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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 1995
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Commission File Number 1-10814
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ReadiCare, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-3775814
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1322 Orleans Drive, Sunnyvale, CA 94089
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(Address of principal executive offices) (zip code)
(408) 743-3100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No_____.
-----
As of August 31, 1995, the number of shares outstanding of the issuer's
class of common stock was 8,205,199.
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READICARE, INC.
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Index to Form 10-Q
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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Condensed Consolidated Balance Sheets:
August 31, 1995 and February 28, 1995 3
Condensed Consolidated Statements of Operations:
Three Months Ended August 31, 1995 and 1994 and
Six Months Ended August 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows:
Six Months Ended August 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
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Financial Condition and Results of Operations 6
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PART II. OTHER INFORMATION 9
SIGNATURES 10
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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READICARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
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<CAPTION>
ASSETS
August 31, 1995 February 28,
(Unaudited) 1995
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<S> <C> <C>
Current assets:
Cash $ 1,301,497 $ 426,315
Accounts receivable, net 6,542,586 6,531,800
Supplies 647,500 664,635
Other current assets 692,146 491,350
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Total current assets 9,183,729 8,114,100
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Equipment, property and improvements,
at cost:
Equipment 7,276,228 7,165,889
Property and improvements 7,683,167 7,677,635
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14,959,395 14,843,524
Less: accumulated depreciation ( 7,804,809) ( 7,164,586)
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7,154,586 7,678,938
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Acquired intangible assets, net 631,536 662,878
Other assets 385,656 404,552
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$17,355,507 $16,860,468
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,151,003 $ 939,370
Salaries and other accrued
employee benefits 1,110,952 947,267
Managed care provider payable 245,540 286,185
Other current liabilities 307,673 224,252
Notes payable to bank - 700,000
Reserves for discontinued
activities 551,785 638,321
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Total current liabilities 3,366,953 3,735,395
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Stockholders' equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized and
unissued - -
Common stock, $0.01 par value,
20,000,000 shares authorized,
8,205,199 shares issued and
outstanding 82,052 81,846
Additional paid-in capital 20,197,421 20,158,814
Accumulated deficit ( 6,290,919) ( 7,115,587)
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Total stockholders' equity 13,988,554 13,125,073
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$17,355,507 $16,860,468
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See accompanying notes
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READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Three Months Six Months
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Ended August 31, Ended August 31,
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1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Revenues: $ 9,136,969 $ 9,121,688 $18,328,503 $18,143,099
Costs and expenses:
Center operating expenses 7,123,819 7,530,038 14,400,282 14,881,485
Marketing, general and
administrative expenses 1,080,812 969,730 2,288,100 1,947,154
Depreciation and amortization 343,640 340,765 687,452 684,791
Interest expense, net 592 29,579 15,001 61,440
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Income before taxes 588,106 251,576 937,668 568,229
Provision for income taxes 71,000 84,000 113,000 188,000
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Net income $ 517,106 $ 167,576 $ 824,668 $ 380,229
========== ========== ========== ==========
Per Share:
Net income $ 0.06 $ 0.02 $ 0.10 $ 0.05
========== ========== ========== ==========
Weighted average common shares
and equivalents 8,301,000 8,175,000 8,250,000 8,175,000
========== ========== ========== ==========
</TABLE>
See accompanying notes
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READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended August 31,
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1995 1994
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Cash flows from operating activities:
Net income $ 824,668 $ 380,229
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 687,452 684,791
Deferred income taxes - 126,000
Changes in operating assets and
liabilities:
Accounts receivable, net ( 10,785) ( 542,823)
Supplies and other current
assets ( 183,661) 48,814
Accounts payable 211,633 26,688
Salaries and other accrued
employee benefits 123,040 107,363
Other current liabilities ( 36,440) ( 239,041)
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Net cash provided by
operating activities 1,615,907 592,021
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Cash flows from investing activities:
Additions to equipment ( 71,072) ( 71,546)
Additions to property
and improvements ( 5,533) ( 12,653)
Other assets ( 2,933) 29,022
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Net cash used by investing
activities ( 79,538) ( 55,177)
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Cash flows from financing activities:
Borrowings under line of credit - 1,000,000
Payments under line of credit ( 700,000) (1,200,000)
Payments under term note - (1,475,001)
Issuance of common stock 38,813 -
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Net cash used by
financing activities ( 661,187) (1,675,001)
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Increase (decrease)in cash 875,182 (1,138,157)
Cash at beginning of period 426,315 2,320,039
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Cash at end of period $1,301,497 $1,181,882
========= =========
</TABLE>
See accompanying notes
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READICARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(1) The financial information included in this report has been prepared in
accordance with the accounting policies reflected in the Company's financial
statements filed with the Securities and Exchange Commission as part of its Form
10-K for the year ended February 28, 1995, except as noted below. In the opinion
of the Company, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited six
months ended August 31, 1995 have been made. The results for the six months or
quarter ended August 31, 1995 are not necessarily indicative of the results to
be expected for the full fiscal year.
(2) Net income per common share is based on the weighted average number of
common shares outstanding for the respective periods and common share
equivalents, when dilutive, resulting from the assumed exercise of stock
options.
(3) Revenues include revenues derived from center operations, and from the
provision of managed care and other services.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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GENERAL.
ReadiCare, Inc., founded in 1982, is a physician practice management
company which specializes in the provision of workers' compensation medical and
general outpatient health care services. Medical services are provided at the
Company's network of conveniently located primary care medical and
rehabilitation centers in California and Washington state. The Company contracts
with the ReadiCare Medical Groups to make available fully-equipped outpatient
medical centers, to provide various management services, and to license business
names and trademarks. In return, the ReadiCare Medical Groups' physicians
provide medical services at ReadiCare locations.
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RESULTS OF OPERATIONS
The following table sets forth key income statement account balances
pertaining to operations, percentage changes between periods, and the
relationship of such balances to revenues for the respective periods.
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<CAPTION>
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(UNAUDITED)(IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
1995 1994 %CHANGE 1995 1994 %CHANGE
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<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 9,137 $ 9,122 -% $ 18,329 $ 18,143 1%
COSTS AND EXPENSES:
CENTER OPERATING EXPENSES 7,124 7,530 (5%) 14,400 14,882 (3%)
% of revenues 77% 82% 79% 82%
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GROSS OPERATING MARGIN 2,013 1,592 26% 3,929 3,261 20%
% of revenues 23% 18% 21% 18%
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MARKETING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,081 970 11% 2,288 1,947 18%
% of revenues 12% 11% 12% 11%
DEPRECIATION AND
AMORTIZATION 344 341 1% 688 685 -%
% of revenues 4% 4% 4% 4%
INTEREST EXPENSE, NET - 29 (98%) 15 61 (76%)
% of revenues -% -% -% -%
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INCOME BEFORE TAXES 588 252 134% 938 568 65%
% of revenues 7% 3% 5% 3%
PROVISION FOR INCOME TAXES 71 84 (15%) 113 188 (40%)
% of revenues 1% 1% 1% 1%
NET INCOME 517 168 209% 825 380 117%
% of revenues 6% 2% 4% 2%
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QUARTER ENDED AUGUST 31, 1995 VS. QUARTER ENDED AUGUST 31, 1994.
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As a result of shortened hours of operation which went into effect earlier
in the year at a majority of the Company's California centers, revenues amounted
to $9,137,000, essentially unchanged from revenues of $9,122,000 reported for
the second quarter ended August 31, 1994. The impact of this fiscal year's
streamlined operating hours, however, has resulted in significantly higher
levels of profitability at these centers.
Center operating expenses decreased by $406,000 or 5% as a result of the
shortened operating hours as described above. Marketing, general and
administrative expenses increased by $111,000 or 11% due primarily to higher
employee fringe benefits costs. Interest expense decreased $29,000 or 98% due to
the Company's elimination of debt.
Income before taxes increased $337,000 or 134% primarily as a result of
improved operating performance at the Company's California centers, and the
recognition of $101,000 in management fee income relating to a previously
terminated management services contract.
The provision for income taxes for the quarter ended August 31, 1995 was
$71,000, or 12% of pretax income compared to $84,000, or 33% of pretax income
for the quarter ended August 31, 1994. The decrease resulted primarily from the
utilization of deferred tax assets.
Net income increased $350,000 or 209% as a result of improved operating
performance at the Company's California centers, the recognition of $101,000 in
management fee income relating to a previously terminated management services
contract, and a lower income tax rate.
SIX MONTHS ENDED AUGUST 31, 1995 VS. SIX MONTHS ENDED AUGUST 31, 1994.
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Revenues for the six month period ended August 31, 1995 were $18,329,000,
essentially unchanged compared to revenues of $18,143,000 reported for the six
month period ended August 31, 1994. The Company continued to experience revenue
gains at its Seattle, Washington area centers, however, overall revenue growth
was impacted as a result of shortened hours of operation which went into effect
earlier in the year at a majority of the California centers.
Center operating expenses decreased by $481,000 or 3% as a result of the
shortened operating hours as described above. Marketing, general and
administrative expenses increased by $341,000 or 18% due primarily to higher
employee fringe benefits costs, and increased billing and collection costs.
Interest expense decreased $46,000 or 76% due to the Company's elimination of
debt.
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Income before taxes increased $369,000 or 65% primarily as a result of
improved operating performance at the Company's centers, and the recognition of
$101,000 in management fee income relating to a previously terminated management
services contract.
The provision for income taxes for the six month period ended August 31,
1995 was $113,000 or 12% of pretax income, compared to $188,000 or 33% of pretax
income for the six month period ended August 31, 1994. The decrease resulted
primarily from the utilization of deferred tax assets.
Net income increased $444,000 or 117% as a result of improved operating
performance at the Company's California centers, the recognition of $101,000 in
management fee income relating to a previously terminated management contract,
and a lower income tax rate.
LIQUIDITY, CAPITAL RESOURCES AND INFLATION.
The Company's primary source of liquidity is cash provided by operating
activities. Cash provided by operating activities is significantly higher than
net income due to the noncash expense relating to depreciation of fixed assets
and amortization of intangible assets, which amounted to $687,000 for the six
month period ended August 31, 1995. The Company has a $5.0 million revolving
bank line of credit facility expiring on June 30, 1997 which is available for
working capital and general corporate purposes. Borrowings under the credit
facility bear interest, at the option of the Company, at either the bank's prime
lending rate, or the bank's Eurodollar base rate, plus 2%. There were no
outstanding balances on the line of credit as of August 31, 1995. The Company
anticipates that internally generated cash and borrowing capacity under its
credit facility will be sufficient to finance short and long term internal
growth and capital expenditure requirements. There were no material capital
commitments outstanding as of August 31, 1995.
Generally, increases in the Company's operating costs approximate the rate
of inflation. In California, the Company's largest operating territory, state-
authorized reimbursement levels for workers' compensation outpatient medical
services have not been increased since July 1987. In March 1994, a revised fee
schedule was adopted by the Department of Workers' Compensation, however,
reimbursement levels were not increased. In Washington, state-authorized
workers' compensation medical reimbursement levels were increased by 6%
effective March 1, 1994, and by approximately 10% on May 1, 1995. Historically,
inadequate reimbursement levels have adversely affected operating margins at the
Company's California centers. Future operating results depend in part on the
effects of inflation and the extent to which reimbursement levels are adjusted
to keep pace with increases in the Company's operating costs.
PART II. OTHER INFORMATION
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Items 1-6. Not applicable.
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SIGNATURE
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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.
READICARE, INC.:
Date: September 29, 1995 /s/ Dennis G. Danko
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Dennis G. Danko
President and Chief Executive
Officer
Date: September 29, 1995 /s/ Steve E. Busby
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Steve E. Busby
Senior Vice President, Finance
and Principal Accounting
Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> FEB-29-1996 FEB-21-1996
<PERIOD-START> JUN-01-1995 MAR-01-1995
<PERIOD-END> AUG-31-1995 AUG-31-1995
<CASH> 1,301,497 1,301,497
<SECURITIES> 0 0
<RECEIVABLES> 6,542,586 6,542,586
<ALLOWANCES> 0 0
<INVENTORY> 647,500 647,500
<CURRENT-ASSETS> 9,183,729 9,183,729
<PP&E> 14,959,395 14,959,395
<DEPRECIATION> 7,804,809 7,804,809
<TOTAL-ASSETS> 17,355,507 17,355,507
<CURRENT-LIABILITIES> 3,366,953 3,366,953
<BONDS> 0 0
<COMMON> 82,052 82,052
0 0
0 0
<OTHER-SE> 13,906,502 13,906,502
<TOTAL-LIABILITY-AND-EQUITY> 17,355,507 17,355,507
<SALES> 0 0
<TOTAL-REVENUES> 9,136,969 18,328,503
<CGS> 0 0
<TOTAL-COSTS> 7,123,819 14,400,282
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 592 15,001
<INCOME-PRETAX> 588,106 937,668
<INCOME-TAX> 71,000 113,000
<INCOME-CONTINUING> 517,106 824,668
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 517,106 824,668
<EPS-PRIMARY> 0.06 0.10
<EPS-DILUTED> 0.06 0.10
</TABLE>
