<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q SB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1996
__________
AMERICAN MEDCARE CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
Delaware 59-2248411
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2970 Clairmont Road, Suite 950, Atlanta Georgia 30329
(Address of principal executive offices) (Zip Code)
404/633-0046
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
------ ------
47,470,074 shares, $.001 par value as of October 31, 1996
(Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date)
<PAGE>
AMERICAN MEDCARE CORPORATION
FORM 10-QSB
QUARTER ENDED OCTOBER 31, 1996
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
October 31, 1996 (unaudited) and January 31, 1996 3
Consolidated Statements of Operation (unaudited)
Three months and nine months ended October 31, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited)
Three months and nine months ended October 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 6
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 10
Item 3. Default Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
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<TABLE>
<CAPTION>
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
October 31 January 31
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 183,012 $ 249,698
Accounts and notes receivable, net of allowance of
$27,771 and $90,388. 196,547 158,192
Prepaid expenses and other current assets 23,541 32,620
----------- -----------
Total current assets 403,100 440,510
----------- -----------
Property and equipment, net of depreciation of
$589,954 and $570,445. 45,282 54,372
Other intangible assets 179,472 52,548
Capitalized software development costs, net of
accumulated amortization of $654,653 and
$656,505 35,727 19,511
----------- -----------
Total assets $ 663,581 $ 566,941
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
October 31 January 31
1996 1996
----------- -----------
Current liabilities:
Accounts payable $ 300,879 $ 374,824
Accrued expenses 379,269 448,627
Deferred revenue 405,677 481,224
Current portion of long-term debt 311,131 335,542
----------- -----------
Total current liabilities 1,395,958 1,640,217
----------- -----------
Long-term debt, less current portion 539,314 544,780
----------- -----------
Shareholders' equity
Common Stock, $.001 par value- authorized 50,000,000
shares; 44,470,076 and 41,577,788 issued;
47,241,587 and 41,349,299 outstanding 47,470 41,577
Treasury Stock (100,000) (100,000)
Stock purchase warrant 500,000 500,000
Additional paid-in capital 2,110,197 1,445,247
Accumulated deficit (3,830,356) (3,504,880)
----------- -----------
Total shareholders' equity (deficit) (1,272,689) (1,618,056)
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 663,581 $ 566,941
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
October 31 October 31
------------------------- -----------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue $ 474,596 $ 531,056 $1,659,671 $1,915,024
Cost of sales 55,050 77,436 299,075 434,099
------------ ---------- ----------- ----------
Gross margin 419,546 453,620 1,360,596 1,480,925
Expenses:
Salaries and operating expenses 556,553 459,582 1,573,935 1,491,483
Depreciation and amortization 18,659 28,551 54,890 81,653
------------ ---------- ----------- ----------
575,212 488,133 1,628,825 1,573,135
------------ ---------- ----------- ----------
Loss from operations (155,666) (34,513) (268,229) (92,211)
Interest expense (17,179) (12,205) (60,680) (46,909)
Other income, net 2,439 (498) 3,433 115,175
------------ ---------- ----------- ----------
Income from continuing operation (170,406) (47,216) (325,476) (23,945)
before income taxes
Provision for income taxes 0 0 0 0
------------ ---------- ----------- ----------
Net income (loss) $ (170,406) $ (47,216) $ (325,476) $ (23,945)
============ ========== =========== ===========
Earnings per share:
Continuing operations
Primary $ 0.00 $ 0.00 $ (0.01) $ 0.00
============ ========== =========== ===========
Weighted average number of shares 44,713,419 41,349,299 43,531,234 41,349,299
============ ========== =========== ===========
</TABLE>
See accompanying notes.
4
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<TABLE>
<CAPTION>
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Nine Months Ended
October 31
1996 1995
------------ -----------
<S> <C> <C>
Cash provided by (used for) operating activities
Net income (loss) $ (325,476) $ (23,945)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 11,357 55,947
Compensatory stock options 22,500 22,500
Changes in operating assets and liabilities:
Accounts and notes receivable (38,354) 72,448
Prepaid expenses and other current assets 9,079 3,510
Accounts payable and accrued expenses (249,464) 35,277
Deferred revenue (67,297) (52,585)
---------- ----------
(637,655) 113,152
---------- ----------
Cash provided by (used for) investing activities
Property and equipment expenditures (10,419) (15,972)
Purchases of intangible assets (107,903) 34,194
Expenditures for software development costs (24,474) (725)
---------- ----------
(142,796) 17,497
---------- ----------
Cash provided by (used for) financing activities
Proceeds from long-term debt 0 94,500
Repayment of note payable 0 (73,028)
Treasury stock 0 (100,000)
Proceeds from stock issuance 648,343 0
Principal payments on long term debt 65,422 (25,508)
---------- ----------
713,765 (104,036)
---------- ----------
Net increase (decrease) in cash (66,686) 26,613
Beginning, cash and cash equivalents 249,698 4,684
---------- ----------
Ending, cash and cash equivalents $ 183,012 $ 31,297
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q SB and Article 10
of Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended October 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
January 31, 1997. For further information, refer to the 10-KSB filed by
American Medcare Corporation for the year ended January 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
RESULTS OF OPERATIONS
Over the past nine months, the Company's operational focus and objective has
been to develop a balance of revenues between the primary profit centers, based
upon the organizational restructuring done over the past fiscal year. The three
key product lines and profit centers are the Large Systems products (Unix-
based), the low-end suite of Small Systems products (DOS- and Windows-based),
and the Electronic Data Interchange (EDI) products and services.
Quarterly Revenue Analysis
Overall net revenues for the third quarter were down by $111,472 or 19% from the
second quarter, moving from $586,068 to $474,596. Unix revenues were off by
$46,317 or 16% compared to the second quarter, totalling $280,840 in the second
quarter and $234,523 in the third quarter.
The revenues in the Small Systems division, with the DOS and Windows products
were down by $69,140 for the third quarter, or 32%, moving from $214,844 in the
second to $145,704. This was due to a restructure in the sales force, moving
from a focus on systems sales to recurring transaction revenue opportunities.
The revenues in the EDI division were up by $3,985 or 4% from the second
quarter, moving from $90,384 to $94,369. Overall, the electronic transaction
volume increased from 261,589 transactions in the second quarter to 300,650 in
the third quarter. This increase in transactions pushed the EDI net revenues
up by $3,985 or 4%, from $90,384 in the second quarter to $94,369.
Quarterly Margin Analysis
Overall gross margins were down by 10% for the third quarter compared to the
second quarter, moving down by $44,858 on total gross margins of $464,404 and
$419,546, respectively. This decrease was due to the restructuring of the sales
groups, and the directed focus on the development of recurring revenue products.
6
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AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
The margins in the Large Systems division and Unix product line decreased for
the quarter by $23,883 or 10%, from $227,748 to $203,865. This decrease tracked
the lower sales revenue and related reduction in cost of sales. The margins in
the Small Systems division's DOS product line decreased in the third quarter by
$36,598 or 23% from the second quarter, moving from $159,717 to $123,119. This
decrease was due to the completion of a large multi-location network
installation in the second quarter without a corresponding sale in the current
quarter. On a per-unit basis, the Small Systems division continues to operate
with high gross margins.
Over the next year, the Small Systems division is expected to be in a position
to increase its operating margins, with growing penetration in managed care
niches, particularly as the Windows-based product and electronic services suite
is completed. This product suite is scheduled to be completed during the
fourth quarter of the year.
The margins in the EDI division and electronic services increased by $15,623 or
20% in the third quarter, moving from $76,939 to $92,562. This significant
growth reflects the sales efforts in development of recurring transaction
revenues, and the strong demand by customers for expanded and broadened
electronic services.
Electronic data interchange services, including electronic claims and patient
statements continue to increase on a monthly basis, tracking the increased
integration of healthcare service providers with payors. The average monthly
electronic transactions volume increased by over 13,000 transactions compared
with the second quarter.
Management expects future revenue growth in the Small Systems division as market
demand for a low-cost product that is easy to install and use remains strong,
particularly as targeted at the significant market of smaller-sized healthcare
providers. The products are also being marketed to significantly sized
healthcare networks, where electronic services, including electronic claims and
other transaction services are key system requirements. The Small Systems
division and software products were recently selected by a significant national
insurance carrier as their recommended vendor for installations at non-automated
providers sites nationwide.
The Company considers its multiple products and service lines to be a
significant strength and provides a competitive advantage. Management continues
to pursue business combination opportunities that would increase revenue growth,
particularly through the acquisition of user bases in niche markets.
Margins in the Unix-based, larger system environment remain low in comparison to
the Small Systems division product sets and services. Overall, the market
continues to be very competitive and allows little opportunity for price
increases.
Quarterly Operating Expenses
Comparison of Second and Third Quarters of Current Year
Overall operating expenses for the third quarter increased by $8,098 or 1% to
$556,553 for the third quarter, from $548,455 for the second quarter. These
operating expenses were higher due to increases in accounting and audit services
($6,572), contract labor ($3,878), legal expenses ($4,564), and an increase in
bad debts expense ($20,786). Noted operating expense decreases included salary
and benefits ($17,049), printing costs ($5,043), marketing costs ($3,409), and
office supplies ($3,269).
7
<PAGE>
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
The Company continues to use third-party vendors for hardware maintenance and
installations, where possible, in the continued trend towards more efficient
company operations.
Comparison to Prior Year Revenues
In contrast with the third quarter from last year, total net revenues decreased
by 11% or $56,460, moving from $531,056 to $474,596.
The Large Systems division and Unix product line revenue decreased by $72,059 or
24%, from $306,582 to $234,523. This drop reflected the change in focus from
new installation sales, including hardware sales, to recurring revenue services.
Compared with the same quarter from last year, the Small Systems division
revenues are down by $5,522 or 4%, moving from $151,226 to $145,704. This
decline was due in part to the termination of an arrangement with a billing
center reseller, and the Company's movement towards bringing portions of this
sales effort inhouse.
The EDI division revenues have increased over the same quarter in the prior
year, from $73,248 to $94,369, an increase of $21,121 or 29%. This increase is
due to the rollout of additional products and services, and growth in product
and services sales.
Comparison to Prior Year Margins
Overall gross margins decreased slightly compared to last year, totalling
$453,620 for the third quarter last year, and $419,546 for the third quarter of
this year. This represented a 8% reduction, or $34,074.
The margins in the Large Systems division and Unix product decreased by $42,440
or 17% from the third quarter of last year, moving from $246,305 to $203,865.
This reflected the change in focus from lower-margin sales and installation of
new systems to higher margins in recurring services and transaction-based
service products.
The margin in the Small Systems division decreased by $14,639 or 11% for the
third quarter of the current year from the same quarter last year, moving from
$137,758 to $123,119. This was due in part to the restucture in the sales group.
Since that time, the sales force has been directed towards larger, network sales
with a longer sales cycle, and also towards development of recurring revenue
opportunities, rather than new installation sales.
The margins in the EDI division increased by $23,005 or 33% for the third
quarter of the current year from the same quarter last year, moving from $69,557
to $92,562. This was due to continued growth and the success in the EDI
marketing and sales efforts.
Comparison to Prior Year Operating Expenses
Operating expenses for the third quarter increased by $96,973 or 21% from
$459,580 to $556,553 compared to the third quarter of last year. This was due
to increases in marketing costs ($10,626),
8
<PAGE>
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
Comparison to Prior Year Operating Expenses - (Continued)
contract labor ($15,442),accounting services ($9,135), directors fees ($15,000),
office rent ($10,302), travel costs ($6,288), and meals and entertainment
($4,590), bad debt expense ($6,838), and legal fees ($8,197). Operating expense
decreases included telephone costs, insurance and supplies. The additional
marketing, telemarketing, printing and travel costs relate directly to increased
sales and marketing campaigns and increased sales staffs. The increased office
rent, telephone costs, and office supplies were due to the opening of second
business office in Atlanta during the first quarter.
LIQUIDITY AND CAPITAL RESOURCES
The International Computer Solutions (ICS) subsidiary had net income for the
third quarter of $5,902, compared with net income of $50,719 for the second
quarter. However, on a consolidated basis, the Company had a net loss of
$170,406 for the quarter, including an operating loss of $112,507.
The consolidated loss was due to the overall increase in sales and marketing
expenses, including installation, training and travel expenses for the
significant regional and national sales efforts. The Company expects these
increased advertising, marketing and sales efforts will have a positive impact
on revenues and earnings in the upcoming quarters, particularly as the Company
continues to build upon significant network sales opportunities.
Cash flows used for operations were $637,655 for the nine months ended October
31, 1996. This is attributed primarily to increased accounts receivable,
decreased accounts payable, and a decrease in deferred revenue.
Cash flows used for investing activities totalled $142,796 and were used
primarily for equipment purchases, capitalized software development costs, and
other deferred charges. Through the third quarter, financing activities
provided $713,765 mostly through cash obtained through common stock issuance.
Additional cash will continue to be required, through either sale of equity or
additional loans to meet the cash flow requirements of the Company for
operations. There can be no assurance that such additional financing can be
obtained, or that the terms thereof will be favorable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's 10-QSB for the period ending July 31, 1996, the
Trustee in the Chapter 7 Proceeding of Integrated Computer Systems, Inc. and
Electronic Transmitting Solutions, Inc., former operating subsidiaries of the
Company, filed an adversary proceeding in July, 1996 in Bankruptcy Court in the
Northern District of Georgia against American Medcare Corporation, International
Computer Solutions, Inc. and certain officers and directors of the Company, and
others seeking to "pierce the corporate veil", and recover damages. In October,
1996, the Company, International, certain officers, directors and others entered
into a settlement agreement with the Trustee, the terms of which provide that
American will pay $35,000 to the Trustee and up to $50,000 if the Company
recovers the stock it issued upon the acquisition of the two companies. The
settlement agreement was approved by the Court on December 12, 1996.
9
<PAGE>
AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
As previously reported, American Medcare and International Computer are
defendants in a suit filed in Berkeley County, South Carolina in November, 1994
by a former customer of Integrated Computer Systems, Inc. seeking to "pierce the
corporate veil", unspecified damages, and class action status. American and
International are continuing to vigorously defend the suit which management
believes has no merit.
Also as previously reported in the Company's 10QSB dated July 31, 1996, the suit
filed in January, 1995 by James H. Potter v. American Medcare et al was
dismissed by the Court in July, 1996 with prejudice. Potter has appealed to the
Court of Appeals of the State of Georgia. The Company will continue to
vigorously oppose the appeal.
ITEM 2. CHANGES IN SECURITIES - NOT APPLICABLE
ITEM 3. DEFAULT UPON SENIOR SECURITIES - NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NOT
APPLICABLE
ITEM 5. OTHER INFORMATION
The Company continues to consider acquisitions and has had discussions with
companies marketing software for use in medical or dental practice management
fields. On December 3, 1996 it acquired the assets of the health care practice
management systems group of InfoSystems of N.C. Inc. As of October 31, 1996 the
Company has executed letters of intent to purchase 5 other, privately-held
practice management system vendors. The letters of intent are non-binding, and
the companies are expected to be acquired in the first quarter of the 1997
fiscal year subject to financing. No definitive contracts have been executed.
There can be no assurance that definitive agreements will be entered into or
that the Company will be able to obtain the required financing to purchase these
businesses.
The acquisitions would be made only upon the conclusion of due diligence by the
Company, and are expected to be made through cash obtained from an equity
offering and in addition, with respect to certain acquisitions, stock of the
Company. There can be no assurances that any such discussions will result in
an acquisition.
In June, 1996 the Company contracted with an investment banking financial
advisor to assist in the financial analysis of the target companies, and
development of a consolidation business plan. In addition, the Company sold
shares of its common stock through private placement. The proceeds are being
used for general corporate purposes, and to finance the cost of a public or
other offering of securities of the Company and the costs incurred in connection
with the proposed acquisitions.
During the third quarter several changes occurred on the Board of Directors.
Gary Crouse resigned as a director after serving on the board for nearly three
years. In addition, Robert L. Fine resigned as Chairman. Mr. Fine's
responsibilities as Chairman have been shifted to Frederick L. Fine, who also
serves as President and Chief Executive Officer. This summarizes all changes to
the Board of Directors through October 31, 1996.
10
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AMERICAN MEDCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(UNAUDITED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - NOT APPLICABLE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, there unto duly authorized.
AMERICAN MEDCARE CORPORATION
(REGISTRANT)
December 15, 1996 BY: /s/ Frederick L. Fine
--------------------------------
Frederick L. Fine
Chairman, Director
December 15, 1996 BY: /s/ Michael Warren
--------------------------------
Michael Warren
Chief Financial Officer, Director
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIRD
QUARTER 10QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 183,012
<SECURITIES> 0
<RECEIVABLES> 196,547
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 635,236
<DEPRECIATION> 589,954
<TOTAL-ASSETS> 663,581
<CURRENT-LIABILITIES> 1,396,956
<BONDS> 0
0
0
<COMMON> 47,470
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 663,581
<SALES> 1,659,671
<TOTAL-REVENUES> 1,659,671
<CGS> 299,075
<TOTAL-COSTS> 1,628,825
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (325,476)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (325,476)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
