U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended March 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _________ to ________
SURGICARE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 58-1597246
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6699 CHIMNEY ROCK, SUITE 105
HOUSTON, TEXAS(ADDRESS OF 77081
PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (713) 665-1406
Check whether the Registrant: (1) 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 [ ]
As of May 8, 2000, 12,596,657 shares of Common Stock, $0.005 par value per
share, were outstanding. As of May 8, 2000, 1,450,000 shares of Preferred
"Series A" Stock, $0.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I
FINANCIAL INFORMATION
The information contained herein contains certain forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward looking statements involve risks and uncertainty,
including, without limitation, the ability of SurgiCare to continue its
expansion strategy, changes in federal or state healthcare laws and regulations
or third party payer practices, SurgiCare's historical and current compliance
with existing or future healthcare laws and regulations and third party payer
requirements, changes in costs of supplies, labor and employee benefits, as well
as general market conditions, competition and pricing. Although SurgiCare
believes that the assumptions underlying the forward looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward looking statements
included in this Form 10-QSB will prove to be accurate. In view of the
significant uncertainties inherent in the forward looking statements included
herein, the inclusion of such information should not be regarded as a
representation by SurgiCare or any other person that the objectives and plans of
SurgiCare will be achieved. SurgiCare undertakes no obligation to update or
revise forward-looking statements to reflect changed assumptions, the occurrence
of unanticipated events or changes to future operating results over time.
ITEM 1.
Financial Statements
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements"
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet as of December 31 1999, and
March 31, 2000 Page
3
Consolidated Income Statement for the 3 months ending as
of March 31, 1999 and 2000 5
Consolidated Statement of Cash Flows for the 3 months ending
as of March 31, 1999 and 2000 6
<PAGE>
SURGICARE, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1999 2000
(Unaudited)
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents $ 243,859 $ 91,214
Accounts receivable (less allowance for
contractual adjustments and doubtful accounts 1,751,984 1,980,529
of $1,470,530 and $1,546,397 at December
31, 1999 and March 31, 2000, respectivly)
Other receivabls 80,849
Inventory 89,361 89,537
Prepaid expenses 27,175 24,354
Other current Assets 21,200 16,883
Total Current Assets 2,214,428 2,202,517
Property and Equipment
Office furniture and equipment 40,922 40,922
Medical and surgical equipment 660,225 699,038
Leasehold improvements 28,016 382,604
Computer equipment 58,303 61,102
Construction in progress 117,121
904,587 1,183,667
Less: Accumulated depreciation and 487,998 527,347
amortization
Total Property and Equipment 416,589 656,320
Other Assets
Goodwill 166,367 163,499
TOTAL ASSETS $ 2,797,384 $ 3,022,336
<PAGE>
SURGICARE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES
Current Liabilities
Current portion of capital lease $ 21,464 $ 32,466
Notes Payable 633,764 564,291
Accounts Payable 147,685 253,340
Accrued Expenses 128,280 46,626
Federal income tax payable 95,637 311,832
Deferred federal income tax 546,000 576,090
Total Current Liabilities 1,572,830 1,784,645
Long-Term Capital Lease Obligations 49,544 32,706
Total Liabilities 1,622,374 1,817,351
SHAREHOLDERS' EQUITY
Preferred Stock, Series A, par value
$.001, 1,650,000 authorized, 1,400,000 and 1,400 1,450
1,450,000 issued and outstanding at
December 31, 1999 and March 31, 2000 respectively
Common Stock, par value $.005, 50,000,000 shares
authorized, 12,596,657 issued and outstanding 62,983 62,983
Additional Paid-In Capital 900,245 922,695
Retained Earnings 237,882 486,607
Less: Shareholders receivables (27,500) (268,750)
Total Shareholders' Equity 1,175,010 1,204,985
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,797,384 $ 3,022,336
</TABLE>
<PAGE>
SURGICARE, INC.
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENT
(unaudited)
FOR THE
THREE MONTHS ENDING
Marchr 31,
1999 2000
<S> <C> <C>
Revenues, net .................................. $ 898,128 $ 1,228,703
Expenses
Direct Surgical Expenses
Surgical Costs ........................... 113,246 193,208
Salaries, wages and benefits ............. 77,194 108,615
Contract services ........................ 7,474 31,029
----------------------------
Total Direct Surgical Expenses ... 197,914 332,852
Gen. and Admin. Expenses
Salaries, Wages and benefits 18,990 46,702
Professional fees ........................ 5,453 6,791
Rent ..................................... 43,863 40,682
Management fees .......................... 78,516 21,218
Insurance ................................ 6,075 8,937
Depreciation and amortization ............ 29,658 42,217
Repairs and maintenance .................. 9,899 12,298
Other operating expenses ................. 67,202 52,135
Taxes .................................... 0 35,780
---------------------------
Total Direct Gen. and Admin. Expenses 259,658 266,760
---------------------------
Total Expenses ....................... 457,572 599,612
Earnings Before Federal Income Tax Expense ..... 440,556 629,091
Federal Income Tax Expense (Benefit)
Deferred ................................. 0 30,090
Current .................................. 0 180,280
-----------------------------
Net Earnings ................................. $ 440,556 $ 418,721
=============================
Pro forma income data (unaudited):
Earnings before federal income tax expense$ 440,556 $
Proforma federal and state income tax .... (171,817)
-----------------------------
Pro forma Net Earnings ...................$ 268,739 $ 418,721
=============================
Pro forma earnings per share - basic and .$ .010 $ .020
diluted
</TABLE>
<PAGE>
SURGICARE, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
FOR THE
THREE MONTHS ENDING
March 31,
<S> <C> <C>
1999 2000
Cash Flows From Operating Activities
Net earnings $ 440,556 $ 418,721
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization 26,154 42,217
Deferred federal income tax 30,090
(Increase) Decrease in:
Accounts receivable (169,518) (146,670)
Inventory 2013 (176)
Prepaid expenses 3048 3,785
Other current assets 1889 (226)
State Income Tax Payable 30,934
Federal Income Tax 0 122,335
Increase (Decrease) in:
Accounts payable 44,674 106,049
Accrued expenses 42,629 (21,292)
Net Cash Provided by Operating 391,445 585,769
Activities
Cash Flows From Investing Activities
Capital expenditures (80,498) (279,080)
Collections on shareholder receivable 31,500 25,750
Loan to Shareholders (244,500)
Net Cash Used in Investing Activities (48,998) (520,330)
Cash Flows From Financing Activities
Borrowings on debt 50,612
Payments on debt (54,579) (64,547)
Principal payments on capital lease (28,956) (6,036)
Dividends paid to preferred shareholders (275,000) (170,000)
Net Cash Used in Financing Activities (307,924) (218,083)
Net Decrease in Cash and Cash Equivalents 34,522 (152,645)
Cash and Cash Equivalents - Beginning of 57,049 243,859
Period
Cash and Cash Equivalents - End of Period $ 91,571 $ 91,214
</TABLE>
Schedule of new cash financing and Investing
Preferred stock sold for shareholder receivable $22,500
<PAGE>
SURGICARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying financial statements are unaudited, but in the opinion of
management, include all adjustments necessary for a fair presentation of
financial position and results of operations for the periods presented.
Note 1 - Accounting Policies
SurgiCare, Inc. (the Company) maintains its accounts on the accrual method of
accounting in accordance with generally accepted accounting principles.
Accounting principles followed by the Company and the methods of applying those
principles which materially affect the determination of financial position,
results of operations and cash flows are summarized below:
Description of Business
Bellaire Surgicare, Inc. (Bellaire) was formed in January, 1995 as a Texas
corporation to operate a day surgery center in Houston, Texas, and
therefore operates as a single segment. Effective July 1, 1999, Bellaire
acquired SurgiCare, Inc. (formerly Technical Coatings, Inc.) in a reverse
acquisition. Bellaire Surgicare, Inc. is now a wholly-owned subsidiary of
SurgiCare, Inc.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Bellaire Surgicare, Inc. All material
intercompany balances and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. During the year, the
Company maintained cash balances in excess of federally insured limits.
Revenue Recognition
Revenue is recognized on the date the procedures are performed, and
accounts receivable are recorded at that time. Revenues are reported at the
estimated realizable amounts from patients and third-party payers. If such
third-party payers were to change their reimbursement policies, the effect
on revenue could be significant. Earnings are charged with a provision for
contractual adjustments and doubtful accounts based on fee schedules,
contracts and collection experience. Contractual adjustments and accounts
deemed uncollectible are applied against the allowance account.
Inventory
Inventory consists of medical and pharmaceutical supplies which are stated
at the lower of cost or market. Cost is determined under the first-in,
first-out method.
Property and Equipment
Property and equipment are presented at cost. Medical and surgical
equipment, of approximately $144,000, under capital lease is recorded at
the present value of future minimum lease payments. Depreciation and
amortization are computed at rates considered sufficient to amortize the
cost of the assets, using the straight-line method over their estimated
useful lives as follows:
Office furniture and equipment 7 years
Medical and surgical equipment 5 years
Leasehold improvements 5 years
Computer equipment 5 years
Goodwill
Goodwill arises from the acquisition of assets at an amount in excess of
their fair market value. Amortization is computed by the straight-line method
over 15 years.
<PAGE>
SURGICARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 1999 and 2000
Federal Income Taxes
Prior to July 1, 1999, the Company had elected to be taxed as an S
corporation under provisions of the Internal Revenue Code. As such, current
taxable income had been included on the income tax returns of the
shareholders for federal income tax purposes and no provision had been made
for federal income taxes.
Effective July 1, 1999, the Company changed its election to be taxed as a C
corporation under the Internal Revenue Code. Taxes on income are provided
based upon Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable
or deductible amounts in the future. Such deferred income tax asset and
liability computations are based on enacted tax laws and rates applicable to
periods in which the differences are expected to affect taxable income.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Unaudited Pro Forma Net Earnings and Pro Forma Earnings Per Share
Pro forma earnings per share represent pro forma net earnings (after a
pro forma provision for income taxes as if the Company had been subject to
federal and state income taxation as a C corporation since inception) available
to common shareholders divided by the pro forma weighted average number of
common shares outstanding during the period. Pro forma weighted average shares
were calculated giving effect to the 7,304 to 1 exchange of SurgiCare common
stock for Bellaire common stock, as if the reverse acquisition had occurred at
the beginning of each period presented.The conversion of preferred stock to
common stock is anti-dilutive
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
(Unaudited)
-------------
1999 2000
<S> <C> <C>
Basic Earnings Per Share:
Pro forma net earnings $ 268,739 $ 418,721
Less: Preferred dividends 137,500 170,000
-------------- --------------
Pro forma net earnings available for common shareholders
$ 131,239 $ 248,721
============== ===============
Weighted average shares outstanding 12,596,657 12,596,657
============== ===============
Pro forma net earnings per share - basic $.010 $.020
============== ===============
Proforma earnings per share for 1999 have been reduced to assume the
preferred stock had been issued at the beginning of the period.
</TABLE>
Note 3 - Preferred Stock
The Series A preferred stock is convertible at a rate of one share of preferred
stock into one share of $.005 par value common stock. The Company can redeem the
stock at $5 per share. The Series A preferred stock accrues dividends at a rate
of $.48 per share per annum which are payable, in arrears, on the first day of
the month. Holders of Series A preferred stock are entitled to one vote for each
share of Series A preferred stock held.
ITEM 2.
Management's Discussion and Analysis of Financial Condition and results of
Operation.
SurgiCare principal business strategies are to (i) increase physician
utilization of existing facilities, (ii) increase both the revenue and profits,
from current cases and procedures being performed in existing facilities and,
(iii) achieve growth and expand revenues by pursuing strategic acquisitions of
existing, and the development of new, physician owned ambulatory surgical
centers.
(i) Bellaire SurgiCare is currently operating at or near capacity. In
order to facilitate growth, SurgiCare added one additional operating
room to its Bellaire facility. This additional operating room has
increased the capacity at Bellaire by 50% of fiscal 1999.
(ii) SurgiCare is constantly striving to achieve increase profits from
existing revenues. Surgical supply costs are the single largest cost
component of any ambulatory surgical center. Therefore SurgiCare is
always looking for ways to decrease the cost of surgical supplies.
Through participation in national buying groups SurgiCare has been
able to negotiate discounts on most of the commonly used surgical
supplies. SurgiCare has also implemented a "Just in Time" approach to
inventory. This allows the center to minimize the amount of supplies
that it is required to keep in inventory. SurgiCare is also always
looking for new distributors of its surgical supplies that have the
capability to deliver the majority of its surgical supplies "Just in
Time", and provide quality service, at reduced prices. SurgiCare has
found that the purchasing policies that govern the acquisition of
surgical equipment is an important key to maximize a centers profit.
Therefore all equipment is purchased at the corporate level, in order
to insures that the equipment is purchased at the lowest possible
price.
(iii)SurgiCare is in the process of identifying ambulatory surgical centers
as potential acquisition targets, and has, in some cases, conducted
preliminary discussions with representatives of centers. At the time
of this filing there are no commitments, understandings, or agreements
with any potential acquisition targets. All of such discussions have
been tentative in nature and there can be no assurance that SurgiCare
will acquire any center with whom discussions have been conducted.
SurgiCare expects that generally the acquisition of another surgery
center would take the form of a merger, stock-for-stock exchange or
stock-for-assets exchange, and that in most instances the target
company will wish to structure the business combination to be within
the definition of a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended. SurgiCare may, however, use
other acquisition structuring techniques, including purchases of
assets or stock for cash or cash and stock, or through formation of
one or more limited partnerships or limited liability companies.
RESULTS OF OPERATION
The following table sets forth for the period indicated the number of surgical
cases.
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31,
1999 2000
<S> <C> <C>
Total Number of Cases 519 657
Total Revenues Generated $ 898,128 $ 1,228,703
Revenue Generated per Case $ 1,730 $ 1,870
Earnings Before Federal Income Tax per Case $ 849 $ 958
</TABLE>
THREE MONTHS ENDING MARCH 31, 2000 vs THREE MONTHS ENDING MARCH 31, 1999
SurgiCare is continuing to making a concerted effort to increase both
revenues and profits. One of the tools that SurgiCare uses to achieve increased
revenues and profits, is a program that involves constantly monitoring the
profitability of specific procedures, and service. This information is then used
to decreasing the number of cases being done in those less profitable, high cost
services, and increasing the number of cases being done in the more profitable
less cost intensive services.
SurgiCare performed 657 case by March 31, 2000 compared to 519 procedures
done for the same period in 1999, this represents 27% increase in average
monthly utilization. The revenues generated per case increased 9% from $1,730
for the three month period ending March 31, 1999, to $1,870 for the same three
month period in 2000. The pre-tax earnings generated per case increased by 13%
from $849 per case for the three month period ending March 31, 1999, to $958 for
the same three month period in 2000.
In the three months ending March 31, 2000 Bellaire recorded record revenue
of $1,228,703 compared to $898,128 for the same period in 1999, this represents
a 37% increase in total revenue.
In the fourth quarter of 1999, in an effort to better capture and track
incremental direct expense, certain expenses from out sourced services
previously classified, as "Professional Fees", a general and administrative
expense, were re-classified to "Contract Services", a direct surgical expense.
This change in classification dramatically altered the expenses as a percentage
of revenue for both "direct" and general and administrative" expenses. Direct
surgical cost rose as a percentage of total revenue from 22% for the period
ending March 31, 1999 to 27% for the same period in 2000. General and
administrative expenses dropped as a percentage of total revenue from 28% for
the period ending March 31, 1999, to 21% for the same period in 2000.
As percentage of revenue, total expenses dropped from 50% for the period
ending march 31, 1999, to 48% for the same period in 2000. This decrease in over
all expenses couples with the 37% growth in revenues translated to an increase
in pre-tax earning of 42% to $629,091 for the period ending March 31, 2000, from
$440,556 for the same period in 1999.
LIQUIDITY and CAPTIAL RESOURCES
SurgiCare's current source of liquidity consists primarily of funds
from operations. SurgiCare believes that the cash available from operations is
adequate to meet the company's operational requirments requirements.
PART II
OTHER INFORMATION
ITEM 1.
Legal Proceedings
SurgiCare is not currently involved in any legal proceedings.
ITEM 2.
Change in Securities and Use of Proceeds
There has been no change in common securities since SurgiCare filled its
Form 10-SB on August 20, 1999.
ITEM 3.
Default Upon Senior Securities
SurgiCare has not defaulted on any payments of principal or interest on
any securities.
ITEM 4.
Submission of Matters to a Vote of Security Holder
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 10, 1999 REGISTRANT:
SurgiCare, Inc
By: /s/ David Blumfield
Dr. David Blumfield
President and CEO
By: /s/ CHARLES S. COHEN
Charles S. Cohen
Chief Operating Officer
ITEM 6.
INDEX TO EXHIBITS
DESCRIPTION
EXHIBIT
NUMBER
3.1 * Amended and Restated Certificate of Incorporation of
SurgiCare, Inc.
3.2 * Articles of Incorporation of Bellaire SurgiCare, Inc.
3.3 * By-Laws of Technical Coatings Incorporated
(now SurgiCare, Inc.)
3.4 * By-Laws of Bellaire SurgiCare, Inc.
4 * Certificate of Designation, Powers, Preferences and Rights
of Series A Redeemable Preferred Stock, par value $.001
per share, of SurgiCare, Inc.
10.1 * Agreement, dated July 29, 1989, 1999, between
SurgiCare, Inc. and Surgery Centers of
America II, Inc.
10.2 * Letter agreement with SCOA
27 * Financial Data Schedule
* Incorporated herein by reference to the Company's Current Report on form 10-SB
filed on August 20, 1999.
During the three months ended March 31, 2000, SurgiCare filed the following
current reports on 10KSB
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000755113
<NAME> SurgiCare, Inc
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 91
<SECURITIES> 0
<RECEIVABLES> 3527
<ALLOWANCES> 1546
<INVENTORY> 90
<CURRENT-ASSETS> 2202
<PP&E> 1184
<DEPRECIATION> 527
<TOTAL-ASSETS> 3022
<CURRENT-LIABILITIES> 1785
<BONDS> 33
0
1
<COMMON> 63
<OTHER-SE> 1139
<TOTAL-LIABILITY-AND-EQUITY> 3022
<SALES> 0
<TOTAL-REVENUES> 1229
<CGS> 0
<TOTAL-COSTS> 333
<OTHER-EXPENSES> 252
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 629
<INCOME-TAX> 210
<INCOME-CONTINUING> 419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 419
<EPS-BASIC> .030
<EPS-DILUTED> .020
</TABLE>
