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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2000, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission file number 0-11380
STAFF BUILDERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2650500
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1983 Marcus Avenue, Lake Success, New York 11042
(Address of principal executive offices) (Zip Code)
(516) 750-1600
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
The number of shares of Class A Common Stock and Class B Common Stock
outstanding on July 19, 2000 were 23,339,912 and 291,885 shares, respectively.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
May 31, 2000 and February 29, 2000 2
Condensed Statements of Consolidated
Operations - Three months ended
May 31, 2000 and 1999 3
Condensed Statements of Consolidated Cash
Flows - Three months ended May 31, 2000
and 1999 4
Notes to Condensed Consolidated Financial
Statements 5-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7-8
Factors Affecting the Company's Future
Performance 8-9
PART II. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
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PART I. FINANCIAL INFORMATION
STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
MAY 31,
2000 FEBRUARY 29,
(UNAUDITED) 2000
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ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 854 $ 394
Accounts receivable, net of allowance
for doubtful accounts of $2,351 and
$2,528, respectively 23,325 25,653
Prepaid expenses and other current assets 159 194
Total current assets 24,338 26,241
FIXED ASSETS, net of accumulated
depreciation of $1,643 and
$1,309, respectively 4,837 4,892
INTANGIBLE ASSETS, net of accumulated
amortization of $2,157 and
$2,025, respectively 8,114 8,246
OTHER ASSETS 360 228
-------- --------
TOTAL $ 37,649 $ 39,607
======== ========
LIABILITIES:
CURRENT LIABILITIES:
Accounts payable $ 1,534 $ 2,201
Accrued expenses 3,952 7,374
Accrued payroll and payroll related expenses 3,476 3,341
Current portion of long-term debt 243 232
-------- --------
Total current liabilities 9,205 13,148
LONG-TERM DEBT 502 592
DUE UNDER SECURED CREDIT FACILITY 18,211 15,149
OTHER LIABILITIES 25 25
-------- --------
TOTAL LIABILITIES 27,943 28,914
-------- --------
STOCKHOLDERS' EQUITY:
Class A Common Stock - $.01 par value;
50,000,000 shares authorized; 23,331,912
and 23,331,252 outstanding at May 31, 2000
and February 29, 2000, respectively 233 233
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 299,885 and
300,545 outstanding at May 31, 2000 and
February 29, 2000, respectively 3 3
Additional paid-in capital 13,522 13,522
Accumulated deficit (4,052) (3,065)
-------- --------
Total stockholders' equity 9,706 10,693
-------- --------
TOTAL $ 37,649 $ 39,607
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands, except per share data)
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Three Months Ended
May 31,
2000 1999
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CONTINUING OPERATIONS:
REVENUES:
Service revenues $ 28,091 $ 29,248
Sales of franchises and fees, net 5 --
-------- --------
Total revenues 28,096 29,248
-------- --------
OPERATING EXPENSES:
Service costs 21,957 22,656
General and administrative expenses 6,171 5,326
Depreciation and amortization 499 194
Interest expense, (net) 463 162
Other (income) expense, net (24) 15
-------- --------
Total operating expenses 29,066 28,353
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (970) 895
PROVISION FOR INCOME TAXES 17 --
-------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (987) 895
LOSS FROM DISCONTINUED OPERATIONS
(net of income tax) -- (184)
-------- --------
NET INCOME (LOSS) $ (987) $ 711
======== ========
NET INCOME (LOSS) PER COMMON SHARE - BASIC:
(Loss) income from continuing operations $ (.04) $ .04
Loss from discontinued operations -- (.01)
-------- --------
Net (loss) income $ (.04) $ .03
======== ========
NET INCOME (LOSS) PER COMMON SHARE - DILUTED:
(Loss) income from continuing operations $ (.04) $ .04
Loss from discontinued operations -- (.01)
-------- --------
Net (loss) income $ (.04) $ .03
======== ========
WEIGHTED AVERAGE NUMBER COMMON SHARES
Basic 23,632 23,619
======== ========
Diluted 23,632 23,714
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
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<CAPTION>
Three Months Ended
May 31,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (987) $ 711
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations:
Depreciation and amortization 499 194
Provision for doubtful accounts (177) 65
Change in operating assets and liabilities:
Accounts receivable 2,505 (1,153)
Prepaid expenses and other current assets 2 142
Accounts payable and accrued expenses (3,954) 947
Other assets (132) 7
------- -------
Net cash provided by (used in)
operating activities (2,244) 913
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net short term assets of discontinued operations -- (105)
Net long term assets of discontinued operations -- 289
Purchases of fixed assets (279) (455)
------- -------
Net cash provided by (used in)
investing activities (279) (271)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of capital leases (79) (43)
Increase (decrease) in borrowings under
secured credit facility 3,062 (496)
------- -------
Net cash provided by (used in)
financing activities 2,983 (539)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
CASH EQUIVILENTS 460 103
CASH AND CASH EQUIVILENTS, BEGINNING
OF PERIOD 394 197
------- -------
CASH AND CASH EQUIVILENTS, END OF PERIOD $ 854 $ 300
======= =======
SUPPLEMENTAL DATA:
Cash paid for:
Interest $ 569 $ 343
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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STAFF BUILDERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in
Thousands, Except Where Indicated Otherwise and, for Per Share Amounts)
1. FINANCIAL STATEMENTS - In the opinion of Staff Builders, Inc.,(the
"Company"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal and recurring
accruals) necessary to present fairly the financial position of the Company and
its subsidiaries as of May 31, 2000 and February 29, 2000 and the results of
operations and the cash flows for the three months ended May 31, 2000 and 1999.
Certain prior period amounts have been reclassified to conform with the May 2000
presentation.
The results for the three months ended May 31, 2000 and 1999 are not necessarily
indicative of the results for an entire year. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
Company's audited financial statements as of February 29, 2000 and for the year
then ended.
2. SPIN-OFF TRANSACTION - On March 22, 1999, the Company's Board of
Directors approved a plan to separate its home health care business from its
supplemental staffing business and to create a separate, publicly-traded company
engaged exclusively in providing home health care services. To accomplish this
separation of its businesses, the Company's Board of Directors established a
new, wholly-owned subsidiary, Tender Loving Care Health Care Services,
Inc.("TLCS"), which acquired 100% of the outstanding capital stock of the
Company's subsidiaries engaged in the home health care business. The spin-off
was effected on October 20, 1999 through a pro rata distribution to the
Company's stockholders of all the shares of common stock of TLCS owned by the
Company (the "Distribution"). The Distribution was made by issuing one share of
TLCS common stock for every two shares of the Company's common stock outstanding
on October 12, 1999 ("the Record Date"). Based upon the 23,619,388 shares of the
Company's common stock outstanding on the Record Date, 11,809,694 shares of TLCS
common stock were distributed to holders of the Company's Class A and Class B
common stock after the spin-off. The Company's supplemental staffing business
remained with the Company.
The Board of Directors believes that the spin-off was in the best interests of
the Company and its stockholders. One of the principal benefits of the spin-off
was the creation of a separate and distinct identity for the supplemental
staffing business of the Company. This separation should allow financial
analysts and institutional investors to better understand that business. It also
enhanced the Company's ability to obtain financing outside an environment of
tighter government regulation of the home health care industry and reduced
government reimbursement for the provision of home health care services.
3. DISCONTINUED OPERATIONS - Discontinued operations represent Chelsea Computer
Consultants, Inc.("Chelsea"), an information technology staffing company, which
was originally purchased by the Company on October 30, 1997 and was sold on
September 17, 1999. Substantially all of the revenues and expenses related to
the discontinued operations have been historically segregated on a specifically
identified basis.
4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE - The calculation of basic
and fully diluted earnings (loss) per share was calculated for all periods in
accordance with the requirements of Statement of Financial Accounting Standards
No. 128, "Earnings per Share."
The shares used in computing basic earnings (loss) per share were 23,631,000 and
23,619,000 shares for the three months ended May 31, 2000 and 1999,
respectively. The shares used in computing diluted earnings per share were
23,714,000 for the three months ended May 31, 1999.
5. PROVISION (BENEFIT) FOR INCOME TAXES - The provision (benefit) for income
taxes for the three months ended May 31, 2000 and 1999 is based upon the
Company's estimated tax provision required for the full year.
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6. CONTINGENCIES
a. Contingent obligations
Roger Jackson Pleasant v. Staff Builders Services, Inc. and Staff Builders, Inc.
The Company is contingently liable for a confession of judgement being paid by
TLCS in favor of Roger Jackson Pleasant in the principal amount of approximately
$2.6 million outstanding as of February 29, 2000. The annual installment on the
obligation which is due on September 1, 2000 is $225. The Company is indemnified
by TLCS pursuant to agreement for any liability arising out of this settlement.
BancOne Leasing Corporation
Pursuant to the terms of a Stipulation of Settlement dated January 14, 2000, the
Company is contingently liable on equipment leases that total $1,200 over a
two-year period. Because the equipment is used in TLCS offices primarily, TLCS
has entered into an Assumption Agreement whereby it agreed to assume
responsibility jointly and severely with the original parties to the leases,
which include the Company.
Chase Equipment Leasing, Inc.
The Company is a signatory on a Forbearance and Acknowledgement Agreement along
with TLCS and all of its subsidiaries, pursuant to which TLCS will pay a total
of $163 pursuant to monthly installments of $75 for equipment used by TLCS. TLCS
and its subsidiaries are also guarantors under the Forbearance and
Acknowledgement Agreement. If all payments due in calendar year 2000 are made by
TLCS, Affidavits of Judgment for the existing indebtedness will be destroyed at
the end of 2000.
b. Litigation:
Albert Gallatin
On September 20, 1995, the United States Attorney for the Eastern District of
Pennsylvania alleged that between 1987 and 1989, a corporation, substantially
all assets and liabilities of which were acquired by a subsidiary of TLCS in
1993, submitted false claims to Medicare. The alleged false claims were made
before TLCS acquired that corporation in 1993. There have been significant
discussions with the office of the United States Attorney which TLCS believes
are likely to lead to a settlement of the outstanding claims for approximately
$600, the conclusion of which is pending final government approval of the
payment and other settlement items. The Company is likely to be a signatory to
any such settlement agreement; however, pursuant to agreement, the Company will
be indemnified by TLCS for any obligations arising out of this matter.
Ali Waris
On July 17, 1998, the Federal government ordered that a complaint filed by Ali
Waris, the former owner of a home health care agency purchased by the Company in
1993, be unsealed and served upon the Company and Targa Group, Inc., a former
licensee (franchisee) of the Company. The government has elected not to
intervene in the action, in which Mr. Waris claimed damages for alleged
violations for the False Claims Act by the Company in connection with payments
claimed by the Company on its cost report for consulting services. The case was
dismissed pursuant to the Company's motion and Mr. Waris appealed. The appeal
has been stayed by the Court pending finalization of a proposed settlement,
whereby the cost report issues will be settled directly with the United States
Government in exchange for the withdrawal of Mr. Waris' lawsuit. The Company is
likely to be a signatory to any such settlement agreement; however, pursuant to
agreement, the Company will be indemnified by TLCS for any obligations arising
out of this matter.
The Company is a defendant in several civil actions which are routine and
incidental to its business. The Company purchases insurance in such amounts
which management believes to be reasonable and prudent. Although the Company
cannot estimate the ultimate cost of its open legal matters with precision, in
the opinion of
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management, the outcome of pending litigation will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. This discussion should be read in
conjunction with the Condensed Consolidated Financial Statements appearing in
Item 1.
Results of Operations
Total revenues decreased by $1.2 million or 3.9% for the three months ended May
31, 2000 ("the 2000 period") to $28.1 million from $29.2 million for the three
months ended May 31, 1999 ("the 1999 period"). The decrease in the Company's
service revenues was primarily due to the decrease in the number of operating
staffing offices to 54 locations as of May 31, 2000 as compared to 58 locations
as of May 31, 1999. The decrease in offices was offset by growth in sales of
some offices in the 2000 period.
Service costs were 78.1% and 77.5% of total revenues for the 2000 and 1999
periods, respectively. The increase in service costs as a percentage of total
revenues was primarily due to increases in travel and lodging costs associated
with our medical staffing professionals. Actual costs decreased $699 thousand or
3.1% for the 2000 period to $22.0 million from $22.7 million for the 1999
period. This decrease is primarily due to the decrease in staffing offices
currently being operated.
General and administrative expenses were $6.2 million and $5.3 million in the
2000 and 1999 periods, respectively. The increase of $845 or 15.9% is primarily
due to the expansion of the Company's infrastructure (primarily personnel) so
that the Company has the ability to handle future increases in business volume.
Professional fees associated with the initial development and implementation of
the expanded infrastructure also added to the increase. These costs will not be
incurred in the future. The increase in general and administrative expenses as a
percentage of total revenues is also due to the decrease in the Company's
revenues. General and administrative costs, expressed as a percentage of total
revenues, were 22.0% and 18.2% for the 2000 and 1999 periods, respectively.
Interest expense,(net) was $463 thousand and $162 thousand in the 2000 and 1999
periods, respectively. The increase in interest expense is primarily due to
increased borrowings under the Company's secured revolving line of credit,
together with higher interest rates on such borrowings.
The provision for income taxes of $17 thousand in the 2000 period primarily
consists of state income taxes.
Liquidity and Capital Resources
On March 29, 2000 the Company secured a new financing facility ("New Facility")
for a $20 million revolving loan, whereby a portion of the proceeds were used to
repay a loan agreement provided to the Company on February 29, 2000. The term of
the New Facility is for three years, with annual interest bearing a rate of
prime plus 2%. The New Facility is collateralized by a first priority lien on
all of the Company's assets. The loan agreement has certain covenants which
include tangible net worth and debt coverage ratios.
FORWARD-LOOKING STATEMENTS
Certain statements in this report on Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are typically identified by the inclusion of phrases
such as "the Company anticipates", "the Company believes" and other phrases of
similar
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meaning. These forward-looking statements are based on the Company's current
expectations. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. The potential risks and uncertainties which would
cause actual results to differ materially from the Company's expectations are as
follows:
BUSINESS CONDITIONS - The Company must continue to establish and maintain close
working relationships with physicians and physician groups, managed care
organizations, hospitals, clinics, nursing homes, social service agencies and
other health care providers. There can be no assurance that the Company will
continue to establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the increasing
market demand for the type of services offered.
ATTRACTION AND RETENTION OF LICENSEES AND EMPLOYEES - Maintaining quality
licensees, managers and branch administrators will play a significant part in
the future success of the Company. The Company's professional nurses and other
health care personnel are also key to the continued provision of quality care to
the Company's patients. The possible inability to attract and retain qualified
licensees, skilled management and sufficient numbers of credentialed health care
professional and para-professionals and information technology personnel could
adversely affect the Company's operations and quality of service. Also, because
of the travel nurse program is dependent upon the attraction of skilled nurses
from overseas, such program could be adversely affected by immigration
restrictions limiting the number of such skilled personnel who may enter and
remain in the United States.
SATISFACTORY FINANCING - The Company entered into the New Facility on March 29,
2000. Management cannot provide assurance that the Company will remain in
compliance with the covenants of the new financing agreement. If the Company
does not remain in compliance with the covenants, the bank could immediately
call the amounts due under the New Facility due and payable. If this were to
happen, the Company would have to seek alternative financing, which may not be
available on acceptable terms to the Company. The line of credit available under
the New Facility to the Company is $20 million. Management cannot provide
assurance that the available line of credit will be sufficient on a going
forward basis to provide sufficient funds to operate the business.
YEAR 2000 - The Company has made upgrades to substantially all of its computer
systems and equipment. The installation of these upgrades was completed in all
material respects as of December 1999. Such upgrades served to satisfy the
anticipated impacts of the so-called Year 2000 issue on our information
technology systems. As of May 31, 2000, the Company has not experienced any
materially important business disruptions or system failures as a result of Year
2000 issues, nor is it aware of any Year 2000 issues that have impacted its
payor sources, suppliers or other significant third parties to an extent
significant to the Company. However, Year 2000 compliance has many elements and
potential consequences, some of which may not be foreseeable or may be realized
in future periods. Consequently, there can be no assurance that unforeseen
circumstances may not arise, or that the Company will not in the future identify
equipment or systems which are not Year 2000 compliant.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - See Note 6 in PART I. - ITEM 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended May
31, 2000.
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
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10.107 Loan and Security Agreement between the Company and Copelco/
American Healthfund Inc. dated March 29, 2000. (A)
27. Financial Data Table *
NOTES TO EXHIBITS
-----------------
(A) Incorporated by reference to the Company's Form 10-K for the
Fiscal year ended February 29, 2000 (File No. 0-11380), filed
with the Commission on July 17, 2000.
* Incorporated herein.
</TABLE>
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
STAFF BUILDERS, INC.
By: /s/ STEPHEN SAVITSKY
------------------------------------
Stephen Savitsky
Chairman of the Board
and Chief Executive Officer
Dated: July 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
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SIGNATURE TITLE DATE
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/S/ STEPHEN SAVITSKY Chairman of the Board July 26, 2000
Stephen Savitsky and Chief Executive Officer
(Principal Executive
Officer) and Director
/S/ DAVID SAVITSKY President, Secretary July 26, 2000
David Savitsky and Director
/S/ ALAN LEVY Vice President, Finance, July 26, 2000
Alan Levy Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
* Director July 26, 2000
--------------------------
Bernard J. Firestone, Ph.D
* Director July 26, 2000
--------------------------
Jonathan Halpert, Ph.D.
* Director July 26, 2000
--------------------------
Donald Meyers
*By: /s/ STEPHEN SAVITSKY
----------------------
(Stephen Savitsky,
Attorney-in-Fact)
</TABLE>
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT NO. DESCRIPTION
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10.107 Loan and Security Agreement between the Company and Copelco/
American Healthfund Inc. dated March 29, 2000. (A)
27. Financial Data Table *
NOTES TO EXHIBITS
-----------------
(A) Incorporated by reference to the Company's Form 10-K for the
Fiscal year ended February 29, 2000 (File No. 0-11380), filed
with the Commission on July 17, 2000.
* Incorporated herein.
</TABLE>
