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 AUGUST 31, 1995
[ ] 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 0-11781
HOSPITAL STAFFING SERVICES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2150637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6245 NORTH FEDERAL HIGHWAY, SUITE 400
FORT LAUDERDALE, FLORIDA 33308-1900
(Address of principal executive offices)
(305) 771 - 0500
Registrant's telephone number, including area code
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
6,349,770 shares of Common Stock, $.001 par value,
outstanding at October 12, 1995.
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PAGE(S)
-------
PART I - FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of
Stockholders' Equity 5
Consolidated Condensed Statements of Cash Flows 6
Notes to Consolidated Condensed Financial 7 - 16
Statements
Management's Discussion and Analysis of 17 - 21
Financial Condition and Results of Operations
PART II - OTHER INFORMATION AND SIGNATURES 22 - 23
<PAGE>
<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AUGUST 31, 1995 AND NOVEMBER 30, 1994
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
------------------- ------------------------------------
AUGUST 31, NOVEMBER 30, AUGUST 31, NOVEMBER 30,
1995 1994 1995 1994
---------- ------------ ---------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $2,013,491 $516,770 Accounts payable $2,772,542 $5,744,272
Short-term investments - 1,148,729 Line of credit payable 949,122 304,912
Trade accounts receivable, less Accrued payroll and payroll taxes 2,220,510 2,473,643
allowance for doubtful Accrued expenses and other 3,776,345 5,594,163
accounts of $1,338,784 and Notes payable (Notes 3 & 7) 555,130 156,000
$2,345,598 respectively 6,591,674 7,554,155 Lease settlement (Note 8) 700,000 700,000
Estimated settlements due from Income taxes payable 305,178 561,245
Medicare 8,538,907 10,120,218 ----------- -----------
Prepaid expenses and other 355,383 249,904 Total current liabilities 11,278,827 15,534,235
Amounts due from ----------- -----------
officers/directors 71,832 240,781
Income taxes receivable 390,822 212,042 NON-CURRENT LIABILITIES:
Other 591,904 785,360
Notes payable (Notes 3 & 7) 1,000,715 844,000
----------- ----------- ----------- -----------
Total current assets 18,554,013 20,827,959 Total non-current liabilities 1,000,715 844,000
----------- ----------- ----------- -----------
----------- -----------
Total liabilities 12,279,542 16,378,235
----------- -----------
NON-CURRENT ASSETS: COMMITMENTS AND CONTINGENCIES
(Note 8)
PROPERTY AND EQUIPMENT, at cost 3,790,161 3,537,469
Less: Accumulated depreciation (2,725,964) (2,282,793) STOCKHOLDERS' EQUITY:
----------- -----------
Net property and equipment 1,064,197 1,254,676 Preferred Stock - $.001 par value;
----------- ----------- 5,000,000 shares authorized;
none issued and outstanding - -
INTANGIBLES RELATED TO BUSINESSES
ACQUIRED 2,160,016 2,022,183 Common stock- $.001 par value;
NON-COMPETITION AGREEMENTS 479,426 551,544 20,000,000 shares authorized;
----------- ----------- 6,349,770 shares
Total intangibles 2,639,442 2,573,727 issued and outstanding 6,350 5,650
Less: Accumulated amortization (648,507) (759,725)
----------- ----------- Additional paid-in capital 22,428,887 21,292,087
Net Intangibles 1,990,935 1,814,002
Accumulated deficit (12,841,128) (13,262,823)
----------- ----------- ----------- -----------
DEPOSITS AND OTHER ASSETS 264,506 516,512 Total stockholders' equity 9,594,109 8,034,914
----------- ----------- ----------- -----------
Total non-current assets 3,319,638 3,585,190
----------- ----------- Total liabilities and
Total assets $21,873,651 $24,413,149 stockholders' equity $21,873,651 $24,413,149
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these consolidated condensed balance sheets.
3
<PAGE>
<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994 AND
FOR THE NINE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
(Unaudited)
THREE MONTHS ENDED AUGUST 31, NINE MONTHS ENDED AUGUST 31,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUE FROM SERVICES $13,521,691 $20,295,908 $42,093,599 $62,575,204
COST OF SERVICES:
PROFESSIONAL SALARIES AND PAYROLL TAXES 7,033,095 12,050,934 21,856,811 36,251,387
OTHER PROFESSIONAL EXPENSES 1,353,056 1,608,570 4,165,138 4,818,515
----------- ----------- ----------- -----------
TOTAL COST OF SERVICES 8,386,151 13,659,504 26,021,949 41,069,902
----------- ----------- ----------- -----------
GROSS MARGIN 5,135,540 6,636,404 16,071,650 21,505,302
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
ALL OTHER EXPENSES 1,911,700 3,844,194 5,213,823 11,444,808
SALARIES AND PAYROLL TAXES 2,801,983 4,060,368 8,635,336 12,867,999
LEGAL EXPENSES (NOTE 9) 98,793 629,074 955,459 1,464,118
SEVERANCE OBLIGATION (NOTE 7) 0 77,712 646,724 387,480
----------- ----------- ----------- -----------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,812,476 8,611,348 15,451,342 26,164,405
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 323,064 (1,974,944) 620,308 (4,659,103)
----------- ----------- ----------- -----------
INTEREST AND OTHER INCOME (EXPENSE):
INTEREST EXPENSE (62,951) (174,467) (203,418) (420,027)
INTEREST INCOME 18,670 5,465 52,424 40,011
OTHER INCOME, NET 3,622 225,002 74,381 402,524
----------- ----------- ----------- -----------
TOTAL INTEREST AND OTHER INCOME (EXPENSE) (40,659) 56,000 (76,613) 22,508
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 282,405 (1,918,944) 543,695 (4,636,595)
PROVISION FOR INCOME TAXES 46,000 - 122,000 -
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 236,405 (1,918,944) 421,695 (4,636,595)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE - - - 162,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $236,405 ($1,918,944) $421,695 ($4,474,595)
=========== =========== =========== ===========
PRIMARY EARNINGS (LOSS) PER COMMON AND
COMMON SHARE EQUIVALENT
CONTINUING OPERATIONS $0.04 ($0.34) $0.07 ($0.82)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE - - - 0.03
----------- ----------- ----------- -----------
$0.04 ($0.34) $0.07 ($0.79)
=========== =========== =========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON AND
COMMON SHARE EQUIVALENT
CONTINUING OPERATIONS $0.04 ($0.34) $0.07 ($0.82)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE - - - 0.03
----------- ----------- ----------- -----------
$0.04 ($0.34) $0.07 ($0.79)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING:
PRIMARY 5,780,403 5,649,770 5,780,403 5,649,770
=========== =========== =========== ===========
FULLY DILUTED 5,780,403 5,649,770 5,780,403 5,649,770
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements.
4
<PAGE>
<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1994 AND
FOR THE NINE MONTHS ENDED AUGUST 31, 1995
COMMON STOCK
------------------------
NUMBER OF ADDITIONAL
SHARES PAID-IN ACCUMULATED
OUTSTANDING AMOUNT CAPITAL DEFICIT
----------- ------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, November 30, 1993 5,646,020 $5,646 $21,278,966 ($2,008,300)
Exercise of warrants 3,750 4 13,121 -
Net Loss - - - (11,254,523)
--------- ------ ----------- ------------
BALANCE, November 30, 1994 5,649,770 5,650 21,292,087 (13,262,823)
Litigation Settlement (Note 8) 700,000 700 1,136,800 -
Net Income - - - 421,695
--------- ------ ----------- ------------
BALANCE, August 31, 1995 (Unaudited) 6,349,770 $6,350 $22,428,887 ($12,841,128)
========= ====== =========== ============
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements.
5
<PAGE>
<TABLE>
<CAPTION>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 1995 AND AUGUST 31, 1994
(Unaudited)
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $421,695 ($4,474,595)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Severance obligation (Note 7) 630,000 310,000
Depreciation and amortization 540,950 1,023,690
Provision for losses on accounts receivable 624,919 2,156,089
Loss on disposal and retirement of intangibles, property and equipment 4,236 257,120
Write-off of intangibles related to businesses acquired, net - 62,074
Changes in assets and liabilities:
(Increase) decrease in assets -
Trade accounts receivable 262,562 497,359
Estimated settlement due from Medicare 1,581,311 (1,163,148)
Prepaid expenses and other current assets (105,480) (40,535)
Amounts due from officers/directors 68,949 42,278
Income taxes receivable (178,780) 1,900,842
Deposits and other assets 439,792 87,103
Increase (decrease) in liabilities -
Accounts payable (1,834,230) 211,992
Accrued payroll and payroll taxes (253,133) (512,651)
Accrued expenses and other (1,817,818) 1,241,268
Income taxes payable (256,067) 154,012
----------- -----------
Total adjustments (292,789) 6,227,493
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 128,906 1,752,898
----------- -----------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Sale of short-term investments, net 1,148,729 1,000,000
Capital expenditures (215,319) (276,097)
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 933,410 723,903
----------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Line of credit borrowings 44,987,587 63,811,539
Line of credit repayments (44,343,377) (66,579,192)
Notes payable (209,805) -
Nonemployee compensation relating to warrant grant - 13,125
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 434,405 (2,754,528)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,496,721 (277,727)
Cash and cash equivalents at beginning of period 516,770 1,280,545
----------- -----------
Cash and cash equivalents at end of period $2,013,491 $1,002,818
=========== ===========
Supplemental Cash Flow Disclosures:
Cash paid: Income Taxes $466,723 $456,083
Interest $197,651 $293,959
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these consolidated condensed statements.
6
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 1995
(UNAUDITED)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES -
The accounting policies followed by Hospital Staffing Services, Inc.
and subsidiaries (the "Company") for quarterly financial reporting purposes are
the same as those disclosed in the Company's annual financial statements. In the
opinion of management, the accompanying consolidated condensed financial
statements reflect all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation of the information presented.
Certain amounts in the accompanying consolidated 1994 financial statements have
been reclassified to conform to the 1995 presentation.
The quarterly consolidated condensed financial statements herein have
been prepared by the Company without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company's management
believes the disclosures are adequate to make the information not misleading, it
is suggested that these quarterly consolidated condensed financial statements be
read in conjunction with the audited annual financial statements and footnotes
thereto.
NOTE 2: GOING CONCERN -
The Company has suffered recurring losses from operations for the past
three fiscal years and as of fiscal year ended November 30, 1994 was in
violation of certain credit facility covenants, waivers for which were obtained
through November 30, 1995 on March 13, 1995. Additionally, while the Company's
original negative cash flow projections have improved significantly through the
third quarter of fiscal 1995 as a result of increases in collection activity and
the restructuring of its North Eastern home care operations, the Company still
projects negative cash flow in fiscal 1995 primarily as a result of slow
collections of certain customer accounts and loss contingencies that are, in
part, expected to mature over the next twelve months. In addition, as more fully
described in Note 8 to the consolidated condensed financial statements, the
Company is subject to additional contingencies, the outcome of which may have a
material impact on the Company's results of operations and liquidity. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern.
Management's plans to overcome the above, certain of which have been
implemented, consist of restructuring the Company's operations to become
profitable, further enhancing collection efforts on slow paying accounts,
obtaining payment terms beneficial to the Company and its vendors as necessary,
negotiating extended repayment for estimated settlements which may need to be
paid to the Medicare program, managing the contingencies described in Note 8 to
the consolidated condensed financial statements to successful resolution, and
lastly, raising additional capital. The Company is presently exploring ways to
raise the additional capital through a number of means including developing
additional borrowing eligibility under its
7
<PAGE>
existing credit facility, seeking new banking and lending relationships, private
placement of debt, and/or the issuance of preferred and/or common stock. Under
certain extreme conditions the Company may consider the sale of certain of the
Company's remaining operating units in part or in whole.
NOTE 3: ACQUISITIONS AND DIVESTITURES -
On January 13, 1995, certain assets of the Company's Broward County,
Florida private duty home health agency were sold to the Company's Chairman and
Chief Executive Officer. The assets were sold for $185,000 representing all of
the fixed assets and certain intangibles. This price, which the Company believes
is slightly in excess of fair market value, was based upon the Company's
investment banker's valuations and various offers received by the Company from
third parties.
On February 15, 1995, a wholly-owned subsidiary of the Company acquired
certain assets of a therapy company for an aggregate purchase price of
approximately $496,000, representing approximately $96,000 in fixed assets and
approximately $400,000 in certain intangibles. The purchase price is being
satisfied by the forgiveness of a $75,000 trade accounts receivable that the
therapy company owed the Company for therapy services provided by the Company
prior to the acquisition date and through the issuance of a promissory note of
approximately $421,000 with the balance due in equal annual payments of $84,130
over the next five years.
NOTE 4: DEBT -
On August 23, 1993, the Company obtained a three year $15 million
revolving line of credit with a commercial finance company to replace its prior
credit facility with a bank. The present credit facility bears interest at prime
(8.75% at August 31, 1995) plus 2% per annum payable monthly, is secured by
substantially all assets of the Company and requires adherence to certain
financial covenants. Borrowing is based on the Company's eligible accounts
receivable.
The present credit facility includes up to $3.5 million to secure a
workers' compensation standby letter of credit required by the insurance carrier
for the Company's workers' compensation coverage. As of August 31, 1995, the
Company was contingently liable for a $2 million standby letter of credit issued
by its lender for the benefit of the insurance carrier. Such amount is reserved
under the $15 million line of credit with its lender, representing a reduction
of otherwise eligible borrowing. As of August 31, 1995, approximately $24,000
was available for additional borrowing under the line of credit.
Principal borrowings under the credit facility were approximately
$949,000 as of August 31, 1995. As of August 31, 1995 and November 30, 1994, the
Company was not in compliance with the financial covenant relating to
maintenance of a minimum tangible net worth and a second covenant relating to a
prohibition against entering into a consulting agreement with a director of the
Company. Waivers from its lender for the covenant violations through November
30, 1995 were obtained on March 13, 1995.
8
<PAGE>
NOTE 5: STOCKHOLDERS' EQUITY -
Pursuant to Board action during the three months ended August 31, 1995,
40,000 stock options were granted to certain key employees (under neither the
1983 nor the 1990 stock option plans) with exercise prices ranging from $2.50 to
$3.00 per share. The exercise prices exceeded the market price of the common
stock at the date of the grant. All such options are vested from within 90 days
to one year from the date of the award and are exercisable from the award date
for a five year period, or until the date of termination of the grantees'
employment by the Company, whichever is earlier. Additionally, in connection
with his appointment to the Board on July 10, 1995, a new Director was awarded
10,000 stock options with an exercise price of $1.75 per share. The exercise
price was equal to the market price as of the date of the grant. The options
vest immediately and shall be exercisable from the award date for a five year
period. Coincidental with these awards, 15,000 stock options were terminated.
In connection with the Chief Financial Officer's resignation from the
Company on May 1, 1995, see Note 7, the Board of Directors waived the provision
of the Company's 1990 Stock Option Plan which provided for a ninety day
expiration date from the date of termination for the exercise of all stock
options previously granted. The stock options granted in 1990 and 1993, all of
which have been previously vested, shall expire on various dates beginning
November 28, 1997 through October 6, 2000. The exercise prices of the previously
granted stock options, which could have been exercised for 100,000 shares of
common stock on May 1, 1995, were in excess of the fair market value of the
Company's common stock on this date.
On July 12, 1995, the Company authorized Continental Stock Transfer and
Trust Company ("Continental") to issue 700,000 shares of the Company's common
stock, par value $.001 per share, in connection with the settlement of a
shareholder class action suit filed against the Company on October 13, 1992 (see
Note 8). Such shares are held in escrow pursuant to an escrow agreement between
Continental and the Company. These shares represent the number of shares of
common stock to be distributed to authorized claimants in accordance with the
Stipulation of Settlement approved by the court on June 30, 1995 (Note 8).
NOTE 6: EARNINGS PER COMMON AND COMMON SHARE EQUIVALENT -
Earnings per common and common share equivalent are based on the
combined weighted average number of common shares and common share equivalents
outstanding, which includes the assumed exercise of those stock options and
warrants which are dilutive.
The Company utilizes the treasury stock method for computing earnings
per share. Under the treasury stock method the dilutive effect of outstanding
common stock equivalents for determining primary earnings per share is computed
using the average market price during the period, whereas the dilutive effect of
outstanding common stock equivalents for determining fully diluted earnings per
share is computed using the market price as of period end, if greater than the
average market price.
NOTE 7: SEVERANCE OBLIGATIONS -
Upon termination in October, 1992, the Company incurred a severance
obligation to a previous officer of approximately $900,000. Such amount was
expensed as of the date of the October termination. As of August 31, 1995, the
Company's obligation to the officer was satisfied in its entirety.
9
<PAGE>
Upon termination in May, 1994 the Company incurred a severance
obligation to a previous officer of approximately $310,000. Such amount was
expensed as of the date of the May termination. As of August 31, 1995, the
Company's obligation to the officer was satisfied in its entirety.
On December 30, 1994, the Company and its Chairman and Chief Executive
Officer entered into an agreement to modify the Termination and Benefits
Agreement dated June 1, 1991. In lieu of the Company's future obligation to the
Chief Executive Officer of between three and five years of base salary and
certain benefits (as defined), totaling approximately $1.2 - $2 million, which
would result from a termination of the Chief Executive Officer upon his
resignation or dismissal by the Company without cause, respectively, the Company
and the Chief Executive Officer agreed to currently settle the future obligation
for $1 million. Such amount was charged to fiscal year ended November 30, 1994's
consolidated statement of operations as the Board of Directors had effectively
approved the terms of the agreement as of that date. Also, in connection with
this agreement, effective on January 1, 1995, the Chief Executive Officer's base
salary was reduced from $330,000 to $175,000 per year.
The Chief Executive Officer continues to remain in the Company's employ
and upon ninety days written notice from the Company, can be terminated at will
whereby the Company's only continuing obligation, in addition to the remaining
unpaid portion of the $1 million settlement discussed above, would be for the
payment of certain benefits (primarily life, health and disability insurance)
for a period of one year.
In connection with the January 13, 1995 sale of the Broward County home
health agency to the Chief Executive Officer (see Note 3), $185,000 of the $1
million obligation was satisfied as an offset to the purchase price of the
Broward agency. Additionally, $100,000 of the $1 million obligation was
satisfied as settlement of the amounts advanced from the Company to the Chief
Executive Officer in prior years. The remaining obligation of $715,000 is being
satisfied through installment payments under a promissory note dated January 13,
1995. The promissory note requires monthly installments of $13,000 plus accrued
interest at prime rate per annum from the date of the agreement for a period of
55 months. The promissory note provides for acceleration of the balance due to
be immediately payable to the Chief Executive Officer upon the Company's default
of a scheduled monthly payment. In the absence of an event constituting
acceleration, as of August 31, 1995, the Company's future obligation under the
amount due the officer was approximately as follows:
OBLIGATION AMOUNT
---------- ------
Total $610,000
Less current portion (156,000)
--------
Non-current portion $454,000
========
On March 31, 1995, the Company's Chief Financial Officer accepted the
conditions
10
<PAGE>
imposed upon him by the Company's Board of Directors with respect to the
Company's severance obligation due him. Upon his resignation on May 1, 1995, the
Company incurred a severance obligation in the amount of $630,000. The entire
severance obligation, inclusive of payroll taxes and related costs, aggregating
approximately $647,600 was expensed as of the date of the officer's resignation.
The obligation of $630,000 is being satisfied through a promissory note dated
March 31, 1995 requiring 24 monthly installments of $26,250 from the date of
the agreement. The promissory note provides for acceleration of the balance due
upon the Company's default of a scheduled monthly payment. In the absence of an
event constituting acceleration, as of August 31, 1995, the Company's future
obligation under the amount due the officer was approximately as follows:
OBLIGATION AMOUNT
---------- ------
Total $525,000
Less current portion (315,000)
--------
Non-current portion $210,000
========
NOTE 8: COMMITMENTS AND CONTINGENCIES -
Dade County Medicare Investigation:
As reflected in the prior annual and quarterly reports submitted by the
Company, the Company is involved in a federal investigation concerning the
propriety of its Medicare claims. On December 3, 1992, in connection with a
federal investigation into Medicare practices by health care providers in South
Florida, the Company was served with federal search warrants. In response to the
issuance of the search warrants, the Company engaged counsel who initiated a
lawyer directed, internal investigation into its Medicare claims processing
system and which was committed to the identification and elimination of any and
all improprieties discovered in the course of such investigation. As of
September 1995, thirty three (33) months have passed since execution of the
search warrants and no charges have been brought against the Company, its
officers or employees, past and/or present.
On December 15, 1992, the Health Care Financing Administration
("HCFA"), through its fiscal intermediary, suspended reimbursement to the
Company's South Florida Medicare offices. This suspension was based on
allegations of fraud arising from the federal investigation. Those allegations
are currently being reviewed. The Company's management believes that the alleged
violations relate solely to the Dade County Medicare providers and that neither
the suspension nor the federal investigation relates to the Company's operations
in any other Florida offices or offices outside of Florida.
For business reasons and as a result of the investigations, the
Company, in late December 1992, terminated its subcontracting relationships with
staffing providers in South Florida and downsized its offices in South Florida.
The Company's management believes the subcontracting
11
<PAGE>
relationships are at the center of the federal investigation and HCFA suspension
of Medicare payments.
Partially as a result of the federal investigation and HCFA suspension,
the Company implemented an internal review program which included obtaining
advice and consultation from an attorney specializing in Medicare law, engaging
a criminal defense attorney, and performing a billing project. The internal
review was directed and supervised by counsel. As a result of the internal
review, the Company and its lawyers established parameters and guidelines, more
stringent than those required by the Medicare program, to be followed in billing
the 1991, 1992, and 1993 South Florida home care visits. It is the Company's
intention, based on the internal review, to ensure that the billing complies
with all legal requirements. The Company has recorded estimated Medicare
reimbursement disallowances based on the detailed patient chart review arising
from the internal review.
In November 1994, the Company completed the billing project involving
all visits not subject to a claim of untimely filing. A number of claims were
not billed, based on the Company's evaluation of the results of the internal
review. Management is unable to estimate when the outcome of the claims
submissions will be known or when the federal investigation will conclude.
Therefore, the Company cannot state what impact, if any, the outcome of these
matters will have on the Company's consolidated condensed financial statements.
The estimated settlement amounts due the Company as reflected in the
accompanying consolidated condensed balance sheets, as well as net revenue from
services presented in the accompanying consolidated condensed statements of
operations, are presented net of estimated Medicare reimbursement disallowances.
The estimated disallowances are subject to continual review and, as such, may be
increased or decreased as substantive information becomes available. Included in
the estimated settlements due from Medicare as of August 31, 1995 is
approximately $4.5 million for the Company's former South Florida Medicare
operations representing primarily claims billed by the Company subsequent to
closure of its South Florida Medicare operations. The Company believes that the
estimated settlements due from Medicare, as recorded in the accompanying
consolidated condensed balance sheet as of August 31, 1995, are realizable at
their recorded amount.
Proposed Shareholder Class Action Suits:
On October 13, 1992, a class action suit was filed against the Company
and certain of its officers and directors, and, as amended, the Company's
independent certified public accountants (the "defendants") alleging violations
of the Securities and Exchange Act of 1934. On November 24, 1993, another class
action suit with nearly identical allegations was filed against the Company,
certain of its officers and directors and the Company's independent certified
public accountants. The defendants vigorously deny all allegations. To date, the
Company has succeeded in staying the second shareholder action pending the
outcome of the first suit. Pursuant to the provisions of Florida law and the
Company's Articles of Incorporation and Bylaws, the named officers and directors
are entitled to indemnity against any damages they may incur resulting from
these suits.
On October 29, 1994, the Company's Board of Directors, after evaluating
the economic merits of the continuing legal costs required to defend the
original class action, as well as its
12
<PAGE>
potential exposure to adverse judgment, versus the settlement amount sought by
the plaintiff class, agreed in the first suit to a proposed settlement between
the Company and plaintiff class. The Stipulation of Settlement provides for a
class period end date of November 30, 1993, the issuance of 700,000 shares of
Common Stock and a cash payment. Accordingly, based on the estimated future
value of the common stock issuance and cash payment, the Company recorded a
charge totaling approximately $1.9 million in its fiscal year ended November 30,
1994 consolidated statement of operations to accrue the estimated settlement
liability. At a June 30, 1995 hearing, the court approved the settlement and
ordered the dismissal of the claims of all class members against the Company and
the other defendants as described in the Stipulation of Settlement. The court's
judgment is now final and the required cash payment plus the shares of common
stock have been deposited with the escrow agent. The Company has requested that
the second class action be dismissed because the members of the class in the
second shareholder suit are encompassed within the settlement class of the first
suit. No additional provision for any liability that may result from the second
shareholder suit has been recorded.
Directors and officers insurance policy proceeds of up to $1 million
were available to fund legal fees and settlement or adverse judgment costs, as
applicable. The Company received $900,000 of such insurance proceeds during
1993. As of August 31, 1995 and November 30, 1994, approximately $67,400 and
$250,000, respectively, of the insurance proceeds are being held in escrow, and
are restricted to usage on the shareholder suits. These amounts are included in
Other Assets in the accompanying consolidated condensed balance sheets,
respectively.
Other Litigation, Claims and Assessments:
In the ordinary course of business, the Company is exposed to various
claims, threats and legal proceedings other than those items discussed above. In
management's opinion, the outcome of all other such matters will not have a
material impact upon the Company's consolidated financial position and
consolidated results of operations.
Rents:
The Company conducts a major portion of its operations from various
leased office facilities.
The Company had a ten year, non-cancelable operating lease agreement
for its corporate office facility in Fort Lauderdale, Florida. In connection
with the Company's sale of its California, New York and Arizona home health care
operations, the Company terminated, effective November 1, 1994, its old lease
for the corporate office facility and simultaneously entered into a new lease
agreement to reflect the reduction in needed space. In connection with this
early termination the Company agreed to a penalty of $800,000 in exchange for
the landlord's release of the Company from approximately $1.4 million in future
minimum rentals. On November 1, 1994, $100,000 of the penalty was paid. The
$700,000 balance is due on November 1, 1995 and is payable in cash or in newly
issued shares of common stock of the Company at the Company's election. The
number of shares to be issued will be based upon the average closing price of
the shares for the period from October 26 to October 31, 1995, provided that the
minimum and maximum valuation shall be $1.00 and $3.00, respectively. As a
result of the lease restructuring, the Company recorded a charge totaling
approximately $400,000 for the termination penalty, net of the remaining pro
rata future payments under the
13
<PAGE>
old lease, during the fourth quarter of fiscal year ended November 30, 1994.
Total rent expense for the nine months ended August 31, 1995 and 1994
on the above and all other rentals, including HSSI HomeCare's branch facilities
and nurses' housing for the Travel Nurse Group, was approximately $2,546,000 and
$3,140,000, respectively.
Future minimum lease payments under all of the Company's non-cancelable
operating lease agreements as of August 31, 1995 are summarized as follows:
FISCAL YEAR AMOUNT
----------- ------
1995 $1,012,100
1996 809,400
1997 369,700
1998 177,600
1999 153,100
Thereafter 25,500
----------
Total $2,547,400
==========
Termination and Benefits Agreements:
Apart from the severance obligations discussed in Note 7, the Company
has agreements with certain other of its key employees which provide for
severance payments in the case of termination. Such agreements generally provide
for severance payments from three to six months salary, dependent upon the
employee involved. The maximum aggregate commitment for these agreements would
be approximately $450,000 as of August 31, 1995, if all of the key employees
were to be terminated without cause.
Self Insurance:
The Company self insures its health and workers' compensation programs
up to policy limits, as defined. Claims in excess of such limits are insured by
third party reinsurers. The Company's estimate of its liability for both
outstanding as well as incurred but unreported claims is based upon its
historical loss experience. As of August 31, 1995 and November 30, 1994, such
reserves totaled approximately $2.5 million and $2.9 million, respectively, and
are included as a component of Accrued Expenses and Other in the accompanying
consolidated condensed balance sheets. Differences between actual losses and
reserve estimates are recognized in the period when such differences become
known. As of August 31, 1995, management believes that the differences between
actual losses to be incurred after August 31, 1995 related thereto and its
recorded reserve estimates will not be material.
Directors and Officers Indemnification Fund:
On October 29, 1994, the Company's Board of Directors approved the
creation of an
14
<PAGE>
indemnification fund for up to $2 million for any potential future expenses
which may be incurred by the current directors as a result of any future action
against them resulting from their services to the Company. Such indemnification
fund supplements proceeds which may be available to the directors under the
Company's Directors and Officers insurance policy. As of August 31, 1995 no
funding has occurred. However, at the directors' discretion, based upon the
Company's future cash position and other factors as may be considered, funding
of the $2 million, or whatever is deemed reasonable at the time of funding, may
occur. On April 3, 1995, the Company's Board of Directors approved the inclusion
of the Company's past directors and current and past officers in the
indemnification fund.
NOTE 9: LEGAL EXPENSES -
In the ordinary course of business the Company is exposed to various
claims, threats and legal proceedings. The Company incurred legal expenses of
approximately $955,000 and $1,464,000 during its nine months ended August 31,
1995 and 1994, respectively.
During the nine months ended August 31, 1995, in addition to normal
recurring legal costs, the Company continued to incur costs related to a South
Florida Medicare investigation. Additionally, costs were incurred for
shareholder class action suits in the process of being settled and/or dismissed
(see Note 8).
NOTE 10: NET REVENUE FROM SERVICES -
While the Company does not, in all cases, track revenue by payor
source, management estimates the Company's breakdown of net revenue by type of
service and payor source for the three and nine months ended August 31, 1995 and
1994 were as follows:
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
AUG. 31, '95 AUG. 31, '94 AUG. 31, '95 AUG. 31, '94
------------ ------------ ------------ ------------
HOME
- ----
MEDICARE 59% 48% 58% 48%
MEDICAID 5% 17% 5% 16%
PVT/INSUR 2% 5% 3% 5%
PVT/INDIV 6% 5% 6% 6%
CONTRACT 6% 8% 6% 8%
MGMT - 1% - 1%
TRAVEL
- ------
HOSPITALS 22% 16% 22% 16%
---- ---- ---- ----
100% 100% 100% 100%
==== ==== ==== ====
15
<PAGE>
NOTE 11: CONCENTRATION OF CREDIT RISK -
The Company has been providing services to healthcare facilities
located in the U.S. Virgin Islands, which are owned by the government of the
U.S. Virgin Islands, since the first quarter, 1991. Sales to these facilities
accounted for approximately 9.7% and 6.9% of consolidated net revenue from
services for the nine months ended August 31, 1995 and 1994, respectively.
Outstanding accounts receivable were approximately $3.5 million and $2.2 million
as of August 31, 1995 and November 30, 1994, respectively, and are included in
trade accounts receivable in the accompanying consolidated balance sheets. As of
September 25, 1995, approximately $2.6 million of the August 31, 1995
outstanding receivable balance from these facilities remained unpaid.
Approximately $374,000 of this amount has been outstanding for 180 days or
greater. Collections from customers located in the U.S. Virgin Islands are
generally slower than the Company's domestic customer base. Management believes
the August 31, 1995 balances due are realizable at their recorded amounts
primarily because 100% of all prior amounts due the Company for services
rendered since the inception of these contracts have been paid in full by the
government agencies. The government currently acknowledges the debt and is
instituting a plan to liquidate the amounts past due. Accordingly, no allowance
for doubtful accounts has been recorded related to the outstanding receivable.
Subsequent to August 31, 1995 the island of St. Thomas suffered the
effects of hurricane Marilyn. While damage to the island appeared to be
extensive, a portion of the hospital facility that was not damaged, as well as
certain remote sites serviced by the Company, were operational within a few days
after the storm. Although the Company may experience a reduction in staff at the
St. Thomas Hospital for an indeterminable period, the impact on operating
revenues and/or collections is not expected to be material. Open positions are
currently being filled and a majority of the nurses who have chosen to leave the
island are being transferred to other facilities within the United States under
contract with the Company.
16
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AUGUST 31, 1995
LIQUIDITY AND CAPITAL RESOURCES -
Prior to its acquisition of the Continental and CarePoint Home Health
Agencies in July, 1990 and February, 1991, respectively, the Company funded its
growth internally and through the net proceeds of $9,036,000 obtained from two
public offerings. The Company later obtained a line of credit, term note and
term loan to satisfy a portion of the acquisition costs and provide for future
working capital requirements.
In an action related to the December 3, 1992 federal investigation (see
Note 8), the Medicare program suspended reimbursement to the Company's South
Florida Medicare offices. Because the Company believed it was in full compliance
with the Medicare program and its license was not revoked, upon advice from its
legal counsel, the Company continued to operate its South Florida Medicare
offices at a substantial cost (such operations generated approximately $30
million in sales) in anticipation of the reinstatement of Medicare payments. In
continuing these operations the Company borrowed substantial sums under that
line of credit and simultaneously created large accounts receivable from the
Medicare program. After a few months of continuing operations in the South
Florida Medicare offices, the Company was still unable to reach agreement with
the Medicare program to reinstate the Medicare payments. The lender, soon
thereafter, notified the Company that it was discontinuing the credit facility
and required all amounts of indebtedness then outstanding, approximately $10
million, to be immediately due and payable. In response thereto, the Company
closed all remaining South Florida Medicare operations and agreed to installment
payments until a new lender could be found.
On August 23, 1993 the Company obtained a three year $15 million
revolving line of credit with a commercial finance company to replace its credit
facility with its bank. The credit facility bears interest at prime plus two
percent per annum, payable monthly, is secured by substantially all assets of
the Company and requires adherence to certain financial covenants. Borrowing is
based on the Company's eligible accounts receivable. A portion of the proceeds
from this new credit facility was immediately used to retire the then remaining
outstanding indebtedness with the bank. Subsequent to August 23, 1993 and for
the next several months of fiscal 1993, the Company continued its strategy of
halted growth and operational restructuring in order to improve cash flow and
dramatically reduced the outstanding borrowings with its new lender. After
substantially all operational restructuring had taken place to stabilize cash
flow, the Company changed its course to a strategy of maintaining a smaller base
of business.
The present credit facility includes up to $3.5 million securing a
standby letter of credit
17
<PAGE>
required by the insurance carrier for the Company's workers' compensation
coverage. As of August 31, 1995 the Company was contingently liable for a $2
million standby letter of credit issued by its lender for the benefit of the
insurance carrier. Such amount is reserved under the $15 million line of credit
with its lender, representing a reduction of otherwise eligible borrowing. As
the definition of eligible accounts receivable is strict, the Company's
borrowing capacity is extremely limited. As of August 31, 1995, approximately
$24,000 was available for additional borrowing under the line of credit. This
amount fluctuates daily consistent with the revolving nature of the facility.
Principal borrowings under the credit facility were approximately
$949,000 as of August 31, 1995.
Due to the large loss incurred by the Company in the fourth quarter of
fiscal year ended November 30, 1994, the Company was in violation of certain
covenants of the credit facility, including the covenant relating to maintenance
of a minimum tangible net worth. On March 13, 1995 waivers were obtained for the
covenant violations through November 30, 1995.
For the reasons set forth above, and other reasons as set forth in the
March 13, 1995 Report of Independent Certified Public Accountants, such
accountants have modified their report on the Company's 1994 consolidated
financial statements to call attention to the possible inability of the Company
to continue as a going concern.
While management believes that the present credit facility is generally
adequate to meet the Company's working capital needs (in the absence of slow
collections of accounts receivable), the present facility is not adequate to
provide for any significant liabilities that may arise (see paragraph below) or
for growth, internally or by acquisition. Accordingly, the Company is exploring
ways to raise additional capital through a number of means including developing
additional borrowing eligibility under its existing credit facility, seeking new
banking and lending relationships, private placement of debt, and/or the
issuance of preferred and/or common stock. Under certain extreme conditions the
Company may consider the sale of certain of the Company's remaining operating
units in part or in whole. In the absence of raising additional capital,
management believes that, subject to timely collections of accounts receivable
and/or obtaining acceptable payment terms with its creditors, as may be
necessary, the Company has the ability to fund its current level of activities
through cash generated from continuing operations and that its focus would be on
attempting to achieve profitability through operating efficiencies. If, however,
the above does not occur and/or significant contingencies become commitments,
then, in the absence of raising additional capital, the Company's liquidity will
be adversely affected and the Company may be unable to fund its commitments as
they become due.
Periodically, the Company has estimated settlements due to the Medicare
Program. The estimated settlement amounts due are the result of interim
reimbursement rates, at which the Company was paid for its services throughout
the year, exceeding the Company's actual costs of providing such services and
also includes revisions by certain intermediaries of the
18
<PAGE>
Company's reported reimbursable costs after their reviews or audits of the
Company's cost report filings. Estimated settlements due from Medicare are
presented net of estimated settlements due to Medicare in the accompanying
consolidated balance sheets. Management's plans to fund settlements to Medicare
as they become due include negotiating extended payment plans and incurring
additional borrowings under the existing credit facility, if available, or to
use proceeds from additional capital that may be raised. However, there are no
assurances that the Company will be able to do so. For the nine months ended
August 31, 1995, the Company had amounts due to Medicare under notification from
the Medicare program's fiscal intermediaries of approximately $1,379,000. As of
August 31, 1995 approximately $626,000 of this amount had been repaid.
In addition to external sources, the Company generates or uses cash in
its operating activities. Net cash provided by operating activities was
approximately $129,000 and $1,753,000 for the nine months ended August 31, 1995
and 1994, respectively.
In addition to cash flow from operating activities the Company's
overall cash position can be significantly affected by its investing and
financing activities. Significant investing activities for the nine months ended
August 31, 1995 consisted of liquidating the Company's short-term investments to
satisfy cash flow requirements. Additionally, a Money Market account was
established in the second quarter, 1995 for the purpose of accumulating funds to
liquidate obligations which became due in July and August, 1995. This account is
reflected as a component of cash and cash equivalents in the accompanying August
31, 1995 consolidated condensed balance sheet. Financing activities principally
consisted of net repayments of outstanding borrowings under the $15 million line
of credit.
As of August 31, 1995, the Company had approximately $7.3 million of
working capital and approximately $2.0 million of cash and cash equivalents. The
ratio of current assets to current liabilities at August 31, 1995 was 1.6 to 1.
As of August 31, 1995, the Company's commitments that would require large or
unusual amounts of cash consisted of office rents, repayments to the Medicare
Program, severance obligation to a former officer, and an amount due to the
Chairman and Chief Executive Officer (see Notes 7 and 8 to the consolidated
condensed financial statements).
19
<PAGE>
RESULTS OF OPERATIONS -
THREE AND NINE MONTHS ENDED AUGUST 31, 1995 COMPARED WITH THREE AND NINE MONTHS
ENDED AUGUST 31, 1994
Net revenue for the three and nine months ended August 31, 1995
decreased approximately $6.8 million (33.4%) and $20.5 million (32.7%) from net
revenue for the three and nine months ended August 31, 1994, respectively. This
decrease is attributable to the sale of the Company's California, New York and
Arizona home health care operations which occurred on August 31, 1994, and sale
of the Company's Texas home health care operations on March 1, 1995. Revenue for
the Travel Nurse Group declined due to less demand for contract nursing staff in
hospitals serviced by the Company. Additionally, revenues from the ongoing
operations of the HomeCare Group remain relatively stable reflecting a continued
shift towards more Medicare business.
The Company's gross margin before selling, general and administrative
expenses is the difference between amounts charged by the Company to its clients
and wages the Company pays to its medical personnel, plus related housing costs,
travel, insurance costs and other benefits. The Company's gross margin is
subject to a number of variables such as billing rates, pay rates and cost of
travel and housing. The impact of these depends upon competitive and seasonal
factors as well as the geographic mix and type of service (discipline and payor
source) being performed by the Company.
The Company's gross margin increased from 32.7% and 34.4% for the three
and nine months ended August 31, 1994 to 38.0% and 38.2% for the three and nine
months ended August 31, 1995, respectively. This results from a larger
absorption of corporate overhead related to a shift in the current operating
activity to more Medicare business, and the integration into current operations
of Tri-Therapy, Inc. acquired in February, 1995 which is reflecting a gross
margin of approximately 42.0%.
Selling, general and administrative expenses have decreased as a
percentage of revenue from 42.4% and 41.8% during the three and nine month
periods ended August 31, 1994 to approximately 35.6% and 36.7% for the
comparable periods of the current year. The higher fiscal 1994 percentages are
primarily attributable to an increase in the allowance for doubtful accounts on
trade receivables of approximately $1.4 million, the severance obligation to a
previous officer of $310,000, and a charge of approximately $700,000 for
estimated gross receipts taxes due to the Virgin Islands subsequently decreased
to $260,000 in the fourth quarter of 1994.
The decrease in SG&A expenses for the same periods of the current
fiscal year are attributable to aggressive cost containment measures
company-wide and the operational restructuring of the Company's New England
Region, which has decreased salaries, rents, and other regional Homecare
operating overhead. Additionally, reductions in Legal, Workers' Compensation,
and Bad Debt expenses accounted for $275,000, $117,000 and $165,000,
respectively. These reductions were due primarily to the hiring of an in-house
legal
20
<PAGE>
representative, decrease in employees, and significantly improved collections of
outstanding accounts receivable. The benefit of these reductions were partially
offset by the Company's May 1, 1995 severance obligation to its former Chief
Financial Officer.
Interest and Other Income (Expense), net, was approximately $97,000 and
$99,000 lower during the three and nine months ended August 31, 1995 as compared
to comparable periods of 1994. This resulted from lower average borrowings under
the Company's credit facility, the receipt of retroactive New York State
Medicaid payments in fiscal 1994 for 1992, 1993, and 1994 services in connection
with a suit filed by the New York State Association of Health Care Providers,
Inc., and the gain realized from the sale of certain assets in Arizona, New York
and California. These fiscal 1994 gains were partially offset by the estimated
interest due on the Virgin Islands gross receipts tax.
The effective tax rate for the provision for income taxes during the
quarter ended August 31, 1995 differs from the statutory tax rate as a result of
state and foreign (U.S. Virgin Islands) income tax provisions and adjustments to
the valuation allowance.
Effective December 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No.
109 requires, among other things, recognition of future tax benefits as an
asset. To the extent that realization of such benefits is more likely than not,
these future tax benefits have been measured using enacted tax rates and are
attributable to deductible temporary differences between the financial statement
and income tax bases of assets and liabilities, and to net operating loss and
foreign tax credit carryforwards. Under the provisions of SFAS No. 109, the
Company elected not to restate prior years' consolidated financial statements.
The cumulative effect of adoption was to increase first quarter fiscal year 1994
earnings by $162,000 as management assessed the realization of this amount of
the available gross deferred tax asset to be more likely than not. The valuation
allowance at December 1, 1993 was established at an amount equal to 75% of the
federal and 100% of the state net operating loss carryforwards. The valuation
allowance is subject to continual review and, as such, may be increased or
decreased as substantive information becomes available about the Company's
ability to generate sufficient future taxable income to realize the deferred tax
assets. During the fourth quarter of 1994, due to the Company's recurring losses
and other matters discussed in Note 2, management no longer was of the belief
that the future realizability of the net deferred tax asset was more likely than
not. Consequently, at November 30, 1994, the valuation allowance was increased
so that the net deferred tax asset was fully reserved resulting in an increase
in the income tax provision of approximately $2.1 million in the fiscal year
ended 1994 consolidated statement of operations.
As of August 31, 1995, the Company has available Federal and state net
operating loss carryforwards totaling approximately $4.0 million and $12.1
million, respectively, expiring through 2009. Additionally, as of this same
date, the Company has available a foreign tax credit carryforward of
approximately $285,000, expiring in 2000.
21
<PAGE>
HOSPITAL STAFFING SERVICES, INC.
PART II - OTHER INFORMATION
AUGUST 31, 1995
ITEM 1. LEGAL PROCEEDINGS
See Note 8 and Note 9 to the Notes to Consolidated Condensed
Financial Statements. See also "ITEM 3 - LEGAL PROCEEDINGS"
which is incorporated by reference from the Company's Annual
Report in Form 10-K for the fiscal year ended November 30,
1994 filed with the Securities and Exchange Commission on
March 14, 1995.
ITEM 2. CHANGES IN SECURITIES
See Note 8 (Commitments and Contingencies) concerning the
issuance of shares of the Company's common stock. The Company
authorized Continental Stock Transfer and Trust Company to
issue 700,000 shares of the Company's common stock, par value
$.001 per share, in connection with the settlement of a
shareholder class action suit filed against the Company on
October 13, 1992. This is in accordance with the Stipulation
of Settlement approved by the court on June 30, 1995.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
See Note 8 (Commitments and Contingencies) to the Consolidated
Condensed Financial Statements concerning the settlement of
the shareholder class action lawsuits and the payment of cash
and issuance of shares of the Company's common stock in
connection therewith.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports - None.
22
<PAGE>
HOSPITAL STAFFING SERVICES, INC.
SIGNATURES
AUGUST 31, 1995
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.
HOSPITAL STAFFING SERVICES, INC.
By: /S/RONALD A. CASS
-----------------------------
Ronald A. Cass, Chairman
Chief Executive Officer
Chief Operating Officer and President
Acting Chief Financial Officer
Date: OCTOBER 11, 1995
23
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731625
<NAME> HOSPITAL STAFFING SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 2,013,491
<SECURITIES> 0
<RECEIVABLES> 15,130,581
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,554,013
<PP&E> 3,790,161
<DEPRECIATION> 2,725,964
<TOTAL-ASSETS> 21,873,651
<CURRENT-LIABILITIES> 11,278,827
<BONDS> 0
<COMMON> 6,350
0
0
<OTHER-SE> 9,594,109
<TOTAL-LIABILITY-AND-EQUITY> 21,873,651
<SALES> 42,093,599
<TOTAL-REVENUES> 42,093,599
<CGS> 26,021,949
<TOTAL-COSTS> 26,021,949
<OTHER-EXPENSES> 15,451,342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,418
<INCOME-PRETAX> 543,695
<INCOME-TAX> 122,000
<INCOME-CONTINUING> 421,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 421,695
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
