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, 1997
[ ] 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 500
Fort Lauderdale, Florida 33308-1900
(Address of principal executive offices)
(954) 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 CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 6,359,770 shares of Common
Stock, $.001 par value, outstanding at June 30, 1997.
<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 Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6 - 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 16
PART II - OTHER INFORMATION AND SIGNATURES 17 - 18
2
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<TABLE>
Hospital Staffing Services, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
<CAPTION>
ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY
---------- ----------------------------------------------
May 31, November 30, May 31, November 30,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
CURRENT ASSETS: CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $256,795 $145,247 Accounts payable $1,978,388 $2,470,506
Short-term investments 12,415 12,145 Line of credit payable 9,570,527 6,540,793
Trade accounts receivable, less Accrued payroll and benefits 2,043,959 2,130,053
allowance for doubtful accounts of Accrued expenses 2,134,053 2,539,016
$680,982 and $559,251, respectively 9,034,540 9,622,122 Income taxes payable 198,830 216,096
Settlements due from Medicare 14,685,906 12,201,367 Capital leases 37,409 17,522
Amounts due from officers/directors 71,377 71,377 Notes payable 318,260 503,678
Current and deferred income
taxes receivable 567,168 587,215
Other current assets 578,292 599,062
-------------- -------------- -------------- --------------
Total current assets 25,206,493 23,238,535 Total current liabilities 16,281,426 14,417,664
-------------- -------------- -------------- --------------
NON-CURRENT ASSETS: NON-CURRENT LIABILITIES:
Notes payable 438,728 510,728
Capital leases 101,044 80,881
Other 74,000 73,999
-------------- --------------
Net property and equipment 824,050 879,735 Total non-current liabilities 613,772 665,608
-------------- -------------- -------------- --------------
Total liabilities 16,895,198 15,083,272
-------------- --------------
Intangibles related to businesses COMMITMENTS AND CONTINGENCIES
acquired 2,205,016 2,258,028
Non-competition agreements 479,426 479,426 STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value;
-------------- -------------- authorized 5,000,000 shares;
Total intangibles 2,684,442 2,737,454 none issued or outstanding - -
Less: Accumulated amortization (822,796) (785,133)
-------------- --------------
Net intangibles 1,861,646 1,952,321 Common stock- $.001 par value;
-------------- -------------- authorized 20,000,000 shares;
6,359,770 shares issued
and outstanding 6,360 6,360
Deposits and other assets 383,225 340,836
Additional paid-in capital 22,452,627 22,452,627
Accumulated deficit (11,078,771) (11,130,832)
-------------- -------------- -------------- --------------
Total non-current assets 3,068,921 3,172,892 Total stockholders' equity 11,380,216 11,328,155
-------------- -------------- -------------- --------------
Total liabilities and
Total assets $28,275,414 $26,411,427 stockholders' equity $28,275,414 $26,411,427
============== ============== ============== ==============
<FN>
The accompanying notes are an integral part of these
consolidated condensed statements.
</FN>
</TABLE>
3
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<TABLE>
Hospital Staffing Services, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
<CAPTION>
Three months ended Six months ended
----------------------------- ------------------------------
------------ ------------ ------------ ------------
May 31, 1997 May 31, 1996 May 31, 1997 May 31, 1996
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenue from services $17,067,932 $15,968,499 $33,761,397 $30,474,127
----------- ----------- ----------- -----------
Cost of services:
Professional salaries and benefits 8,763,909 8,429,888 17,173,945 15,949,854
Other professional expenses 1,640,449 1,492,261 3,169,645 2,951,022
----------- ----------- ----------- -----------
Total cost of services 10,404,358 9,922,149 20,343,590 18,900,876
----------- ----------- ----------- -----------
Gross margin 6,663,574 6,046,350 13,417,807 11,573,251
----------- ----------- ----------- -----------
Selling, general and administrative expenses:
Salaries and benefits 4,067,395 3,205,216 8,025,968 6,435,033
Other expenses 2,578,633 2,449,164 5,110,643 4,610,001
----------- ----------- ----------- -----------
Total selling, general and administrative 6,646,028 5,654,380 13,136,611 11,045,034
----------- ----------- ----------- -----------
Income from operations 17,546 391,970 281,196 528,217
----------- ----------- ----------- -----------
Interest and other income (expense):
Interest expense (265,356) (125,799) (479,299) (234,933)
Interest income 0 9,790 0 25,824
Other income (expense), net 263,185 19,326 262,164 75,589
----------- ----------- ----------- -----------
Total interest and other income (expense) (2,171) (96,683) (217,135) (133,520)
----------- ----------- ----------- -----------
Income before provision for income taxes 15,375 295,287 64,061 394,697
Provision for income taxes (12,000) (94,000) (12,000) (119,889)
----------- ----------- ----------- -----------
Income before extraordinary item 3,375 201,287 52,061 274,808
Extraordinary loss on early
extinguishment of debt - - - (254,955)
----------- ----------- ----------- -----------
Net income $3,375 $201,287 $52,061 $19,853
=========== =========== =========== ===========
Income per common share:
Income before extraordinary item $0.00 $0.03 $0.01 $0.04
Extraordinary loss on early
extinguishment of debt - - - (0.04)
----------- ----------- ----------- -----------
Net income per common share $0.00 $0.03 $0.01 $0.00
=========== =========== =========== ===========
Weighted average common shares
outstanding: 6,359,770 6,349,770 6,359,770 6,349,770
=========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of
these consolidated condensed statements.
</FN>
</TABLE>
4
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<TABLE>
Hospital Staffing Services, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
<CAPTION>
For the six months ended:
May 31, 1997 May 31, 1996
--------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $52,061 $19,853
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 399,160 421,523
Provision for losses on trade accounts receivable 341,192 143,339
Extraordinary loss on early extinguishment of debt 99,955
Changes in assets and liabilities:
(Increase) decrease in assets-
Trade accounts receivable 246,390 (1,202,387)
Settlements due from Medicare (2,484,539) (1,642,756)
Prepaid expenses and other current assets 11,267 17,908
Current and deferred income taxes receivable 20,048 0
Other assets 7,250 (142,761)
Increase (decrease) in liabilities -
Accounts payable (492,118) (781,076)
Accrued payroll and benefits (86,094) (236,872)
Accrued expenses and other (453,131) (1,195,535)
Income taxes payable (17,266) (12,316)
----------- -----------
Total adjustments (2,507,841) (4,530,978)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,455,780) (4,511,125)
----------- -----------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Sale (purchase) of short-term investments, net (45,269) (260)
Capital expenditures (85,806) (217,929)
Proceeds from sale of home health operations 145,782
Purchase of therapy company (60,000)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (131,075) (132,407)
----------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Line of credit borrowings (repayments) 3,029,734 4,204,998
Extension fee on line of credit (100,000)
Payments under notes payable (209,250) (241,500)
Payments under capital leases (22,081) (6,070)
----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 2,698,403 3,957,428
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 111,548 (686,104)
Cash and cash equivalents at beginning of period 145,247 1,697,804
----------- -----------
Cash and cash equivalents at end of period $256,795 $1,011,700
----------- -----------
Supplemental Cash Flow Disclosures:
Cash paid: Income Taxes $28,710 $134,436
Interest $476,871 $230,645
<FN>
The accompanying notes are an integral part of
these consolidated condensed statements.
</FN>
</TABLE>
5
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
May 31, 1997
(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 on Form
10-K. 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.
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. The results of operations for the three (3) and six (6) months ended
May 31, 1997 are not necessarily indicative of the results to be expected for
the entire fiscal year ending November 30, 1997.
NOTE 2: DEBT
On March 12, 1997, the Company amended its revolving line of credit to
increase the line to $14 million and to extend the term of the line for an
additional year to February 1999. Fees and other costs related to this amendment
amounted to approximately $100,000 and will be amortized over the extended term
of the line.
In June 1997, the Company further amended its revolving line of credit
to replace the receivables, which collateralized the standby letter of credit
with other, non-credit line receivables; thus, increasing borrowing capacity by
$1.6 million.
NOTE 3: STOCKHOLDERS' EQUITY
1990 Stock Option Plan
Pursuant to Board action during the quarter ended February 28, 1997,
10,000 options to purchase common stock were granted to a member of the Board of
Directors under the 1990 Stock Option Plan with an exercise price of $2.375 per
share. The exercise price was determined by reference to the average market
price over the ten (10) market days preceding the date of grant.
6
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
The options vested at the date of grant and are exercisable for a period of five
years from the date of grant.
NOTE 4: COMMITMENTS AND CONTINGENCIES
Dade County Medicare Investigation:
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 federal
search warrants, the Company engaged counsel who initiated a lawyer-directed
internal investigation into its Medicare claims processing system. This internal
investigation focused on a review of the compliance of the Company's Medicare
practices with applicable laws and regulations.
On December 15, 1992, the Health Care Financing Administration (HCFA)
(through its fiscal intermediary) notified the Company of its decision to
suspend reimbursement to the Company's South Florida Medicare offices. Such
suspension of Medicare payments in South Florida was based, in part, upon
allegations of fraud arising from the federal investigation into claims that
were submitted to Medicare for services that were not rendered. Management
believes that the alleged violations and investigation relate to the Company's
Dade County, Florida Medicare provider and to the allocation of certain
corporate overhead costs to that provider and other of the Company's providers.
Neither the federal investigation nor the reason for the suspension relates to
services performed by other of the Company's former or existing Medicare
providers.
In December 1992, due to circumstances arising from the investigation
and suspension of Medicare payments, the Company downsized, and eventually
closed, its Medicare homecare offices in Dade, Broward and Monroe Counties,
Florida, and terminated its subcontracting relationships with staffing providers
in South Florida.
Subsequent to December 1992, the Company continued to operate its
Medicare office in Palm Beach County, Florida, at a substantial cost to the
Company, in anticipation of the reinstatement of Medicare payments. However, the
Company was unable to reach agreement with HCFA regarding the reinstatement of
Medicare payments to its South Florida operations. Therefore, in February 1993,
the Company effectively closed its South Florida Medicare operations by closing
the Palm Beach County Medicare office. The Company currently has no Medicare
home care operations in Florida.
As a result of the federal investigation and HCFA suspension, in fiscal year
1993 the Company initiated a lawyer-directed internal investigation into its
Medicare claims processing system, which included obtaining advice and
consultation from an attorney specializing in Medicare law,
7
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HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
engaging a criminal defense attorney and implementing a billing review and
submission program. As of November 30, 1994, the Company had completed the
billing program with respect to all visits not subject to a claim of timely
filing. While the majority of fiscal years 1991 and 1992 claims were billed, a
number of claims were not billed based upon the Company's determination that the
claims did not comply with the guidelines established as part of its internal
review program. Management at this time is unable to estimate when the ultimate
outcome of the fiscal years 1991 and 1992 claims submissions will be known or
when the federal investigation may conclude. Accordingly, it is unknown what
ultimate impact, if any, the outcome of these matters will have on the Company's
consolidated financial statements.
The estimated settlement amounts due to the Company from Medicare 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 settlements due from Medicare as of May 31, 1997 is
approximately $2.7 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
settlements due from Medicare as recorded in the Company's consolidated
condensed balance sheet as of May 31, 1997 are realizable at their recorded
amount.
As of July 1997, four (4) years and seven (7) months have passed since
execution of the search warrants, and no charges have been brought against the
Company or any of its directors, officers or employees. The Company has been
engaged in discussions with representatives from the United States Attorney's
Office for the Southern District of Florida concerning the possible resolution
of the Medicare investigation and allegations as they might affect the Company
directly. There are no assurances that these discussions will result in a
successful resolution of these matters or in a resolution that would not be
materially adverse to the Company. Even if the Company is successful in
resolving the Medicare investigation with the federal government, in accordance
with its indemnification obligations under its Articles of Incorporation and
Bylaws, the Company may continue to incur legal expenses on behalf of certain of
its existing and former directors, officers or employees who are individually
the subject of such investigation. In addition, the Company had been the subject
of a staff inquiry by the Securities and Exchange Commission ("SEC") relating to
the Medicare investigation by the United States Attorney. In July 1996, the SEC
notified the Company that they had terminated their inquiry and that at that
time no enforcement actions had been recommended to the Commission.
Litigation, Claims and Assessments:
In the ordinary course of business, the Company is exposed to various
claims, incidents which may lead to claims and legal proceedings other than
those items discussed above.
8
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
In management's opinion, the outcome of all other such matters will not have a
material impact upon the Company's consolidated financial position, results of
operations and cash flows.
Termination and Benefits Agreements:
The Company has agreements with certain of its key employees which
provide for severance in the case of involuntary termination and/or a change in
control to promote adherence to non-competition provisions. Such agreements
provide for severance up to 12 months dependent upon the employee involved. The
maximum aggregate salary component commitment for these agreements would be
approximately $467,000 as of May 31, 1997.
Self-Funded Insurance Plans:
The Company self-funds 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 not reported claims is based upon its
historical loss experience. As of May 31, 1997 and November 30, 1996, such
reserves totaled approximately $1.6 and $1.8 million, respectively, and are
included as a component of accrued expenses in the accompanying consolidated
condensed balance sheets. Differences between actual losses and reserve
estimates are recognized in the period in which such differences become known.
Management believes that differences between actual losses incurred after May
31, 1997, related hereto, and its recorded reserve estimates will not be
material.
State Taxes:
On June 9, 1997, the Company received notice of assessment of income and
franchise taxes payable from the Mississippi State Tax Commission based upon an
audit of tax years 1992, 1993 and 1994. The assessment totals $170,000 including
$46,000 of interest and penalties. The Company has exercised its option to
request a hearing at which time the Company believes that the positions set
forth in the tax return filed will prevail and thus, no additional tax will be
due. Accordingly, the Company does not believe that the notice will have a
material impact on the Company's financial position, results of operations or
cash flows.
NOTE 5: CONCENTRATION OF CREDIT RISK
Since 1991, the Company has been providing services to healthcare
facilities located in the U.S. Virgin Islands, which facilities are owned by the
government of the U. S. Virgin Islands. Revenues from these facilities accounted
for approximately 6% and 11% of consolidated net revenue from services for the
six (6) months ended May 31, 1997 and May 31, 1996, respectively. Outstanding
accounts receivable were approximately $2.9 million and $4.5 million as of May
31, 1997 and November 30, 1996, respectively, and are included in trade accounts
9
<PAGE>
receivable in the accompanying consolidated condensed balance sheets.
Approximately $929,000 of the May 31, 1997 balance has been outstanding for 180
days or greater. As of May 31, 1997, $3.5 million of the $4.5 million
outstanding at November 30, 1996 had been collected. Collections from customers
located in the U.S. Virgin Islands are generally slower than the Company's
domestic customer base. The government of the U. S. Virgin Islands 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 these outstanding receivables.
10
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
May 31, 1997
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations focuses on those factors that have had a
material effect on the Company's financial condition and results of operations
during the three and six months ended May 31, 1997 and May 31, 1996. It should
be read in conjunction with accompanying consolidated condensed financial
statements and notes thereto. Trends and contingencies of a material nature are
discussed to the extent known and considered relevant.
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations may include forward-looking statements that
are subject to certain risks, uncertainties and exceptions. Such forward-looking
statements are intended to be identified in this document by the words
"anticipate," "estimate," "expect," "possible," "potential" and similar
expressions. Actual results may vary materially. Factors that could cause actual
results to differ materially include, but are not limited to, general economic
conditions; competitive factors; changes in federal or state legislation
governing the Company's operations, including the Medicare and Medicaid
reimbursement climate; resolution of the Company's Dade County, Florida,
investigative issues; and the other risk factors disclosed on Exhibit 99.01 to
the Company's Annual Report on Form 10-K for the year ended November 30, 1996.
The Company provides: (i) home health care and other in-home support
services; (ii) interim staffing of nurses and other medical personnel, primarily
to hospitals; and (iii) rehabilitation services, including physical,
occupational, speech and other therapy services. These services are offered
through a pool of caregivers operating within the Company's network, which as of
May 31, 1997, consisted of 28 home health care branch offices in seven states,
active relationships for interim staffing needs with approximately 130 hospitals
in 30 states and the U.S. Virgin Islands and six rehabilitation clinics with one
clinic located in Georgia, one clinic located in Tennessee, one in Rhode Island
and three in Florida.
Liquidity and Capital Resources
General. The Company's capital requirements consist of funding current
operations, expanding services provided by its home care, staffing and
rehabilitative businesses, and the acquisition of compatible companies that can
be integrated with existing operating units. The Company expects to meet
short-term liquidity needs through cash flow and borrowings available under its
credit facility as discussed below.
Line of Credit. In February 1996, the Company entered into a two-year,
$8 million uncommitted revolving line of credit with a commercial finance
company. On March 12, 1997, this line was increased to $14 million and extended
an additional year.
11
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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, as defined.
The credit facility includes up to $2.0 million securing a standby
letter of credit required by the insurance carrier for the Company's workers'
compensation coverage. As of May 31, 1997, the Company was contingently liable
for a $1.6 million standby letter of credit issued by its lender representing a
reduction of otherwise eligible borrowing. In June 1997, the Company amended its
agreement to replace the receivables which collateralized the stand by letter of
credit with other, non-credit line receivables; thus, increasing eligible
borrowing by $1.6 million.
Restrictive Covenants. The line of credit contains a number of
covenants, some of which could affect the Company's operations. The most
significant of these covenants include: (i) maintenance of minimum tangible net
worth; (ii) timely submission of monthly, quarterly and annual financial
statements; (iii) limitations on payments to employees or related parties for
consulting agreements and in the case of terminating employees, severance
agreements; (iv) restrictions on new debt, guarantees and the payment of
dividends; and (v) approval and/or notice requirements for acquisitions,
mergers, the sale of assets and changes in management.
As of May 31, 1997, principal borrowings under the credit facility were
approximately $9.6 million and after reflecting the amendment to the letter of
credit collateral set forth above, approximately $125,000 was available for
additional borrowing under the line of credit. The Company is in compliance with
all required loan covenants.
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 Note 4). If
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.
Settlements Due To and From Medicare. In the normal course of business,
the Company has estimated settlements due to and from the Medicare Program. The
estimated settlement amounts due to Medicare are the result of: 1) 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
2) revisions by certain intermediaries of the Company's reported reimbursable
costs after the intermediaries' review 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 condensed balance
sheets. Management's plans to fund settlements to Medicare as they become due
include: 1) negotiating extended payment plans; 2) incurring additional
borrowings under the line of credit, if available; 3) using proceeds from
additional capital that may be raised; or 4) offsetting amounts due from the
Medicare program to the Company. However, there are no assurances that the
Company will be able to successfully utilize any of these four (4) funding
options. The Company continues to be subject to lengthy time frames associated
with resolving Medicare appeal and reopening issues on cost
12
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reports reflecting
amounts due from Medicare. As more fully described below and as set forth in the
Consolidated Condensed Statements of Cash Flows, such lengthy time frames have
had and are continuing to have an adverse impact on the Company's cash flows.
For the twelve months ended November 30, 1996, the Company had received
notification from the Medicare program's fiscal intermediaries of approximately
$3,950,000 due to Medicare. Through May 1997, approximately $1,570,000 of this
amount has been repaid under Medicare approved repayment plans. Included in the
$3,950,000 is approximately $2,000,000 for previously sold companies for which
the Company is establishing repayment plans with HCFA. During this time the
Company anticipates settlement of certain provider cost reports with amounts due
to the Company in excess of the $2,000,000.
Cash Position. Net cash used by operating activities was approximately
$2.5 million and $4.5 million for the six (6) months ended May 31, 1997 and May
31, 1996, respectively.
In addition to increases or decreases in cash flow from operating
activities, the Company's overall cash position can be significantly affected by
its investing and financing activities. Financing activities principally
consisted of net repayments of outstanding borrowings under the Company's line
of credit.
Net Working Capital. As of May 31, 1997, the Company had approximately
$8.9 million of working capital and approximately $257,000 of cash and cash
equivalents. The ratio of current assets to current liabilities at May 31, 1997
was 1.5 to 1. As of May 31, 1997, the Company's commitments that would require
large or unusual amounts of cash consisted of office rents, repayments to the
Medicare Program, and amounts due to the Chairman and Chief Executive Officer.
Results of Operations - Three and Six Months Ended May 31, 1997
Compared With Three and Six Months Ended May 31, 1996
Net Revenue. Consolidated net revenue increased approximately
$1,099,000, or 6.9% to $17,068,000 and $3,287,000, or 10.8% to $33,761,000 for
the three and six months ended May 31, 1996 and 1997, respectively.
Net revenue from services provided by the Company's Homecare Group
increased approximately $639,000, or 5.6% to $12,129,000 and $1,909,000, or 8.6%
to $24,211,000 for he three and six months ended May 31, 1996 and 1997,
respectively. The growth is attributable to the maturation of the new Homecare
branches established and certified during the latter part of fiscal year 1996,
the continued overall growth of the New England Regional Homecare Operations and
the growth of the Mid South Proprietary Homecare operations.
Net revenue from services provided by the Company's HSS Staffing Group
increased approximately $439,000, or 11.0%, to $4,430,000 and $1,106,000, or
14.9% to $8,506,000 for the three and six months ended May 31,1996 and 1997,
respectively. Growth is attributable to the addition of new client hospitals,
13
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the re-contracting of certain existing client hospitals at more favorable rates
and the maturation of new per diem branches, all facilitated by an increased
demand for interim staffing. While this has been offset somewhat by a decrease
in nurses placed in Virgin Island Hospitals, the resulting diversification has
reduced the Company's reliance on any one geographic area or client during the
six months ended May 31, 1997, as compared to the prior year. (See note 5)
Net revenue from services provided by the Company's Rehabilitation
Services Group decreased approximately $246,000, or 35%, to $456,000 and
$214,000, or 19.7% to $875,000 for the three and six months ended May 31, 1996
and 1997, respectively. The Rehabilitation Services Group's revenues decreased
due to the closing of unprofitable sites which did not contribute to
non-rehabilitation services revenues.
Cost of Services. The cost of services for the Homecare Group increased
approximately $82,000, or 1.2%, to $6,656,000 and $401,000, or 3.2% to
$13,001,000 for the three and six months ended May 31, 1996 and 1997,
respectively. The cost of services increase is attributable to increased
manpower needs to process increased revenue volume and normal salary increases.
Lower cost of services provided for increases in Homecare Gross Margins.
Cost of services for the HSS Staffing Group increased approximately
$274,000, or 8.7%, to $3,428,000 and $692,000, or 11.8% to $6,567,000 for the
three and six months ended May 31, 1996 and 1997, respectively. The cost of
service increase is attributable to the volume of business increase and to the
cost associated with initiating new client relationships, including the
increased cost of placing travel healthcare professionals in locations not
previously served by the Company. Such increases are less than revenue increases
which provided higher Gross Margins.
The cost of services for the Company's Rehabilitation Services Group
decreased approximately $146,000, or 34.1%, to $282,000 and $54,000, or 7.1% to
$709,000 for the three and six months ended May 31, 1996 and 1997, respectively.
The decrease in the cost of services for the Rehabilitative Services Group is
attributable to the closing of unprofitable sites which did not contribute to
non-rehabilitation services revenues.
Gross Margin. The Company's gross margin before selling, general and
administrative expenses is the difference between amounts charged by the Company
to its clients or amounts reimbursed by third party payors 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 factors such as
billing rates, pay rates and cost of travel and housing. The impact of these
factors vary due to 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 approximately $617,000, or 10.2%,
to $6,664,000 and $1,845,000, or 15.9% to $13,418,000 for the three and six
months ended May 31, 1996 and 1997, respectively. Gross margin as a percentage
of revenue increased from 37.9% to 39.0% and 38.0% to 39.7% for the three and
six months ended May 31, 1996 and 1997, respectively.
14
<PAGE>
Selling, General and Administrative Expenses. Selling, General and
Administrative expenses increased approximately $992,000, or 17.5%, to
$6,646,000 and $2,092,000, or 18.9% to $13,137,000 for the three and six months
ended May 31, 1996 and 1997, respectively. The increase results from higher
payroll and payroll related costs relative to the investments by the Company to
reestablish information systems as an in-house function, to centralize patient
accounting for its Rehabilitative Services Group and certain recently certified
Homecare operations, and recruiting and travel expenses within both the
Company's Homecare and HSS Staffing Groups. Additionally, in the first six
months of fiscal 1996, workers compensation insurance reserves and certain legal
reserves experienced non-recurring reductions of approximately $540,000 and
$115,000, respectively.
Interest and Other Income (Expense). Higher interest costs resulted from
increased borrowing under the Company's line of credit which were used to fund
expansion of the Company's revenues. During the three and six months ended May
31, 1997, average borrowings outstanding were $8.4 million, compared to $3.4
million, for the corresponding periods of the prior year.
Pre-Tax Income. Pre-Tax Income decreased $280,000 or 94.8% from $295,000
to $15,000 and $331,000 or 83.8% from $395,000 to $64,000 for the three and six
months ended May 31, 1996 and 1997, respectively. As previously discussed, the
Company experienced improvements in revenues, gross margins and net income in
all areas except for rehabilitation services.
Extraordinary Item. In connection with the early extinguishment of its
debt owing to its prior lender, the Company incurred an extraordinary charge of
$254,955 during the first quarter of 1996.
Accounting Pronouncements. Effective December 1, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of." Such adoption had no
effect on the Company's Consolidated Condensed Financial Statements for the
three and six months ended May 31, 1997.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires adoption
during the Company's current fiscal year. SFAS No. 123 requires that the
Company's financial statements include certain disclosures regarding stock-based
employee compensation arrangements. Changes in accounting for stock-based
compensation are optional and, therefore, the Company will adopt only the
disclosure requirements. Such adoption will be made at the end of the current
fiscal year.
On March 3, 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share," effective for fiscal years ending after December
15, 1997. When adopted, it will require restatement of prior years' earnings per
share. This statement would have no effect on the Company's financial statements
were it adopted as of the three or six months ended May 31, 1997 as presented
herein.
15
<PAGE>
In February of this year, the Financial Accounting Standards Board
issued SFAS No. 129, "Disclosures of Information about Capital Structure,"
effective for fiscal years ending after December 15, 1997. This statement
establishes standards for disclosing information about a Company's capital
structure and is not anticipated to have an impact on the Company's financial
statement disclosures.
16
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
May 31, 1997
ITEM 1. LEGAL PROCEEDINGS
See Note 4 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, 1996 filed with the Securities and
Exchange Commission on February 28, 1997.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None.
(b) Reports - None.
17
<PAGE>
HOSPITAL STAFFING SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
May 31, 1997
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 G. Huneycutt Ronald G. Huneycutt, Vice President of
Ronald G. Huneycutt Finance, Chief Financial Officer
(principal financial officer)
Date: July 15, 1997
18
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
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<RECEIVABLES> 9,715,522
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<CURRENT-ASSETS> 25,206,493
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