<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________
(MARK ONE)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________TO_________________
COMMISSION FILE NO. 1-10677
DRCA MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0203483
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Three Riverway, Suite 1430, Houston, Texas 77056
(Address of principal executive offices)
(713) 439-7511
(Registrant's telephone number, including area code)
None
(Former Name, Address and fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
As of September 30, 1995, 5,269,975 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (Check One) YES NO X
--- ---
<PAGE>
DRCA MEDICAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
No.
------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets (September 30, 1995
and December 31, 1994) 1
Consolidated Statements of Operations for the
quarter and the nine months ended September 30, 1995
and September 30, 1994 2
Consolidated Statements of Changes in
Stockholders' Equity for the nine months
ended September 30, 1995 and September 30, 1994 3
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1995 and
September 30, 1994 4 - 5
Notes to Consolidated Financial Statements 6 - 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION
Item 1 - 6 11
SIGNATURES 12
</TABLE>
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
(Unaudited) (Audited)
------------------- ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 29,911 $ 813,942
Accounts receivable, trade, net 5,461,268 3,800,328
Income taxes receivable 53,976 11,275
Deferred income taxes 141,000 141,000
Notes receivable, net - 38,832
Other current assets 353,427 120,157
----------- -----------
TOTAL CURRENT ASSETS 6,039,582 4,925,534
----------- -----------
FIXED ASSETS
Equipment (including equipment under capital leases) 5,400,841 5,345,894
Leasehold improvements 437,676 436,624
Furniture and fixtures 399,121 399,120
Vehicles 108,301 108,301
----------- -----------
6,345,939 6,289,939
Less accumulated depreciation (3,790,175) (3,138,962)
----------- -----------
2,555,764 3,150,977
----------- -----------
OTHER ASSETS
Deposits 38,814 46,602
Intangibles, net 962,684 1,138,257
----------- -----------
1,001,498 1,184,859
----------- -----------
TOTAL ASSETS 9,596,844 9,261,370
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 705,632 1,068,939
Accrued liabilities 669,841 344,278
Income taxes payable - -
Current obligations under capital leases 230,797 415,487
Current portion of notes payable 1,168,630 717,229
----------- -----------
TOTAL CURRENT LIABILITIES 2,774,900 2,545,933
----------- -----------
LONG-TERM DEBT
Notes payable 1,516,423 1,908,649
Obligations under capital leases 112,792 239,097
----------- -----------
1,629,215 2,147,746
----------- -----------
DEFERRED INCOME TAXES 158,000 158,000
----------- -----------
MINORITY INTEREST - 51,366
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 50,000,000
shares authorized and issued; 5,301,808 5,302 5,302
Additional paid-in capital 2,460,570 2,470,570
Retained earnings 2,568,873 1,882,469
Treasury shares, 15,833 and 18,500 shares (16) (16)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,034,729 4,358,325
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,596,844 $ 9,261,370
=========== ===========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Quarters Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES $12,404,180 $10,016,774 $ 4,460,608 $ 3,543,742
DIRECT OPERATING COSTS (5,519,622) (5,790,006) (1,696,926) (2,020,228)
AMOUNTS RETAINED BY MEDICAL GROUPS (3,543,757) (1,316,410) (1,827,417) (471,852)
----------- ----------- ----------- -----------
3,340,801 2,910,358 936,265 1,051,662
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (1,706,053) (1,876,631) (578,732) (696,905)
PROVISION FOR DOUBTFUL ACCOUNTS (326,762) (423,229) (15,384) (166,987)
Operating income (loss) 1,307,986 610,498 342,149 187,770
GAIN ON SALE OF ASSETS - 36,634 - -
INTEREST EXPENSE (227,633) (222,390) (75,376) (76,921)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST AND INCOME TAXES 1,080,353 424,742 266,773 110,849
MINORITY INTEREST 33,654 2,004 - 877
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,114,007 426,746 266,773 111,726
(PROVISION FOR) BENEFIT FROM
INCOME TAXES (427,603) (129,782) (106,543) (41,695)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 686,404 $ 296,964 $ 160,230 $ 70,031
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON AND
COMMON SHARE EQUIVALENT
Primary $.13 $.06 $.03 $.01
=========== =========== =========== ===========
Fully diluted $.13 $.06 $.03 $.01
=========== =========== =========== ===========
</TABLE>
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the fiscal year. In the
opinion of management, the information contained herein reflects all adjustments
necessary to make the results of operations for the interim periods a fair
statement of such operations. All such adjustments are of a normal recurring
nature.
See notes to consolidated financial statements.
2
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
-------- -------- -------- -------- -------- ------
Balance -
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993 5,301,808 $5,302 $2,470,570 $1,468,732 $(16) $3,944,588
For services rendered - - (1,500) - - (1,500)
Net income - - 296,964 - 296,964
--------- ------- ---------- ---------- ----- ----------
Balance -
September 30, 1994 5,301,808 $ 5,302 $2,469,070 $1,765,696 $(16) $4,240,052
========== ======= ========== ========== ===== ==========
Balance -
December 31, 1994 5,301,808 $ 5,302 $2,470,570 $1,882,469 $(16) $4,358,325
For Services Rendered - - (10,000) - - (10,000)
Net Income - - - 686,404 - 686,404
--------- ------- ---------- ---------- ----- ----------
Balance -
September 30, 1995 5,301,808 $5,302 $2,460,570 $2,568,873 $(16) $5,034,729
========= ====== ========== ========== ==== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 686,404 $ 296,964
Non cash adjustments:
Depreciation and amortization 651,213 662,606
Amortization of intangibles 175,573 175,571
Minority interest in income (33,654) (2,003)
Change in assets and liabilities, net of the
effects of business acquisitions:
Accounts receivable, trade, net (1,660,940) (961,344)
Other current assets (233,270) (80,423)
Deposits 7,788 (827)
Accounts payable and accrued
liabilities (47,744) 11,348
Income taxes payable - 20,784
Income taxes receivable (42,701) 337,477
Trade notes payable - (330,104)
----------- ---------
Net cash provided (used) by operating activities (497,331) 130,049
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (55,999) (26,305)
Net proceeds from sale of assets held for resale - 197,154
----------- ---------
Net cash provided (used) by investing activities (55,999) 170,849
----------- ---------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
DRCA MEDICAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
September 30, September 30,
1995 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in borrowings on line of credit 501,577 $ -
Proceeds from issuance of notes payable 1,451,353 -
Payments on notes payable (1,893,756) (396,300)
Payments on capital lease obligations (310,995) (252,024)
Distributions to limited partners (17,712) (36,500)
Issuance of notes receivable (500,000) (27,335)
Collections on notes receivable 538,832 32,693
----------- ---------
Net cash provided (used) by
financing activities (230,701) (679,466)
----------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (784,031) (378,568)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 813,942 904,308
----------- ---------
CASH AND CASH EQUIVALENTS
AT END OF QUARTER $ 29,911 $ 525,740
=========== =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 243,457 $ 248,114
========= =========
Income taxes $ 405,000 $ 129,000
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Assets acquired in capital lease transactions 75,465
</TABLE>
5
<PAGE>
DRCA MEDICAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
NOTE A BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only
of those of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1995 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1994.
NOTE B EARNINGS PER COMMON SHARE
Primary and fully diluted earnings per common share are based upon the
weighted average number of shares of common stock outstanding and common
stock equivalents of dilutive stock options and warrants during the three
month and nine month periods, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
September 30 September 30
1995 1994
------------ ------------
<S> <C> <C>
Primary
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock options and
warrants, based on the treasury stock
method using average market price 142,421 107,400
---------- ----------
5,412,396 5,377,375
========== ==========
Net Income $ 160,230 $ 70,031
========== ==========
Earnings Per Share $ .03 $ .01
========== ==========
Fully diluted
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock
options and warrants, based on
the treasury stock method using
the quarter end market price,
if higher than average market
price 142,421 107,400
---------- ----------
5,412,396 5,377,375
========== ==========
Net Income $ 160,230 $ 70,031
========== ==========
Earnings Per Share $ .03 $ .01
========== ==========
</TABLE>
6
<PAGE>
NOTE B EARNINGS PER COMMON SHARE (continued)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
September 30 September 30
1995 1994
------------ ------------
<S> <C> <C>
Primary
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock options and
warrants, based on the treasury stock
method using average market price 87,276 124,736
---------- ----------
5,357,251 5,394,711
========== ==========
Net Income $ 686,404 $ 296,964
========== ==========
Earnings Per Share $ .13 $ .06
========== ==========
Fully diluted
Weighted average shares outstanding 5,269,975 5,269,975
Net effect of dilutive stock options and
warrants, based on the treasury stock
method using the quarter end market price,
if higher than average market price 175,367 124,736
---------- ----------
5,445,342 5,394,711
========== ==========
Net Income $ 686,404 $ 296,964
========== ==========
Earnings Per Share $ .13 $ .06
========== ==========
</TABLE>
7
<PAGE>
PART I
FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1995, COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1994.
Revenues and direct costs.
Revenues and direct costs (including amounts retained by medical groups,
$511,221 and $93,688 of which are attributable to provisions for doubtful
accounts in 1995 and 1994, respectively, and the provision for doubtful accounts
for non-medical group billings) increased by $916,866 and $880,660,
respectively, in the third quarter of 1995 as compared to the same period in
1994. The Company's medical clinic facilities (including two orthopedic clinics
added to the medical group in March, 1995), mobile health testing units, and
Houston MRI facility reported increased revenues over last year while revenues
from other business units were flat or lower. Changes in revenues are generally
attributable to changes in the number of patient visits. The increase in direct
costs results primarily from the variable costs associated with changes in
patient volume, the additional costs of the two orthopedic clinics and an
increase in the provision for doubtful accounts reported as a component of the
amounts retained by medical groups, the effect of which was partially offset by
a reduction in the provision for doubtful accounts on non-medical group
billings. The Company attributes the improvement in the occupational medicine
component of the business and the decrease in rehabilitation related revenues to
general trends in the industry resulting from increased cost containment efforts
and the effectiveness of injury prevention and risk management programs.
Although the Company intends to retain the expertise and capabilities it has
developed in its rehabilitation facilities, it is expected that the relative
importance of rehabilitation programs will decrease as management of
occupational medicine, orthopedic, and other medical practices related to the
prevention, diagnosis, treatment and management of worker injuries emerges as
the primary area for corporate growth.
Selling, general and administrative expenses.
Selling, general and administrative expenses decreased by $118,173. Expenses
in 1995 decreased primarily because expenses incurred in 1994 included $109,000
associated with the settlement of two legal proceedings. Other costs decreased
by $9,173.
Interest expense.
Interest expense decreased by $1,545. This is due to reductions of outstanding
principal balances on notes payable and capital leases.
Minority interest.
Minority interest in income decreased by $877. This is due to the winding down
of all of the Company's partnership interests.
8
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1994.
Revenues and direct costs.
Revenues and direct costs (including amounts retained by medical groups,
$801,238 and $141,173 of which are attributable to the provision for doubtful
accounts in 1995 and 1994, respectively, and the provision for doubtful accounts
for non-medical group billings) increased $2,387,406 and $1,860,496,
respectively, in the first nine months of 1995 as compared to the same period in
1994. The Company's medical clinic facilities (including two orthopedic clinics
added to the medical group in March, 1995), mobile health testing units, and
Houston MRI facility reported increased revenues over last year while revenues
from other business units were flat or lower. Changes in revenues are generally
attributable to changes in the number of patients visits. The increase in
direct costs results primarily from variable costs associated with the changes
in patient volume, the additional costs of the two orthopedic clinics, and an
increase in the provision for doubtful accounts reported as a component of the
amounts retained by medical groups, the effect of which was partially offset by
a reduction in the provision for doubtful accounts on non-medical group
billings. The Company attributes the improvement in the occupational medicine
component of the business and the decrease in rehabilitation related revenues to
general trends in the industry resulting from increased cost containment efforts
and the effectiveness of injury prevention and risk management programs.
Although the Company intends to retain the expertise and capabilities it has
developed in its rehabilitation facilities, it is expected that the relative
importance of rehabilitation programs will decrease as management of
occupational medicine, orthopedic, and other medical practices related to the
prevention, diagnosis, treatment and management of worker injuries emerges as
the primary area for corporate growth.
Selling, general and administrative expenses.
The Company's selling, general and administrative expenses decreased by
$170,578. Expenses in 1995 decreased primarily because expenses incurred in 1994
included $222,000 associated with the settlement of two legal proceedings.
Legal and accounting expenses increased by $54,000 due to business development
activity. Other expenses decreased by $2,578.
Interest expense.
Interest expense increased by $5,243 due mainly to the increase in the prime
interest rate which affects the Company's interest on the term notes and the
revolving line of credit with its major lending bank.
Minority interest.
Minority interest in expenses increased by $31,650, reflecting the minority
partners' interest in the final expenses of the partnerships.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 1995 was $3,264,682 as compared
to $2,379,601 at December 31, 1994, an improvement of $885,081. This is mainly
due to: 1) the Company's increase in revenue for the first nine months of 1995
as compared to 1994, which has increased net accounts receivable by $1,660,940;
2) the reclassification of $501,577 outstanding on the Company's line of credit
to a current liability as compared to its December 31, 1994 classification as a
long-term liability because the Company's line of credit expires on January 30,
1996; and 3) new short-term notes of $406,889 and $63,050 from the Company's
major lending bank.
9
<PAGE>
The Company currently finances its business activities primarily through cash
flows from operations, borrowing and leasing transactions.
On February 6, 1995, the Company signed and funded two credit facilities and
paid off two smaller, matured facilities which were in place on December 31,
1994. The two new facilities include a $750,000 term loan and a one-year,
$1,000,000 revolving line of credit. The $1,000,000 revolving line of credit
expires January 30, 1996. It requires the payment of a 1% annual fee and
borrowings under the line bear interest at prime + 1.25%. Advances under the
line of credit are subject to a borrowing base formula under which the Company
presently has sufficient collateral value to support more than a $1,000,000
balance. The $750,000 term loan is payable in 48 monthly installments of
$19,061. Both facilities are subject to the terms and conditions of a loan
agreement which includes normal financial ratio covenants and various other
provisions. The combined facilities increase the Company's capital availability
by approximately $500,000 as compared to that available on December 31, 1994.
On May 11, 1995 the Company amended the loan agreement and borrowed an
additional $600,000 to support the addition of an orthopedic practice to the
primary medical group managed by the Company. Of the loan proceeds, $500,000
was used to provide liquidity for the orthopedic practice's accounts receivable
and $100,000 was set aside for working capital. The $600,000 note is secured by
the accounts receivable of the orthopedic practice and is payable in twelve
installments of approximately $52,874. The note bears interest at prime +
1.25%. The facilities are secured by substantially all assets of the Company,
its subsidiaries and the medical groups managed by the Company and are
personally guaranteed by Jose E. Kauachi, the Company's Chairman of the Board of
Directors, President and CEO and by Dr. and Mrs. William F. Donovan (Dr. Donovan
is a Director of the Company). The Company believes these credit facilities and
cash provided by operations will be sufficient to provide its working capital
requirements for at least the next twelve months.
10
<PAGE>
PART II
OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not a party to any pending litigation other than routine
litigation incidental to the business or that which is immaterial in
amount of damages sought.
Item 2 Changes in Securities
This item is not applicable.
Item 3 Defaults upon Senior Securities
See Item 2 of Part 1 of this Report.
Item 4 Submission of Matters to a Vote of Security Holders
This item is not applicable.
Item 5 Other Information
This item is not applicable.
Item 6 Exhibits and Reports on Form 8-K
This item is not applicable.
11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DRCA MEDICAL CORPORATION
(Registrant)
Jose E. Kauachi Jefferson R. Casey
- --------------------------------------- ----------------------------------
Jose E. Kauachi Jefferson R. Casey
President, Chief Executive Officer, Senior Vice President, Treasurer
and Chairman of the Board (Principal Financial & Accounting
Officer), and Secretary
Date: November 14, 1995
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 29,911
<SECURITIES> 0
<RECEIVABLES> 6,496,220
<ALLOWANCES> 1,034,952
<INVENTORY> 0
<CURRENT-ASSETS> 6,039,582
<PP&E> 6,345,939
<DEPRECIATION> 3,790,175
<TOTAL-ASSETS> 9,596,844
<CURRENT-LIABILITIES> 2,774,900
<BONDS> 1,629,215
<COMMON> 5,302
0
0
<OTHER-SE> 5,029,427
<TOTAL-LIABILITY-AND-EQUITY> 9,596,844
<SALES> 12,404,180
<TOTAL-REVENUES> 12,404,180
<CGS> 9,063,379
<TOTAL-COSTS> 9,063,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 326,762
<INTEREST-EXPENSE> 227,633
<INCOME-PRETAX> 1,114,007
<INCOME-TAX> 427,603
<INCOME-CONTINUING> 686,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 686,404
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
