc. (PMP), a Louisiana health care management corporation.
Effective April 1, 1998, the Company issued 500,000 shares of its common
stock in exchange for all of the outstanding stock of Unique Dawning, Inc.,
a Texas health care corporation.
Effective June 30, 1998, the Company, through its wholly-owned subsidiary, PMP,
issued 2,000 shares of its Class B preferred stock for all of the outstanding
stock of Superior Quality Health Care, Inc., a Texas health care corporation.
Effective July 30, 1998, the Company, through its wholly-owned subsidiary, PMP,
issued 11,000 shares of its Class B preferred stock for all of the
outstanding stock of Home Care Center, Inc., a Louisiana health care
corporation (see note 11).
Effective August 13, 1998, the Company, through its wholly-owned subsidiary,
PMP, issued 1,300 shares of its Class B preferred stock for all of the
outstanding stock of Magnolia Home Health, Inc., a Louisiana health care
corporation.
Effective October 3, 1998, the Company, through its wholly-owned subsidiary,
PMP, issued 600 shares of its Class B preferred stock for all of the
outstanding stock of A-1 Bayou Health 2000, Inc., a Louisiana health care
corporation.
Between July 1, 1998 and December 29, 1998, the Company, through its wholly-
owned subsidiary, PMP, issued 14,510 shares of it Class B preferred stock for
certain net assets of twelve Louisiana health care corporations.
All of the above acquisitions have been accounted for using the purchase
method with the purchase price allocated to the acquired assets and
liabilities based on their respective estimated fair values at the
acquisition dates. Such allocations were based on evaluations and
estimations. A valuation adjustment in the amount of $2,000,000 has been
assigned to the value of existing contracts.
The purchase allocation is summarized as follows:
Current assets $ 3,630,796
Property and equipment 439,745
Excess of cost over net assets
of businesses acquired 2,000,000
Current liabilities (5,229,128)
Long-term liabilities (87,471)
$ 753,942
Effective April 1, 1998, the Company issued 250,000 shares of its common
stock in exchange for all of the outstanding stock of OSF Financial Services,
Inc., a Texas mortgage banking corporation. The Company subsequently
rescinded this acquisition. Accordingly, the Company returned the
outstanding stock of OSF Financial Services, Inc. and cancelled all 250,000
shares of common stock issued in the acquisition.
(3) Related Party Transactions
On July 2, 1998, the Company completed a private offering of 1,500,000 shares
of its common stock at an offering price of $.001 per share. Of the
1,500,000 offered, 1,499,138 shares were issued and sold. 283,000 shares
were sold to a company owned by the son of the then Chairman of the Board,
666,138 shares were sold to the current interim Chairman of the Board, and
500,000 shares were sold to a close business associate of the interim
Chairman of the Board, of which, 320,000 shares were subsequently transferred
to the interim Chairman of the Board.
(4) Property and Equipment
Property and equipment is summarized as follows at December 31, 1998 and 1997:
1998 1997
Equipment $ 301,922 173,635
Furniture and fixtures 429,087 -
Leasehold improvements 336,163 -
Total property and equipment 1,067,182 173,635
Less accumulated depreciation and
amortization 471,485 30,108
Net property and equipment $ 595,687 143,527
(5) Long-term Debt
Long-term debt at December 31, 1998 and 1997 is as follows:
1998 1997
Note payable to a bank, with interest at
the lender's prime rate plus 2%, due
March 5, 2000 $ 67,322 -
Note payable, with interest at 13.24%, due
January 2003; collateralized by transpor-
tation equipment 16,235 -
Note payable, with interest at 3.90%, due
November 2003; collateralized by transpor-
tation equipment 21,380 -
Total long-term debt 104,937 -
Less current installments 24,242 -
Long-term debt, less
current installments $ 80,695 -
Aggregate yearly maturities of long-term debt for the periods after
December 31, 1998 are as follows:
1999 $ 24,242
2000 70,525
2001 6,285
2002 3,885
$104,937
(6) Preferred Stock
The Company issued 29,410 shares of its Class B preferred stock in exchange
for all of the outstanding stock of four health care companies and certain
net assets of twelve health care companies (see note 2). The Class B
preferred shares have a face value of $100 per share, with an annual
cumulative dividend equal to 8%, with a term of 24 months. The Class B
preferred shares are convertible by the shareholders for the Company's common
stock at anytime after 12 months from the date of issuance at a conversion
rate equal to 80% of the then market price of the Company's common stock.
The Class B preferred shares are redeemable by the Company at anytime in
exchange for cash payment equal to the full-face amount of the shares plus
accumulated dividends. At the end of the 24 month term, if not redeemed by
the Company for cash equal to the face amount of the preferred shares, the
shares automatically convert to common stock at a conversion rate equal to
80% of the then market bid price of the Company's common stock.
(7) Federal Income Tax Expense
The estimated federal income tax expense for the year ended December 31, 1998
is eliminated by net operating loss carryforwards.
(8) Convertible Subordinated Debentures
On August 3, 1998, the Company entered into an agreement to issue, as needed,
$750,000 of 8% senior subordinated convertible redeemable debentures (the
Debentures) due August 3, 1999. Interest on the outstanding balance is due
and payable monthly commencing September 3, 1998. The Debentures may be
converted into shares of the Company's stock at the lower of 75% of the
closing bid price of the Company's stock the day immediately preceding the
date of receipt by the Company of notice of conversion or by 75% of the
closing bid price of the Company's stock on the five days immediately
preceding the date of subscription by the holder as reported by the National
Association of Securities Dealers Electronic Bulletin Board ("NASDAQ"). As
of December 31, 1998, the Company had borrowed $400,000 of the $750,000. And
, the holders of the Debentures converted $205,000 of the borrowings into
1,363,511 shares of the Company's common stock. The remaining $195,000 is
recorded as a current liability at December 31, 1998.
(9) Leases
The Company leases certain office space, furniture and equipment under
operating leases. Future minimum lease payments under noncancellable
operating leases at December 31, 1998 are as follows:
Year
1999 $ 473,191
2000 308,020
2001 197,550
Total $ 978,761
(10) Industry Segments
The Company operated in two industries (health care and internet service
providers) and two geographical locations (Texas and Louisiana) during 1998.
Professional Management Providers, Inc. provides health care services in the
state of Louisiana, and Unique Dawning, Inc. provides health care services in
the state of Texas. Networks On-Line, Inc. is an Internet service provider
(ISP) in Texas. Segment and geographical information for the years ended
December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996
Net revenues:
Health care - Louisiana $ 7,253,787 - -
Health care - Texas 790,602 - -
ISP - Texas 751,558 293,748 -
$ 8,795,947 293,748 -
Operating income (loss):
Health care - Louisiana $ 992,443 - -
Health care - Texas 57,557 - -
ISP - Texas (54,621) (67,285) -
Corporate expenses (251,687) (100,793) -
Other income (expenses) (28,107) - -
$ 715,585 (168,078) -
Identifiable assets:
Health care - Louisiana $ 6,221,722 - -
Health care - Texas 780,408 - -
ISP - Texas 390,874 255,231 -
Corporate 161,562 125,376 -
$ 7,554,566 380,607 -
(11) Contingencies
In February 1998, the six subsidiary corporations of Home Care Center, Inc.
filed for reorganization under Chapter 11 of the United States Bankruptcy
Code. Management is confident that the court and creditors will approve the
plan of reorganization.
(12) Litigation
The Company has certain pending and threatened litigation and claims incurred
in the ordinary course of business; however, management believes that the
probable resolution of such contingencies will not exceed the Company's
insurance coverage, and will not materially affect the financial position of
the Company or the results of operations.
(13) Year 2000 Issue
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions
, a computer program that has date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions to various activities
and operations.
The Company primarily uses licensed software products in its operations with a
significant portion of processes and transactions centralized in several
particular accounting software packages. During 1999, management plans to
upgrade to the most current version of these software packages, which, among
other things, are Year 2000 compliant. Cost of the project has not yet been
determined.
MARCH QUARTER 1999 INTERIM STATEMENTS
<TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Balance Sheets
(Unaudited)
March 31, 1999 and 1998
<S> <C> <C>
Assets 1999 1998
Current assets:
Cash $ 150,560 10,532
Accounts receivable, less allowances for contractual
adjustments and doubtful accounts of $6,296,043
in 1999 and $1,000 in 1998 3,301,268
Receivables from related parties 1,100,000
Prepaid expenses 291,641
Total current assets 4,843,469 10,532
Property and equipment, net of accumulated
depreciation and amortization 602,972 129,069
Excess of cost over net assets of businesses
acquired, less accumulated amortization of
$30,346 in 1999 and $9,506 in 1998 2,369,654 392,848
Other assets 242,250 1,830
Total assets $ 8,058,345 534,279
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 1,528,701 73,331
Accrued salaries and related liabilities 1,486,545
Due to third-party payors 1,478,812
Loans payable to shareholders 277,882 297,134
Notes payable 213,795
Convertible subordinated debentures 195,000
Current installments of long-term debt 82,256
Total current liabilities 5,262,991 370,465
Long-term debt, less current installments 301,706 304,703
Total liabilities 5,564,697 675,168
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
1,000,000 shares: issued and outstanding,
29,410 shares in 1998
Class B, 8% cumulative and convertible 294
Common stock, $.00967 par value. Authorized
30,000,000 shares: issued and outstanding,
18,250,849 shares in 1999 and 14,226,200
shares in 1998 164,108 124,552
Additional paid-in capital 1,137,413 76,422
Retained earnings (deficit) 1,191,833 (341,863)
Total stockholders' equity (deficit) 2,493,648 (140,889)
Commitments and contingent liabilities
Total liabilities and stockholders' equity $ 8,058,345 534,279
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Statements of Operations
(Unaudited)
Three months ended March 31, 1999 and 1998
<S> <C> <C>
1999 1998
Revenues $ 4,974,608 295,600
Operating expenses:
Health care operations 3,979,773
Internet operations 141,939 341,812
Corporate operations 76,697 7,118
Amortization 8,175 7,152
Depreciation 16,631 9,750
Total operating expenses 4,223,215 365,832
Operating income (loss) 751,393 (70,232)
Other income (expenses):
Interest income 18
Interest expense (3,532)
Net earnings (loss) $ 747,879 (70,232)
Net earnings (loss) per share $ 0.04 (0.01)
Weighted average common shares 17,726,000 13,576,200
</TABLE>
See accompanying notes to consolidated financial statements.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(1) General
The accompanying consolidated financial statements for the three months ended
March 31, 1999 are unaudited. In the opinion of management, the information
furnished reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the
unaudited interim periods. The results of operations for the three months
ended March 31, 1999 are not necessarily indicative of the results of
operations to be expected for the full year.
(2) Property and Equipment
Property and equipment is summarized as follows at March 31, 1999 and 1998:
1999 1998
Equipment $ 373,037 153,532
Furniture and fixtures 373,888 -
Leasehold improvements 334,163 -
Total property and equipment 1,081,088 153,532
Less accumulated depreciation and
amortization 478,116 24,463
Net property and equipment $ 602,972 129,069
(3) Long-term Debt
Long-term debt at March 31, 1999 and 1998 is as follows:
1999 1998
Long-term notes $ 383,962 304,703
Less current installments 82,256
$ 301,706 304,703
(4) Federal Income Tax Expense
The estimated federal income tax expense for the three month periods ended
March 31, 1999 and 1998 is eliminated by net operating loss carryforwards.
(5) Contingencies
In February 1998, the six subsidiary corporations of Home Care Center, Inc.
filed for reorganization under Chapter 11 of the United States Bankruptcy
Code. Management is confident that the court and creditors will approve the
plan of reorganization.
COMTECH CONSOLIDATION GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
MARCH 31, 1999
Forward-Looking Statements
Certain information contained in these Interim Financial Statements for the
Quarter Ended March 31, 1999, including, without limitation, information
appearing in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations, " are forward-looking statements (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Factors set forth in the Company's Audited
Consolidated Financial Statements, included with this filing, could affect
the Company's actual results and could cause the Company's actual results to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company in this Interim Report.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND MARCH 31, 1998.
Revenues. Revenues were $4,974,608 and $295,600 for the three months ended
March 31, 1999 and 1998, respectively, representing an increase of
$4,679,008. This was primarily due to an aggressive acquisition plan on the
healthcare side that was in place during the months subsequent to March in
1998. During that time span the Company acquired a total of sixteen
undervalued home health care agencies. Revenues are expected to continue to
increase as the result of additional acquisitions as well as a restructuring
of the Company, which will increase our revenue base. We anticipate an
increase in revenues from the Internet Service provider as a result of the
introduction of our ROCKET DSL service. DSL is the Digital Subscriber Line
service that increases the downstream speed from the typical Analog Dial Up
of 56Kbps or ISDN of 128Kbps to Rocket DSL of 1.5Mbps.
Total Operating Expenses. Total Operating Expenses were $4,223,215 and
$365,832 for the three months ended March 31, 1999 and 1998, respectively,
representing an increase of $3,857,383. This was primarily due to the
addition of the home healthcare agencies acquired during 1998.
Results of Operations. As a result of the foregoing factors, the Company had
operating earnings (loss) of $751,393 and $(70,232) for the three months
ended March 31, 1999 and 1998, respectively.
Provision for Income Taxes. There was no provision for income taxes for the
three months ended March 31,1999 or 1998 due to net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999, the Company's cash and cash
equivalent position increased by $140,028. The majority of this increase came
as a result of the issuance of shares under private placement.
Net accounts receivable increased from March 31, 1998 to March 31, 1999 by
$3,301,268 due primarily to the timing of the receipt of payments from
Medicare and other third-party payors. Contractual adjustments to accounts
receivable are due to patient service revenue being reported at the
estimated net realizable amounts from patients, third-party payors, and
others for services rendered, including estimated retroactive adjustments
under reimbursement agreements with third-party payors. The retroactive
adjustments are recorded on an estimated basis in the period the
related services are rendered and adjusted in the future periods, as the
final settlements with payors are determined.
Excess of cost over net assets at March 31,1999 of $2,236,654 consists of
"goodwill" as a result of the acquisitions made in 1998, and are being
amortized over 40 years.
Accounts payable increased by $1,455,370 primarily to the increase in the
level of activity resulting from the healthcare acquisitions. The increase
in accrued expenses of $1,486,545 was primarily due to accrued salaries
wages and benefits. The increase in Due to third-party payors of $1,478,812
is due to a retroactive adjustment to a Medicare cost report by the Medicare
intermediary.
The Company has applied for a credit facilities with its bankers and feels
fairly confident that these credit facilities will be approved.
The Company believes that its current cash position, funds generated from
operations and funds available from the credit facilities, collectively,
will be adequate to meet the Company's foreseeable cash requirements.
Year 2000 Compliance
The Company has initiated a company-wide program and has developed a formal
plan to prepare for the year 2000. Management currently believes that the
costs related to Y2K compliance should not have a material effect on
operations or the Company's consolidated financial position, results of
operations or cash flows.
s/Joel B. Flowers, Jr.
Chief Financial Officer
