<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 August 31, 1996
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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 or 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, 1996, the number of shares outstanding of the
issuer's class of common stock was 8,257,699.
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READICARE, INC.
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
August 31, 1996 and February 29, 1996 3
Condensed Consolidated Statements of Operations:
Three Months Ended August 31, 1996 and 1995 and
Six Months Ended August 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows:
Six Months Ended August 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 9
SIGNATURES 10
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
READICARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, 1996 February 29,
(Unaudited) 1996
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,137,745 $ 2,211,194
Accounts receivable, net 6,816,134 6,363,136
Supplies 680,628 703,135
Other current assets 526,852 570,239
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Total current assets 11,161,359 9,847,704
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Equipment, property and improvements, at cost:
Equipment 7,371,134 7,279,008
Property and improvements 7,147,137 7,115,121
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14,518,271 14,394,129
Less: accumulated depreciation ( 8,404,002) ( 7,848,348)
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6,114,269 6,545,781
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Acquired intangible assets, net 568,387 599,729
Other assets 339,684 365,421
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$ 18,183,699 $ 17,358,635
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,213,829 $ 1,164,781
Salaries and other accrued employee benefits 1,092,906 1,182,424
Managed care provider payable 234,242 252,107
Other current liabilities 225,055 337,036
Reserves for discontinued activities 6,558 23,118
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Total current liabilities 2,772,590 2,959,466
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Stockholders' equity:
Preferred stock, $0.01 par value,
1,000,000 shares authorized and unissued -- --
Common stock, $0.01 par value,
20,000,000 shares authorized;
8,257,699 and 8,210,199
shares issued and outstanding 82,621 82,102
Additional paid-in capital 20,314,039 20,208,622
Accumulated deficit ( 4,985,551) ( 5,891,555)
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Total stockholders' equity 15,411,109 14,399,169
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$ 18,183,699 $ 17,358,635
============ ============
</TABLE>
See accompanying notes
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READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED AUGUST 31, ENDED AUGUST 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues: $ 9,612,012 $ 9,136,969 $ 19,228,404 $ 18,328,503
Costs and expenses:
Center operating expenses 7,502,590 7,123,819 15,029,824 14,400,282
Marketing, general and
administrative expenses 1,131,713 1,080,812 2,556,154 2,288,100
Depreciation and amortization 318,237 343,640 637,721 687,452
Interest (income) expense, net ( 16,337) 592 ( 25,298) 15,001
------------ ------------ ------------ ------------
Income before taxes 675,809 588,106 1,030,003 937,668
Provision for income taxes 81,000 71,000 124,000 113,000
------------ ------------ ------------ ------------
Net income $ 594,809 $ 517,106 $ 906,003 $ 824,668
============ ============ ============ ============
Per Share:
Net income $ 0.07 $ 0.06 $ 0.11 $ 0.10
============ ============ ============ ============
Weighted average common
shares and equivalents 8,597,000 8,301,000 8,564,000 8,250,000
============ ============ ============ ============
</TABLE>
See accompanying notes
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READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 906,003 $ 824,668
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 637,721 687,452
Loss on disposition of assets 13,010 --
Change in operating assets and liabilities:
Accounts receivable, net (452,998) ( 10,785)
Supplies and other current
assets 65,896 ( 183,661)
Accounts payable 49,048 211,633
Salaries and other accrued
employee benefits ( 107,382) 123,040
Other current liabilities ( 128,544) ( 36,440)
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Net cash provided by operating activities 982,754 1,615,907
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Cash flows from investing activities:
Additions to equipment ( 130,123) ( 71,072)
Additions to property and improvements ( 32,016) ( 5,533)
Other assets -- ( 2,933)
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Net cash used in investing activities ( 162,139) ( 79,538)
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Cash flows from financing activities:
Payments under line of credit -- ( 700,000)
Issuance of common stock 105,936 38,813
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Net cash provided by (used in)
financing activities 105,936 ( 661,187)
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Increase in cash 926,551 875,182
Cash at beginning of period 2,211,194 426,315
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Cash at end of period $ 3,137,745 $ 1,301,497
=========== ===========
</TABLE>
See accompanying notes
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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 six
month period ended August 31, 1996 have been made. The results for the quarter
or the six month period ended August 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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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>
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 31, AUGUST 31,
(UNAUDITED) (IN THOUSANDS) 1996 1995 % CHANGE 1996 1995 % CHANGE
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $9,612 $9,137 5% $19,228 $18,329 5%
COSTS AND EXPENSES:
CENTER OPERATING EXPENSES 7,502 7,124 15,030 14,400
% of revenues 78% 78% 5% 78% 79% 4%
GROSS OPERATING MARGIN 2,110 2,013 4,198 3,929
% of revenues 22% 22% 5% 22% 21% 7%
MARKETING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,132 1,081 2,556 2,288
% of revenues 12% 12% 5 % 13% 12% 12%
DEPRECIATION AND AMORTIZATION 318 344 637 688
% of revenues 3% 3% (8%) 3% 4% (7%)
INTEREST (INCOME) EXPENSE, NET (16) - n/m* (25) 15 n/m*
% of revenues -% -% -% -%
INCOME BEFORE TAXES 676 588 1,030 938
% of revenues 7% 7% 15% 6% 5% 10%
PROVISION FOR INCOME TAXES 81 71 124 113
% of revenues 1% 1% 14% 1% 1% 10%
NET INCOME $ 595 $ 517 $ 906 $ 825
% of revenues 6% 6% 15% 5% 4% 10%
</TABLE>
* Not meaningful
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<PAGE> 8
QUARTER ENDED AUGUST 31, 1996 VS. QUARTER ENDED AUGUST 31, 1995.
Revenues for the three month period ended August 31, 1996, were
$9,612,000, a 5% increase compared to revenues of $9,137,000 reported for the
three month period ended August 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 $378,000 or 5% 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 $51,000 or 5% due to higher marketing and consulting costs.
Depreciation and amortization expenses decreased $26,000 or 8% due
primarily to the write down of certain assets as a result of the Company's
implementation in the fourth quarter of fiscal 1996 of SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". Interest income was $16,000 for the quarter ended August 31, 1996.
Income before taxes increased 15% to $676,000 as a result of the
improved operating performance at the Company's centers. In the prior year
period, the Company recognized $101,000 in non-recurring income relating to a
previously terminated management services contract.
The provision for income taxes for the quarter ended August 31, 1996
was $81,000 or 12% of pretax income.
Net income increased 15% to $595,000 as a result of the improved
operating performance at the Company's centers.
SIX MONTHS ENDED AUGUST 31, 1996 VS. SIX MONTHS ENDED AUGUST 31, 1995.
Revenues for the six month period ended August 31, 1996 were
$19,228,000, an increase of 5% compared to revenues of $18,329,000 reported for
the six month period ended August 31, 1995. The Company continued to experience
revenue gains in each of its operating regions compared to the prior year
period.
Center operating expenses increased by $630,000 or 4% as a result of
the factors described above. Marketing, general and administrative expenses
increased by $268,000 or 12% due primarily to higher marketing costs, and as a
result of a non-recurring charge of approximately $200,000 before taxes incurred
in the fiscal 1997 first quarter. 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.
Interest income was $25,000, and as of August 31, 1996 the Company
was debt free.
Income before taxes increased $92,000 or 10% primarily as a result
of improved operating performance at the Company's centers.
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<PAGE> 9
The provision for income taxes for the six month period ended August
31, 1996 increased by 10% to $124,000 or 12% of pretax income.
Net income increased $81,000 or 10% to $906,000 as a result of
improved operating performance at the Company's centers.
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 $637,000
for the six month period ended August 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 August 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 August 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 increased since July 1987. In March 1994, a revised
fee schedule was adopted by the Department of Workers' Compensation, ("DWC"),
however, reimbursement levels were not increased. Currently, the DWC is
undertaking a review of the adequacy of reimbursement levels, although it is
uncertain at this time as to what changes in reimbursement levels will result,
if any. In Washington, state-authorized workers' compensation medical
reimbursement levels were increased by approximately 5% effective July 1, 1996.
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: September 25 , 1996 /s/ Dennis G. Danko
------------------------ -------------------
Dennis G. Danko
President and Chief Executive
Officer
Date: September 25 , 1996 /s/ Steve E. Busby
------------------------ ------------------
Steve E. Busby
Senior Vice President, Finance
and Principal Accounting
Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1997
<PERIOD-START> JUN-01-1996 MAR-01-1996
<PERIOD-END> AUG-31-1996 AUG-31-1996
<EXCHANGE-RATE> 1 1
<CASH> 3,137,745 3,137,745
<SECURITIES> 0 0
<RECEIVABLES> 6,816,134 6,816,134
<ALLOWANCES> 0 0
<INVENTORY> 680,628 680,628
<CURRENT-ASSETS> 11,161,359 11,161,359
<PP&E> 14,518,271 14,518,271
<DEPRECIATION> 8,404,002 8,404,002
<TOTAL-ASSETS> 18,183,699 18,183,699
<CURRENT-LIABILITIES> 2,772,590 2,772,590
<BONDS> 0 0
0 0
0 0
<COMMON> 82,621 82,621
<OTHER-SE> 15,328,488 15,328,488
<TOTAL-LIABILITY-AND-EQUITY> 18,183,699 18,183,699
<SALES> 0 0
<TOTAL-REVENUES> 9,612,012 19,228,404
<CGS> 0 0
<TOTAL-COSTS> 7,502,590 15,029,824
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (16,337) (25,248)
<INCOME-PRETAX> 675,809 1,030,003
<INCOME-TAX> 81,000 124,000
<INCOME-CONTINUING> 594,809 906,003
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 594,809 906,003
<EPS-PRIMARY> .07 .11
<EPS-DILUTED> .07 .11
</TABLE>
