<PAGE> 1
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 May 31, 1996
Commission File Number 1-10814
READICARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3775814
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1322 ORLEANS DRIVE, SUNNYVALE, CA 94089
(Address of principal executive offices) (zip code)
(408) 743-3100
(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 May 31, 1996, the number of shares outstanding of the issuer's
class of common stock was 8,252,949.
<PAGE> 2
READICARE, INC.
Index to Form 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
May 31, 1996 and February 29, 1996 3
Condensed Consolidated Statements of Operations:
Three Months Ended May 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows:
Three Months Ended May 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION 8
SIGNATURES 9
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<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
READICARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, 1996 February 29,
(Unaudited) 1996
------------ -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,681,256 $ 2,211,194
Accounts receivable, net 6,569,315 6,363,136
Supplies 727,871 703,135
Other current assets 468,152 570,239
---------- ---------
Total current assets 10,446,594 9,847,704
---------- ---------
Equipment, property and improvements, at cost:
Equipment 7,344,819 7,279,008
Property and improvements 7,144,501 7,115,121
----------- -----------
14,489,320 14,394,129
Less: accumulated depreciation (8,130,397) (7,848,348)
----------- -----------
6,358,923 6,545,781
----------- -----------
Acquired intangible assets, net 584,058 599,729
Other assets 352,172 365,421
----------- -----------
$17,741,747 $17,358,635
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,221,874 $ 1,164,781
Salaries and other accrued employee benefits 1,170,253 1,182,424
Managed care provider payable 204,561 252,107
Other current liabilities 324,673 337,036
Reserves for discontinued activities 14,774 23,118
----------- -----------
Total current liabilities 2,936,135 2,959,466
----------- -----------
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;
8,252,949 and 8,210,199
shares issued and outstanding 82,529 82,102
Additional paid-in capital 20,303,443 20,208,622
Accumulated deficit (5,580,360) (5,891,555)
----------- -----------
Total stockholders' equity 14,805,612 14,399,169
----------- -----------
$17,741,747 $17,358,635
=========== ===========
</TABLE>
See accompanying notes
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<PAGE> 4
READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
Revenues $ 9,616,392 $ 9,191,534
Costs and expenses:
Center operating expenses 7,527,235 7,276,462
Marketing, general and
administrative expenses 1,424,441 1,207,288
Depreciation and amortization 319,484 343,813
Interest (income) expense, net (8,962) 14,409
----------- -----------
Income before taxes 354,194 349,562
Provision for income taxes 43,000 42,000
----------- -----------
Net income $ 311,194 $ 307,562
=========== ===========
Per Share:
Net income $ 0.04 $ 0.04
=========== ===========
Weighted average common shares
and equivalents 8,531,000 8,198,000
=========== ===========
</TABLE>
See accompanying notes
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<PAGE> 5
READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 311,194 $ 307,562
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 319,484 343,813
Loss (gain) on disposition of assets 4,732 (4,286)
Change in operating assets and liabilities:
Accounts receivable, net (206,179) 14,321
Supplies and other current
assets 77,351 20,939
Accounts payable 57,093 15,960
Salaries and other accrued
employee benefits (59,717) 185,982
Other current liabilities (20,706) (40,672)
----------- -----------
Net cash provided by
operating activities 483,252 843,619
----------- -----------
Cash flows from investing activities:
Additions to equipment (79,058) (18,566)
Additions to property and improvements (29,380) (4,533)
Other assets -- 11,453
----------- -----------
Net cash used in investing
activities (108,438) (11,646)
----------- -----------
Cash flows from financing activities:
Payments under line of credit -- (250,000)
Issuance of common stock 95,248 38,813
----------- -----------
Net cash provided by (used in)
financing activities 95,248 (211,187)
----------- -----------
Increase in cash 470,062 620,786
Cash at beginning of period 2,211,194 426,315
----------- -----------
Cash at end of period $ 2,681,256 $ 1,047,101
=========== ===========
</TABLE>
See accompanying notes
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<PAGE> 6
READICARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 29, 1996, 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
three months ended May 31, 1996 have been made. The results for the quarter
ended May 31, 1996 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 RESULTS
OF OPERATIONS
General.
Statements contained herein that are not based on historical facts are
forward-looking statements subject to uncertainties and risks including, but not
limited to, product and service demand and acceptance, the availability of
appropriate acquisition candidates, economic conditions, the impact of
competition and pricing, capacity and supply constraints or difficulties,
government regulations, and other risks described in the Company's 1996 Annual
Report on Form 10-K.
ReadiCare, Inc. is a physician practice management company (PPM)
specializing in the provision of occupational health care services and related
cost-containment programs. At the Company's 37 conveniently located outpatient
medical and rehabilitation centers in key markets in California and Washington
state, primary care physicians and support personnel offer prompt, high quality
services designed to reduce workers' compensation and health care costs, and to
improve employee health, safety, and productivity.
ReadiCare, Inc. provides a wide range of services to employees of over
26,000 client companies, represented by small family-owned businesses, Fortune
500 companies, municipalities, school districts, state and local government
agencies, workers' compensation and health insurers, and HMO's. Medical cost
containment programs available through the Company include: medical case and
claims management; bill and utilization review; safety and injury prevention;
risk management and loss control; employment-related testing, such as drug
screening, pre-placement physical exams, OSHA compliance testing and others;
and, access to the Company's workers' compensation managed care provider
network. The Company is also a certified Workers' Compensation Health Care
Provider Organization (WCHCPO) in California.
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<PAGE> 7
READICARE, INC.
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (IN THOUSANDS) THREE MONTHS THREE MONTHS
ENDED ENDED % CHANGE
MAY 31, 1996 MAY 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES 9,616 9,192 5%
COSTS AND EXPENSES:
CENTER OPERATING EXPENSES 7,527 7,277 3%
% of revenues 78% 79%
- ---------------------------------------------------------------------------------------------------------------------------
GROSS OPERATING MARGIN 2,089 1,915 9%
% of revenues 22% 21%
- ---------------------------------------------------------------------------------------------------------------------------
MARKETING, GENERAL AND ADMINISTRATIVE 1,425 1,207 18%
EXPENSES
% of revenues 15% 13%
- ---------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION 319 344 (7%)
% of revenues 3% 4%
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST (INCOME) EXPENSE, NET (9) 14 n/m*
% of revenues -% -%
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 354 350 1%
% of revenues 4% 4%
- ---------------------------------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES 43 42 2%
% of revenues 1% 1%
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME 311 308 1%
% of revenues 3% 3%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not meaningful
-7-
<PAGE> 8
QUARTER ENDED MAY 31, 1996 VS. QUARTER ENDED MAY 31, 1995
Revenues for the three month period ended May 31, 1996 were $9,616,000, a
5% increase compared to revenues of $9,192,000 reported for the three month
period ended May 31, 1995. The Company posted revenue increases in each of its
operating regions as a result of a combination of higher patient volume levels
experienced at its centers, and an increase in the range and intensity of
occupational health care services provided to patients.
Center operating expenses increased $251,000 or 3% due to higher personnel
and medical supply costs associated with providing the higher levels of service
as described above. Marketing, general and administrative expenses increased by
$218,000 or 18% due to a nonrecurring charge of approximately $200,000 before
taxes. The charge related to the resolution of a claim made against the Company
arising out of a late fiscal year 1995 decision to reorganize operating hours
and staffing patterns at certain of the Company's outpatient medical centers.
Depreciation and amortization expenses decreased $26,000 or 7% due
primarily to the write down of certain assets as a result of the Company's
implementation of SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of".
Interest income was $9,000 for the quarter ended May 31, 1996 versus an
interest expense of $14,000 for the first quarter ended May 31, 1995. During the
second quarter of fiscal 1996, the Company eliminated its bank borrowings, and
therefore did not incur interest expenses in the current period.
Income before taxes increased 1% to $354,000 as a result of improved
operating performance at the Company's centers, however, overall results were
impacted by the $200,000 nonrecurring, pretax charge.
The provision for income taxes for the quarter ended May 31, 1996 was
$43,000, or 12% of pretax income, versus $42,000, or 12% of pretax income for
the first quarter ended May 31, 1995.
Net income increased to $311,000 as a result of the improved operating
performance at the Company's centers, offset by the after-tax impact of the
nonrecurring charge which amounted to $176,000.
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<PAGE> 9
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 $319,484 for the three
months ended May 31, 1996. 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 May 31, 1996. 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 May 31, 1996.
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
Items 1-6. Not applicable.
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<PAGE> 10
SIGNATURE
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: July 2, 1996 /s/ Dennis G. Danko
------------------------------------
Dennis G. Danko
President and Chief Executive
Officer
Date: July 2, 1996 /s/ Steve E. Busby
------------------------------------
Steve E. Busby
Senior Vice President, Finance
and Principal Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 2,681,256
<SECURITIES> 0
<RECEIVABLES> 6,569,315
<ALLOWANCES> 0
<INVENTORY> 727,871
<CURRENT-ASSETS> 10,446,594
<PP&E> 14,489,320
<DEPRECIATION> 8,130,397
<TOTAL-ASSETS> 17,741,747
<CURRENT-LIABILITIES> 2,936,135
<BONDS> 0
0
0
<COMMON> 82,529
<OTHER-SE> 14,723,083
<TOTAL-LIABILITY-AND-EQUITY> 17,741,747
<SALES> 0
<TOTAL-REVENUES> 9,616,392
<CGS> 0
<TOTAL-COSTS> 7,527,235
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 354,194
<INCOME-TAX> 43,000
<INCOME-CONTINUING> 311,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 311,194
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
