<PAGE>
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 November 30, 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 November 30, 1995, the number of shares outstanding of the issuer's
class of common stock was 8,208,199.
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READICARE, INC.
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Index to Form 10-Q
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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Condensed Consolidated Balance Sheets:
November 30, 1995 and February 28, 1995 3
Condensed Consolidated Statements of Operations:
Three Months Ended November 30, 1995 and 1994 and
Nine Months Ended November 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows:
Nine Months Ended November 30, 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
---------------------------------------------
PART II. OTHER INFORMATION 9
SIGNATURES 10
</TABLE>
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PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
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READICARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
November 30, February 28,
1995 1995
(Unaudited)
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<S> <C> <C>
Current assets:
Cash $ 1,675,215 $ 426,315
Accounts receivable, net 6,508,739 6,531,801
Supplies 651,107 664,635
Other current assets 594,710 491,349
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Total current assets 9,429,771 8,114,100
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Equipment, property and improvements,
at cost:
Equipment 7,591,328 7,165,889
Property and improvements 7,691,545 7,677,635
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15,282,873 14,843,524
Less: accumulated depreciation (8,128,281) (7,164,586)
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7,154,592 7,678,938
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Acquired intangible assets, net 615,866 662,878
Other assets 367,610 404,552
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$17,567,839 $16,860,468
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,062,659 $ 939,370
Salaries and other accrued
employee benefits 1,102,669 947,267
Managed care provider payable 298,273 286,185
Other current liabilities 299,452 224,252
Notes payable to bank - 700,000
Reserves for discontinued
activities 497,915 638,321
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Total current liabilities 3,260,968 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,
8,208,199 shares issued and
outstanding 82,082 81,846
Additional paid-in capital 20,204,141 20,158,814
Accumulated deficit (5,979,352) (7,115,587)
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Total stockholders' equity 14,306,871 13,125,073
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$17,567,839 $16,860,468
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</TABLE>
See accompanying notes
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<PAGE>
READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
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Ended November 30, Ended November 30,
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1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Revenues: $9,012,316 $8,962,416 $27,340,818 $27,105,515
Costs and expenses:
Center operating expenses 7,147,837 7,547,230 21,548,118 22,428,715
Marketing, general and
administrative expenses 1,160,215 1,033,037 3,448,315 2,980,191
Depreciation and amortization 351,697 339,918 1,039,149 1,024,709
Interest expense, net - 17,058 15,001 78,498
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Income before taxes 352,567 25,173 1,290,235 593,402
Provision (benefit) for income tax 41,000 (57,000) 154,000 131,000
---------- ---------- ----------- -----------
Net income $ 311,567 $ 82,173 $ 1,136,235 $ 462,402
========== ========== =========== ===========
Per Share:
Net income $ 0.04 $ 0.01 $ 0.14 $ 0.06
========== ========== =========== ===========
Weighted average common shares
and equivalents 8,376,000 8,179,000 8,202,000 8,176,000
========== ========== =========== ===========
</TABLE>
See accompanying notes
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<PAGE>
READICARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
November 30,
---------------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $1,136,235 $ 462,402
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,039,149 1,024,709
Deferred income taxes - 120,000
Loss (gain) on disposition of
assets (4,286) 4,210
Changes in operating assets and
liabilities:
Accounts receivable, net 23,061 (544,392)
Supplies and other current
assets (89,833) 68,898
Accounts payable 123,289 (38,141)
Salaries and other accrued
employee benefits 167,490 (258,246)
Other current liabilities (137,918) (282,259)
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Net cash provided by
operating activities 2,257,187 557,181
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Cash flows from investing activities:
Additions to equipment (338,412) (211,356)
Additions to property
and improvements (13,910) (39,217)
Other assets (1,528) 29,022
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Net cash used by investing
activities (353,850) (221,551)
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Cash flows from financing activities:
Borrowings under line of credit - 1,000,000
Payments under line of credit (700,000) (1,500,000)
Payments under term note - (1,475,001)
Issuance of common stock 45,563 19,400
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Net cash used by
financing activities (654,437) (1,955,601)
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Increase (decrease) in cash 1,248,900 (1,619,971)
Cash at beginning of period 426,315 2,320,039
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Cash at end of period $1,675,215 $ 700,068
========== ===========
</TABLE>
See accompanying notes
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<PAGE>
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 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
nine months ended November 30, 1995 have been made. The results for the nine
months or quarter ended November 30, 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
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
GENERAL.
ReadiCare, Inc., a physician practice management company founded in
1982, operates a network of 37 outpatient medical and rehabilitation centers in
California and Washington state which provide occupational medical and primary
health care services to employees of over 26,000 client companies. Pursuant to
management agreements entered into with the ReadiCare Medical Groups, the
Company equips and staffs the outpatient centers, and provides a wide array of
administrative and practice management systems and services to the Medical
Groups' 60 full-time equivalent physicians. In return, Medical Group physicians
provide medical services at ReadiCare locations.
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<PAGE>
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 ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
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1995 1994 % CHANGE 1995 1994 % CHANGE
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<S> <C> <C> <C> <C> <C> <C>
REVENUES $9,012 $8,962 1% $27,341 $27,106 1%
COSTS AND EXPENSES:
CENTER OPERATING EXPENSES 7,148 7,547 (5%) 21,548 22,429 (4%)
% of revenues 80% 84% 78% 83%
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GROSS OPERATING MARGIN 1,864 1,415 32% 5,793 4,677 24%
% of revenues 20% 16% 22% 17%
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MARKETING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,160 1,033 12% 3,449 2,980 16%
% of revenues 13% 12% 13% 11%
DEPRECIATION AND
AMORTIZATION 351 340 3% 1,039 1,025 1%
% of revenues 4% 4% 4% 4%
INTEREST EXPENSE, NET - 17 (100%) 15 79 (81%)
% of revenues -% -% -% -%
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INCOME BEFORE TAXES 353 25 1312% 1,290 593 118%
% of revenues 3% -% 5% 2%
PROVISION (BENEFIT) FOR
INCOME TAXES 41 (57) N/M* 154 131 18%
% of revenues -% (1%) 1% -%
NET INCOME 312 82 280% 1,136 462 146%
% of revenues 3% 1% 4% 2%
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</TABLE>
* NOT MEANINGFUL
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<PAGE>
QUARTER ENDED NOVEMBER 30, 1995 VS. QUARTER ENDED NOVEMBER 30, 1994.
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Revenues for the three month period ended November 30, 1995 were $9,012,000,
essentially unchanged from revenues of $8,962,000 reported for the three month
period ended November 30, 1994. The Company experienced a 12% increase in
revenues at its Washington state centers, which was offset by a 5% decrease in
revenues at the Company's Northern California centers. The decrease in revenues
was primarily attributed to shortened hours of operation which went into effect
in early 1995 at a majority of the Company's Northern California centers. The
impact of the streamlined operating hours in the Northern California centers, a
corresponding decrease in center operating expenses, and a return to
profitability of the Company's San Diego, California area centers resulted in a
32% improvement in gross operating margins.
Center operating expenses decreased by $399,000 or 5% as a result of the
shortened operating hours as described above. Marketing, general and
administrative expenses increased by $127,000 or 12% due primarily to higher
employee fringe benefits costs. Interest expense decreased $17,000 or 100% due
to the Company's elimination of debt.
Income before taxes increased $328,000 or 1,312% primarily as a result of
improved operating performance at the Company's centers.
The provision for income taxes for the quarter ended November 30, 1995 was
$41,000, or 12% of pretax income compared to a credit of $57,000, for the
quarter ended November 30, 1994.
Net income increased $230,000 or 280% as a result of improved operating
performance at the Company's centers.
NINE MONTHS ENDED NOVEMBER 30, 1995 VS. NINE MONTHS ENDED NOVEMBER 30, 1994.
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Revenues for the nine month period ended November 30, 1995 were $27,341,000, a
1% increase compared to revenues of $27,106,000 reported for the nine month
period ended November 30, 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
in early 1995 at a majority of the Company's Northern California centers.
Center operating expenses decreased by $881,000 or 4% as a result of the
shortened operating hours as described above. Marketing, general and
administrative expenses increased by $469,000 or 16% due primarily to higher
employee fringe benefits costs. Interest expense decreased $64,000 or 81% due
to the Company's elimination of debt.
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<PAGE>
Income before taxes increased $697,000 or 118% 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 nine month period ended November 30,
1995 was $154,000 or 12% of pretax income, compared to $131,000 or 22% of
pretax income for the nine month period ended November 30, 1994.
Net income increased $674,000 or 146% as a result of improved operating
performance at the Company's 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 $1,039,000 for the nine
month period ended November 30, 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 November 30, 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 November 30, 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, if any, 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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<PAGE>
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: January 10, 1996 /s/ DENNIS G. DANKO
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Dennis G. Danko
President and Chief Executive
Officer
Date: January 10, 1996 /s/ STEVE E. BUSBY
----------------------- ---------------------------------
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 9-MOS
<FISCAL-YEAR-END> FEB-29-1996 FEB-29-1996
<PERIOD-START> SEP-01-1995 MAR-01-1995
<PERIOD-END> NOV-30-1995 NOV-30-1995
<CASH> 1,675,215 1,675,215
<SECURITIES> 0 0
<RECEIVABLES> 6,508,739 6,508,739
<ALLOWANCES> 0 0
<INVENTORY> 651,107 651,107
<CURRENT-ASSETS> 9,429,771 9,429,771
<PP&E> 15,282,873 15,282,873
<DEPRECIATION> 8,128,281 8,128,281
<TOTAL-ASSETS> 17,567,839 17,567,839
<CURRENT-LIABILITIES> 3,260,968 3,260,968
<BONDS> 0 0
0 0
0 0
<COMMON> 82,082 82,082
<OTHER-SE> 14,224,789 14,224,789
<TOTAL-LIABILITY-AND-EQUITY> 17,567,839 17,567,839
<SALES> 0 0
<TOTAL-REVENUES> 9,012,316 27,340,818
<CGS> 0 0
<TOTAL-COSTS> 7,147,837 21,548,118
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 15,001
<INCOME-PRETAX> 352,567 1,290,235
<INCOME-TAX> 41,000 154,000
<INCOME-CONTINUING> 311,567 1,136,235
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 311,567 1,136,235
<EPS-PRIMARY> 0.04 0.14
<EPS-DILUTED> 0.04 0.14
</TABLE>
