UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarterly Period Ended June 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 Number 0-17787
MEDICAL INNOVATIONS, INC.
(Exact Name of Registrant As Specified In Its Charter)
DELAWARE 76-0280551
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
ONE RIVERWAY, SUITE 2300 HOUSTON, TEXAS 77056
(Address of Principal Executive Offices) (Zip Code)
(713) 688-6600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock as of
August 9, 1995 was 15,919,880 shares.
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MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
Part I. Condensed Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets ........................... 1
Consolidated Statements of Income ..................... 2
Consolidated Statements of Cash Flows ................. 3
Notes to Unaudited Condensed Consolidated Financial
Statements ........................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 12
Part II. Other Information ............................................... 18
Signatures ............................................................... 19
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MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1995 1994
(UNAUDITED) (AUDITED)
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents ................... $ 772,883 $ 1,415,294
Short-term investments ...................... -- 201,000
Accounts receivable, net .................... 11,762,365 9,830,269
Inventories ................................. 295,944 257,360
Deferred income taxes ....................... 701,810 347,047
Other ....................................... 665,785 532,046
----------- -----------
Total current assets ................... 14,198,787 12,583,016
Property and equipment, net .................... 1,931,499 1,926,209
Excess cost over net assets of
acquired companies, net of
amortization of $602,806
and $438,896 ................................ 12,182,175 12,258,000
Other, net ..................................... 1,276,516 825,656
----------- -----------
Total assets ........................... $29,588,977 $27,592,881
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and other debt ................ $11,076,743 $ 1,773,798
Accounts payable and accrued liabilities .... 3,129,657 2,690,836
Accrued compensation and benefits ........... 2,533,121 2,450,995
Reserve for government program
settlements .............................. 1,651,049 1,784,256
Income taxes payable ........................ 697,467 70,773
----------- -----------
Total current liabilities .............. 19,088,037 8,770,658
Notes payable and other debt ................... 1,106,647 10,040,016
Other accrued liabilities ...................... 646,858 678,236
Deferred income taxes .......................... 54,620 32,804
----------- -----------
Total liabilities ...................... 20,896,162 19,521,714
----------- -----------
Stockholders' equity:
Preferred stock - par value $.01 per
share; 3,000,000 shares authorized,
none issued or outstanding ............... -- --
Common stock - par value $.0075 per
share; 75,000,000 shares authorized,
15,834,873 and 15,828,873 shares
issued and outstanding ................... 118,762 118,717
Additional paid-in capital .................. 7,355,051 7,349,517
Retained earnings ........................... 1,219,002 602,933
----------- -----------
Total stockholders' equity ............. 8,692,815 8,071,167
----------- -----------
Commitments and contingencies
----------- -----------
Total liabilities and
stockholders' equity ................ $29,588,977 $27,592,881
=========== ===========
(See notes to unaudited condensed consolidated financial statements)
1
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MEDICAL INNOVATIONS, INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues ............................................... $18,030,111 $16,188,273 $33,958,102 $28,162,762
Costs and expenses:
Direct patient care ................................. 10,881,826 9,789,217 20,750,583 16,861,268
Selling, general and administrative ................. 6,075,837 5,856,631 11,419,766 10,021,949
Provision for doubtful accounts ..................... 175,802 164,557 326,436 257,419
----------- ----------- ----------- -----------
17,133,465 15,810,405 32,496,785 27,140,636
----------- ----------- ----------- -----------
Income from operations ................................. 896,646 377,868 1,461,317 1,022,126
Gain on sale of minority interest ...................... -- 128,500 -- 128,500
Interest expense ....................................... 287,224 201,758 529,696 342,253
----------- ----------- ----------- -----------
Income before income taxes ............................. 609,422 304,610 931,621 808,373
Provision for income taxes ............................. 254,744 129,655 315,552 340,501
----------- ----------- ----------- -----------
Net income ............................................. $ 354,678 $ 174,955 $ 616,069 $ 467,872
=========== =========== =========== ===========
Net income per common and common
equivalent share .................................... $ .02 $ .01 $ .04 $ .03
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding ....................... 16,966,898 17,894,572 16,399,241 17,802,466
=========== =========== =========== ===========
</TABLE>
(See notes to unaudited condensed consolidated financial statements)
2
<PAGE>
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
----------- -----------
Cash flows from operating activities:
Net income ................................... $ 616,069 $ 467,872
Noncash adjustments:
Depreciation and amortization ............. 508,465 322,461
Provision for doubtful accounts ........... 326,436 257,419
Deferred income taxes ..................... (332,947) 45,218
Other ..................................... -- 7,891
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable ...................... (2,258,532) (2,051,724)
Other assets ............................. (79,256) 145,976
Accounts payable and accrued
liabilities ........................... 582,115 36,056
Reserve for government program
settlements ........................... (133,207) (113,120)
Income taxes ............................. 628,073 34,732
Other liabilities ........................ (31,378) (59,760)
----------- -----------
Net cash used by operating activities .... (174,162) (906,979)
----------- -----------
Cash flows from investing activities:
Acquisition of PharmaThera Branch ............ (56,468) --
Acquisition of PRN Nevada .................... -- (904,033)
Acquisition of STAT .......................... -- (276,992)
Acquisition and merger transaction expenses .. (92,487) (56,086)
Acquisition of property and equipment, net ... (26,125) (397,017)
Other ........................................ -- 13,593
----------- -----------
Net cash used by investing activities .... (175,080) (1,620,535)
----------- -----------
(See notes to unaudited condensed consolidated financial statements)
3
<PAGE>
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
--------------------------
1995 1994
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable .................. $ 50,438 $ 8,157,788
Proceeds from demand loan payable to
related parties ........................... 300,000 1,650,000
Net borrowings on revolving credit facilities 600,000 600,000
Payments on notes payable and capital
lease obligations, including related
party debt ................................ (1,098,553) (8,699,795)
Payments on obligation to former owners
of PVNS ................................... (148,654) --
Proceeds from exercise of stock options ...... 3,600 21,181
Other ........................................ -- (10,270)
----------- -----------
Net cash provided (used) by
financing activities .................. (293,169) 1,718,904
----------- -----------
Net decrease in cash and cash equivalents ........ (642,411) (808,610)
Cash and cash equivalents at beginning of period . 1,415,294 1,982,875
----------- -----------
Cash and cash equivalents at end of period ....... $ 772,883 $ 1,174,265
=========== ===========
Cash paid during the period for:
Interest ..................................... $ 623,123 $ 322,497
Income taxes ................................. 23,791 242,876
Non-cash transactions (not otherwise disclosed):
Assets acquired under capitalized
lease obligations ......................... 144,735 189,358
(See notes to unaudited condensed consolidated financial statements)
4
MEDICAL INNOVATIONS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND BASIS OF PREPARATION:
The condensed consolidated financial statements of Medical Innovations, Inc. and
its subsidiaries (the "Company") have been prepared without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. As
applicable under such regulations, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The Company
believes that the presentation and disclosures herein are adequate to make the
information not misleading, and that the financial statements reflect all
elimination entries and adjustments (consisting of only normal recurring
adjustments) which are necessary for a fair statement of the operating results
for the three and six months ended June 30, 1995 and 1994. Operating results for
these interim periods are not necessarily indicative of the results for full
years. It is suggested that these condensed consolidated interim financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1994 Annual Report on Form 10-K.
The condensed consolidated financial statements for prior periods have been
restated to reflect the merger completed in May 1995 as more fully described in
Note 3.
Net income per share is based on the weighted average number of common shares
and equivalents outstanding during the periods, which has also been restated to
reflect the merger completed in 1995 as more fully described in Note 3. Common
stock equivalents consisting of stock options and warrants are included in the
computation of weighted average shares when their effect is dilutive.
NOTE 2 - ESTIMATES INVOLVED IN PREPARING THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS:
The Company's interim financial statements are prepared in accordance with the
same accounting policies as those followed at year-end. Certain items in the
financial statements can be determined on an interim basis only by making
accounting estimates. The accuracy of such amounts is dependent upon facts that
will exist and procedures that will be accomplished by the Company later in the
year.
NOTE 3 - ACQUISITION AND PRO FORMA INFORMATION:
PHYSICIAN'S VISITING NURSE SERVICE
Effective May 1, 1993, the Company purchased all of the outstanding common stock
of Physician's Visiting Nurse Service, Inc. ("PVNS") for total consideration of
approximately $9,293,000. In connection therewith, the Company entered into
agreements with the former owners resulting in a total obligation of
approximately $1,295,000, net of imputed interest at 7-1/2%. This obligation,
which is included in accrued liabilities at June 30, 1995 and December 31, 1994,
is secured by accounts receivable of the Company and is payable in approximately
equal monthly installments through June 1998. Of the remaining obligation of
$893,668 at June 30, 1995, approximately $289,000 is classified as current.
Effective November 18, 1994, the Company entered into an agreement with the
former owners of PVNS to settle claims for certain acquisition contingencies. In
connection with the settlement, the Company received (i) 850,000 shares of its
common stock issued to the former owners and escrowed since the acquisition
date, which were valued at $1.50 per share, the fair market value at the
settlement date, and (ii) a reduction of $275,000 in the
5
principal amount of the PVNS Note (see Note 6), in exchange for the release of
all further obligations under an indemnification received by the Company from
the former owners for acquisition contingencies. As a result, the Company
recorded various reserves for estimated liabilities pertaining to any
adjustments from open pre-acquisition Medicare cost reimbursement reports ("Cost
Reports") (see also Note 7) and other matters for which the Company received the
settlement consideration as set forth above.
STAT SPECIALTY HOME HEALTH
Effective February 11, 1994, the Company acquired certain assets of STAT
Specialty Home Health Care, Inc. ("STAT") for cash in the amount of
approximately $285,000, of which approximately $119,000 was allocated to
purchased contracts and the remainder to property and equipment. The results of
operations of STAT are included with those of the Company for periods subsequent
to the effective date of the acquisition.
PRN NEVADA
Effective April 1, 1994, the Company purchased all of the outstanding common
stock of PRN Home Health Care, Inc. of Nevada and its affiliated companies
(collectively "PRN Nevada"), a provider of skilled homecare services. Total
consideration to the seller consisted of $1,825,000 in cash, 380,952 restricted
shares of the Company's common stock, a note payable to the former owner in the
principal amount of $850,000, and a contingent payment estimated to be
approximately $95,000. The acquisition was accounted for by the purchase method.
Accordingly, the results of operations of PRN Nevada are included with those of
the Company for periods subsequent to the effective date of the acquisition. Of
the total purchase price of approximately $3,726,000, the amount allocated to
excess cost over net assets of acquired companies was approximately $3,169,000.
PHARMATHERA BRANCH
On January 31, 1995, the Company acquired certain assets, consisting primarily
of inventory, equipment, provider contracts and a customer base, of PharmaThera,
Inc.'s branch operation in Pensacola, Florida ("PharmaThera Branch"), a provider
of infusion therapy services, for cash of approximately $56,000 and two notes
with obligations totalling approximately $574,000, which are subject to
reductions of up to $117,500 based primarily on certain performance criteria of
the post-acquisition PharmaThera Branch operations. The acquisition was
accounted for by the purchase method. Accordingly, the results of operations of
the PharmaThera Branch are included with those of the Company for periods
subsequent to the acquisition date. The price paid for the provider contracts
and customer base, together with related acquisition costs, were allocated to
purchased contracts and are being amortized over ten years.
HOSPITAL HOMECARE
In May 1995, the Company issued 3,262,473 shares of its common stock in exchange
for all of the issued and outstanding common stock of Hospital HomeCare
Corporation ("HHCC"), a provider of hospital-based home healthcare management
services. Five percent of the shares issued to HHCC have been escrowed to
satisfy certain contingent claims by the Company against the HHCC shareholders.
This transaction was accounted for as a pooling of interests. Accordingly, the
Company's condensed consolidated financial statements have been restated to
include the assets, liabilities and results of operations of HHCC, as more fully
described below.
Prior to the combination, HHCC's fiscal year ended on March 31, which has been
changed to conform with that of the Company. HHCC's results of operations for
the fiscal year ended March 31, 1995 are combined with the Company for the year
ended December 31, 1994. Accordingly, the Company's results of
6
operations for the three months ended March 31, 1995 do not include HHCC.
Separate results of operations of the Company and HHCC for the periods prior to
the merger are as follows:
REVENUES COMPANY HHCC COMBINED
------- ---- --------
Three months ended:
March 31, 1995 ................... $15,927,991 $ -- $15,927,991
June 30, 1994 .................... $15,824,522 $ 363,751 $16,188,273
Six months ended June 30, 1994 ..... $27,410,216 $ 752,546 $28,162,762
Year ended December 31, 1994 ....... $59,110,330 $ 1,267,818 $60,378,148
NET INCOME (LOSS)
Three months ended:
March 31, 1995 ................... $ 261,391 $ -- $ 261,391
June 30, 1994 .................... $ 161,257 $ 13,698 $ 174,955
Six months ended June 30, 1994 ..... $ 412,426 $ 55,446 $ 467,872
Year ended December 31, 1994 ....... $ 804,026 $ (194,220) $ 609,806
Transaction costs of $240,039 (without income tax benefit) were incurred by the
Company and HHCC, of which $61,774 were expensed in the three month period ended
June 30, 1995. The remaining costs of $178,265 were included in the restated
combined net income for the year ended December 31, 1994.
PRO FORMA INFORMATION
The pro forma combined results of operations of the Company and its 1994 and
1995 acquisitions (STAT, PRN Nevada and PharmaThera Branch) and the 1995 merger
(HHCC), after giving effect to certain pro forma adjustments and assuming these
acquisitions and the merger had been completed as of the beginning of the
respective six month periods ended June 30, are as follows:
1995 1994
---- ----
Revenue .................................. $34,266,000 $31,787,000
Net income ............................... $ 632,000 $ 568,000
Net income per common and
common equivalent share ............... $ .04 $ .03
The pro forma information is not necessarily indicative of results which may
occur in the future.
NOTE 4 - ACCOUNTS RECEIVABLE:
Accounts receivable at June 30, 1995 consist of the following:
Accounts receivable ....................................... $12,706,558
Less allowance for doubtful accounts ...................... 944,193
-----------
$11,762,365
===========
7
NOTE 5 - INCOME TAXES:
The following table reconciles the federal statutory income tax rate and the
Company's effective income tax rate for the six month periods ended June 30:
1995 1994
---- ----
Federal income tax at statutory rate .................. 34.0% 34.0%
Nondeductible amortization ............................ 6.0% 4.5%
Recovery of nontaxable payroll related costs .......... (8.9)% -- %
Other permanent differences ........................... 2.1% 3.0%
State taxes ........................................... .7% .6%
---- ----
Effective tax rate .................................... 33.9% 42.1%
==== ====
NOTE 6 - NOTES PAYABLE AND OTHER DEBT:
Notes payable and other debt at June 30, 1995 consist of the following:
Bank revolving credit facilities ............................. $ 4,025,000
Notes payable to Bank ........................................ 5,450,000
Term note payable to Bank .................................... 200,000
Notes payable to former owners of PVNS ....................... 500,242
Note payable to former owner of PRN Nevada ................... 590,278
Notes payable to former owner of PharmaThera Branch .......... 497,743
Notes payable to Bank and others in monthly installments
totalling approximately $6,050, including interest ranging
from prime (9.0% at June 30,1995) to 11.5%, with various
maturities through 1998, secured by property and equipment .. 103,532
Capital lease obligations .................................... 816,595
-----------
12,183,390
Less current portion ......................................... 11,076,743
-----------
Noncurrent portion ........................................... $ 1,106,647
===========
BANK REVOLVING CREDIT FACILITIES
In December 1994, the Company entered into new revolving credit facilities
totalling $3,725,000 with a bank (the "Bank") that mature March 31, 1996. In
connection with this refinancing, the then outstanding balances of the credit
facilities entered into in March 1994 (total borrowing availability of
$2,125,000) and certain other debt were repaid and the Company's borrowing
availability was increased. The new credit facilities, which bear interest at
prime plus 1/4% (9.25% at June 30, 1995), a decrease from the prior rate of
prime plus 1/2%, are secured by all accounts receivable of the Company and are
guaranteed by the
8
president and another director of the Company. The new loan agreements covering
$2,550,000 of the credit facilities include covenants to maintain certain net
worth and a debt to net worth ratio and prohibit certain additional indebtedness
and the payment of dividends. At June 30, 1995, the Company was in compliance
with such loan covenants.
In May 1995, the Company entered into an additional revolving credit facility
with the Bank in the amount of $1,000,000. This new credit facility, which was
obtained for working capital purposes, is secured by all accounts receivable of
the Company and is guaranteed by the president and another director of the
Company. Interest only at the prime rate (9% at June 30, 1995) is due monthly
through the maturity date of November 1, 1995.
NOTES PAYABLE TO BANK
In June 1994, the Company borrowed $5,450,000 from the Bank ("New Term Note")
for the purpose of repaying a demand note of $1,650,000 and substantially all of
the remaining balance on the subordinated note payable as described below. The
$1,650,000 demand note was executed in March 1994 when the Company entered into
a demand loan agreement with the president, another director and a shareholder
of the Company (the "Payees"). The New Term Note matures June 6, 1996 and bears
interest at prime minus 1% (8.0% at June 30, 1995) payable monthly through
maturity. The New Term Note is secured by collateral (marketable securities)
pledged to the Bank by the Payees. Prior to the refinancing, this collateral was
held by the Bank as security for a loan to the Payees which was used by the
Payees to make the above referenced loans to the Company.
TERM NOTES PAYABLE TO BANK
In June 1994, the Company also borrowed $2,000,000 from the Bank to fund the
$1,825,000 cash portion of the PRN Nevada acquisition and to provide $175,000
for working capital purposes. After scheduled and other payments reduced the
principal balance to $400,000, this term note was refinanced in December 1994,
resulting in the maturity date being extended to December 31, 1995 (previously
May 31, 1995). Monthly principal payments of $33,333, plus interest at prime
(9.0% at June 30, 1995), commenced January 31, 1995. The note is secured by the
accounts receivable of the Company and the guarantees of the president and
another director of the Company. Fees totaling $20,000 were paid to these
individuals for providing their guarantees on the note.
NOTES PAYABLE TO FORMER OWNERS OF PVNS
In connection with the acquisition of PVNS in 1993, the Company issued a
$1,000,000 note payable to the former owners of PVNS ("PVNS Note"), which is
secured by accounts receivable of the Company and is guaranteed by the president
of the Company. In January 1994, the Company repaid principal of $306,000 on
this note, pursuant to its contractual obligation to apply as debt reduction, a
portion of the net proceeds from the Company's offering of common stock in
connection with the exercise of various outstanding warrants ("Warrant
Offering") completed in December 1993. Also, the principal balance of the PVNS
Note was further reduced by $275,000 in November 1994 as a result of the
settlement with the former owners of PVNS as more fully described in Note 3.
This note reduction was also required to be applied to principal in inverse
order of maturity. Scheduled monthly principal payments of $20,833 commenced on
August 1, 1994, together with interest at prime, which increased to prime plus
1% (10.0% at June 30, 1995) on June 28, 1995. At June 30, 1995, the principal
balance of the PVNS Note was $169,004.
9
In November 1994, the Company borrowed $458,636 of previously escrowed cash from
the former owners of PVNS for working capital purposes. Interest only was due on
this note through February 1, 1995, at which date monthly principal and interest
payments commenced in eighteen equal installments with a final payment due on
July 1, 1996. The note bore interest at prime through June 30, 1995 and then
increased to prime plus 1% (10.0% at June 30, 1995) through maturity. At June
30, 1995, the principal balance of this note was $331,238.
NOTE PAYABLE TO FORMER OWNER OF PRN NEVADA
In connection with the acquisition of PRN Nevada, the Company issued an $850,000
note payable to the former owner of PRN Nevada. The note bears interest at prime
(9.0% at June 30, 1995), payable monthly, and is secured by the common stock of
PRN Nevada. Monthly principal payments of $23,611 commenced August 1, 1994 and
are payable in such amount for thirty-six months. On July 1, 1995, the principal
balance of this note was reduced $125,776 by offsetting amounts due from the
former owner of PRN Nevada for indemnification of applicable adjustments to PRN
Nevada's pre-acquisition Cost Reports through December 31, 1993 (see also
Note 7).
NOTES PAYABLE TO FORMER OWNER OF PHARMATHERA BRANCH
In connection with acquisition of the PharmaThera Branch, the Company issued two
notes payable to the former owner of the PharmaThera Branch. The larger note in
the amount of $500,000, attributable primarily to the purchase of provider
contracts and a customer base, is non-interest bearing and is payable at various
dates through May 15, 1996, based on collected revenues of the PharmaThera
Branch. This note is subject to reductions of up to $117,500 based primarily on
certain performance criteria of the post-acquisition PharmaThera Branch
operations. The other note in the amount of $73,956 was issued for the purchase
of inventories and equipment and was paid in six equal monthly principal
installments of $12,326, plus interest at prime (9% at June 30, 1995), through
August 1, 1995. Both notes are secured by all equipment of the Florida
operation.
SUBORDINATED NOTE PAYABLE
In connection with the acquisition of PVNS, the Company issued a $5,500,000 note
payable to the Payees. In March 1994, the Company repaid principal of $1,675,000
on the note, pursuant to its contractual obligation to apply as debt reduction a
portion of the net proceeds from the Company's Warrant Offering completed in
December 1993. On the date of such repayment, the Payees agreed to waive any
defaults on the note and a replacement note was issued to the Payees in the
amount of $3,802,370. This replacement note was repaid in June 1994.
Substantially all of the repayment was funded from the New Term Note.
In connection with making this subordinated loan, the Payees were granted
warrants to purchase 100 shares of the Company's preferred stock at $100 per
share. As previously described, the collateral (marketable securities) that the
Payees pledged to the Bank as security for the New Term Note was, prior to the
refinancing, held by the Bank as security for a loan to the Payees which was
used by the Payees to make loans to the Company. Thus, the Payees' risk position
has not significantly changed and accordingly, the agreement governing the
preferred stock warrants has been amended so that the warrants remain
outstanding under substantially the same terms, except that the exercisability
of the warrants now relates to the New Term Note rather than the subordinated
loan. Such warrants are now exercisable only in the event of certain defaults of
the Company or the Payees under the New Term Note or the related collateral
maintenance agreements with the Bank, or in the event the Bank liquidates the
Payees' collateral. The warrants expire when the aggregate outstanding balance
of the New Term Note and the PVNS Note is $1,175,000 or less and the Company is
not in default under the New Term Note. If the warrants are exercised and the
aggregate outstanding balance of the New Term Note and the PVNS Note is
$3,625,000 or
10
more, the holders of the preferred stock have the right to elect seven of
thirteen Company directors. At all other times after warrant exercise, the
holders of the preferred stock have the right to elect three of nine Company
directors. If the warrants are exercised, the Company may redeem the preferred
stock, at the price of $100 per share, anytime after the outstanding principal
balance on the New Term Note and the PVNS Note is less than $1,175,000. At June
30, 1995, the aggregate principal outstanding on the New Term Note and the PVNS
Note was $5,619,004.
OTHER
On June 7, 1994, the Company borrowed $500,000 from its president for working
capital purposes at prime plus 2%, which was repaid on June 28, 1994. On April
10, 1995, the Company borrowed $300,000 from its president for working capital
purposes at prime, which was repaid on May 26, 1995.
NOTE 7 - RESERVE FOR GOVERNMENT PROGRAM SETTLEMENTS:
The Company's Medicare operations are subject to regulations administered by the
Health Care Financing Administration. Amounts reimbursed by the Medicare program
(including those of PVNS and PRN Nevada prior to acquisition) are subject to
audit and retroactive adjustment.
As more fully described in Note 3, the Company entered into a settlement in
November 1994 with the former owners of PVNS pertaining to various acquisition
contingencies including open pre-acquisition Cost Reports. In connection with
this settlement, the Company assumed liability for final adjustments on the June
30, 1990 and 1991 PVNS Cost Reports, which have been tentatively settled with
the Medicare intermediary after completion of reopening audits (awaiting final
determination letters), and the June 30, 1993 PVNS Cost Report that remains open
for examination. In recognition of this settlement, the Company established a
reserve for estimated final adjustments to these open Cost Reports. The
post-acquisition PVNS Cost Reports also remain open for examination and a
reserve has been established for any estimated adjustments thereto.
In connection with the acquisition of PRN Nevada, the Company received an
indemnification from the former owner of PRN Nevada for adjustments to PRN
Nevada's pre-acquisition Cost Reports open for examination through June 29,
1994. PRN Nevada's pre-acquisition Cost Reports through December 31, 1993 have
been settled and the amounts due the Company pursuant to the indemnification
have been received (see also Note 6). Any adjustments to other pre-acquisition
Cost Reports open for examination are expected to be recovered from the above
referenced indemnification or applied against the reserve established at the
acquisition date. The Cost Reports for the post-acquisition period are also open
for examination and a reserve has been established for any estimated adjustments
thereto.
Management believes the above referenced PRN Nevada indemnification and the
Company's remaining reserve for government program settlements are adequate to
cover any adjustments to open Cost Reports and that any final determinations in
connection therewith will not have a material adverse effect on the Company's
financial position or results of operations.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS. The following table presents selected financial
information as a percentage of revenues for the periods indicated (including the
restatement to reflect the merger with HHCC, which was accounted for as a
pooling of interests):
PERCENTAGE OF REVENUES
-------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ----------------
1995 1994 1995 1994
------- ------ ------ -------
Revenues ................................. 100.0% 100.0% 100.0% 100.0%
Direct patient care ...................... 60.3% 60.5% 61.1% 59.9%
Selling, general and administrative ...... 33.7% 36.2% 33.6% 35.6%
Provision for doubtful accounts .......... 1.0% 1.0% 1.0% .9%
----- ----- ----- -----
Income from operations ................... 5.0% 2.3% 4.3% 3.6%
Gain on sale of minority interest ........ -- .8% -- .5%
Interest expense ......................... 1.6% 1.2% 1.6% 1.2%
----- ----- ----- -----
Income before taxes ...................... 3.4% 1.9% 2.7% 2.9%
Provision for income taxes ............... 1.4% .8% .9% 1.2%
----- ----- ----- -----
Net income ............................... 2.0% 1.1% 1.8% 1.7%
===== ===== ===== =====
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
REVENUES. Revenues for the second quarter of 1995 were $18,030,111, an increase
of $1,841,838, or 11.4%, over the second quarter of 1994. The increase was
primarily due to the growth in the Company's Texas nursing and pharmacy
operations, where revenue increased 11.7% ($1,247,000). Also, the management
services division's revenues increased 111.5% ($420,000), primarily as the
result of contracts entered into after June 30, 1994. Revenues from Virginia
nursing and pharmacy operations increased 19.4% ($345,000). To a lesser extent,
the acquisition of the PharmaThera Branch contributed to the revenue increase
($164,000). The above increases were somewhat offset by decreases in the PRN
Nevada nursing operations of 7.0% ($205,000) and the New Jersey nursing and
pharmacy operations of 30.7% ($145,000). The New Jersey operation was closed in
July 1995. On a company-wide basis, pharmacy revenues increased 37.8% ($561,000)
in the second quarter of 1995, compared to the second quarter of 1994. Also,
nursing and related revenues increased 4.4% ($499,000) and homemaker services
increased 12.5% ($362,000).
DIRECT PATIENT CARE. Costs of direct patient care in the second quarter of 1995
were $10,881,826, an increase of $1,092,609, or 11.2%, over the second quarter
of 1994, resulting primarily from the corresponding increase in revenues
described above. As a percentage of revenues, such costs were 60.3% in the
second quarter of 1995, compared to 60.5% in the second quarter of 1994. The
Company continues to experience close involvement by payors in referring and
managing patients. Consequently, there is consistent pressure to evaluate direct
patient care costs to ensure continued efficiency in delivery of care. The
Company makes extensive use of personnel who are paid on a "per visit" basis.
12
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In the second quarter of 1995,
selling, general and administrative expenses were $6,075,837, an increase of
$219,206, or 3.8%, over the second quarter of 1994. Of the increase, $127,000 is
due to the acquisition of the PharmaThera Branch on January 31, 1995. Also,
nonrecurring transaction costs of approximately $62,000 incurred in connection
with the HHCC merger were expensed by the Company in the second quarter of 1995.
A decrease of $152,000 is attributable to reductions in HHCC payroll and other
expenses which were associated with lower HHCC revenues during the second
quarter of 1995 and additional expense reductions in the post-merger period. The
remaining increase of approximately $188,000 is primarily due to an increase in
corporate overhead, which is attributable to the Company's overall growth. As a
percentage of revenues, such expenses decreased to 33.7% in the second quarter
of 1995, compared to 36.2% in the second quarter of 1994. This decrease in
percentage is primarily due to increased efficiencies and economies of scale,
which is expected to continue as the Company achieves its plan of streamlining
operations and reducing costs.
INCOME FROM OPERATIONS. Income from operations was $896,646 in the second
quarter of 1995, an increase of $518,778, or 137.3%, over the second quarter of
1994. The increase is primarily attributable to the improved performance of the
Company's Houston, Texas pharmacy and nursing operations ($453,000) and the new
contracts of the management services division ($361,000), offset by increased
corporate overhead costs ($211,000) and losses incurred in the Company's Florida
operation ($72,000). Emphasis continues to be placed on improving the operating
results of the Florida operation which commenced as a start-up in 1994 and was
expanded through the acquisition of the PharmaThera Branch in early 1995. In
July 1995, the Company closed its New Jersey operation, which was not achieving
acceptable operating results (operating loss of $54,000 during the second
quarter of 1995). This closure was completed at a nominal cost.
GAIN ON SALE OF MINORITY INTEREST. In the second quarter of 1994, the Company
sold a 20% ownership interest and a 5% net profits interest in its Pensacola,
Florida homecare business for cash and a realized pre-tax gain of $128,500.
INTEREST EXPENSE. Interest expense increased $85,466, or 42.4%, to $287,224 in
the second quarter of 1995, compared to $201,758 in the second quarter of 1994,
primarily as a result of interest on debt incurred in connection with the
Company's acquisitions and for working capital purposes. A portion of this
increase was also attributable to increases in the prime interest rate charged
in 1995 over 1994. The weighted average of the prime interest rate in the second
quarter of 1995 was 9.0%, compared to 6.1% during the same period in 1994, which
equates to a $54,000 increase in the second quarter of 1995 interest expense
when applying the percentage increase in average interest rates to the interest
expense incurred in the second quarter of 1994.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
REVENUES. Revenues for the six months ended June 30, 1995 were $33,958,102, an
increase of $5,795,340, or 20.6%, over revenues of $28,162,762 for the same
period in 1994. Of this increase, approximately $2,658,000 was due to the
acquisition of PRN Nevada effective April 1, 1994. The first six months of 1995
included six months of PRN Nevada revenues, while the comparable period in 1994
included only three months of PRN Nevada revenues. Also, an increase of
approximately $341,000 is attributable to the PharmaThera Branch acquisition on
January 31, 1995. The management services division's revenues increased 47.3%
($363,000), primarily as the result of contracts entered into after June 30,
1994. The remaining increase of $2,433,000 was comprised of (i) the growth in
the number of patients serviced by the Company's Texas nursing and pharmacy
operations, which had increased revenues of 13.6% ($2,744,000), (ii) an increase
in revenues from Virginia nursing and pharmacy operations of 11.7% ($387,000),
(iii) a decrease in revenues in the New Jersey operation of 40.5% ($401,000),
and (iv) a
13
decrease in the PRN Nevada nursing operations of 10.4% ($304,000). On a
company-wide basis, nursing and related revenues increased 20.7% ($3,873,000) in
the six months ended June 30, 1995, compared to the six months ended June 30,
1994. Homemaker revenues increased 16.0% ($895,000) and pharmacy revenues
increased 21.7% ($665,000) in the same comparable periods.
DIRECT PATIENT CARE. Costs of direct patient care in the six months ended June
30, 1995 were $20,750,583, an increase of $3,889,315, or 23.1%, over the six
months ended June 30, 1994, resulting primarily from the corresponding increase
in revenues described above. As a percentage of revenues, such costs were 61.1%
in the six months ended June 30, 1995, compared to 59.9% in the six months ended
June 30, 1994. The increase in the percentage of direct patient care costs is
due primarily to the acquisition of PRN Nevada, which is a provider of nursing
services. Such services are more labor intensive than infusion therapy services,
which yield higher profit margins, and accounted for a larger percentage of the
Company's revenues prior to the acquisition. In addition, this acquisition
increased the Company's percentage of revenues from the Medicare program, which
produces only a marginal profit. The Company continues to experience close
involvement by payors in referring and managing patients. Consequently, there is
consistent pressure to evaluate direct patient care costs to ensure continued
efficiency in delivery of care. The Company makes extensive use of personnel who
are paid on a "per visit" basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In the six months ended June 30,
1995, selling, general and administrative expenses were $11,419,766, an increase
of $1,397,817, or 14.0%, over the six months ended June 30, 1994. A large
portion of the increase ($725,000) relates to the acquisition of PRN Nevada
effective April 1, 1994. The six months ended June 30, 1995 included six months
of PRN Nevada selling, general and administrative expenses, while the comparable
period in 1994 included only three months of such expenses. Additionally, an
increase of $223,000 is attributable to the PharmaThera Branch acquisition
effective January 31, 1995. Corporate overhead increased by $280,000 in the
comparable periods. A decrease of $283,000 is attributable to reductions in HHCC
payroll and other expenses which were associated with lower HHCC revenues during
the second quarter of 1995 and additional expense reductions in the post merger
period. During the six months ended June 30, 1995, selling, general and
administrative expenses were reduced by approximately $245,000 resulting from
the recovery of certain nonrecurring payroll related costs attributable to prior
periods. The remaining increase of $698,000 is primarily due to additional
selling, general and administrative expenses incurred by the Company's other
operations which coincide with their growth in revenues. As a percentage of
revenues, such expenses decreased to 33.6% in the six months ended June 30, 1995
from 35.6% in the same period in 1994. The decrease in percentage is primarily
due to increased efficiencies and economies of scale, which is expected to
continue as the Company achieves its plan of streamlining operations and
reducing costs.
INCOME FROM OPERATIONS. Income from operations was $1,461,317 in the six months
ended June 30, 1995, an increase of $439,191, or 43.0%, over the six months
ended June 30, 1994. The increase is attributable to growth in the management
services division, which had an increase in income from operations of $592,000.
Also, income from the Company's Texas operations increased 22%, or $330,000. In
the six months ended June 30, 1995, a recovery of certain nonrecurring payroll
related costs reduced selling, general and administrative expense by $245,000,
thus increasing income from operations. These increases were offset by increased
corporate overhead of $332,000 to support the Company's growth, operating losses
in the Company's New Jersey operation of $153,000 and the Florida operation of
$133,000 for the six months ended June 30, 1995. The New Jersey operation, which
was closed in July 1995 at a nominal cost, had operating income of $12,000 for
the same period of 1994. The Florida operation had only minimal losses in the
second quarter of 1994 in connection with its start-up in April 1994. Emphasis
is being placed on improving the operating results in Florida, which start-up
operation was expanded through the acquisition of the PharmaThera Branch in
early 1995. In the six months ended June 30, 1994, the Company recognized a
nonrecurring gain of $128,500 from the sale of a minority interest in its
Florida operation. In the six months ended June 30, 1995, the Company incurred
transaction costs of approximately $62,000 incurred in connection with the
merger with HHCC. The remaining increase of $87,000 relates to the Company's
other operations.
14
INTEREST EXPENSE. Interest expense increased $187,443, or 54.8%, to $529,696 in
the six months ended June 30, 1995, primarily as a result of interest on debt
incurred in connection with the Company's acquisitions and for working capital
purposes. A portion of this increase was also attributable to increases in the
prime interest rate in 1995 over 1994. The weighted average of the prime
interest rate in the six months ended June 30, 1995 was 8.9%, compared to 6.6%
in the same period in 1994, which equates to a $119,000 increase in expense for
the six months ended June 30, 1995, when applying the percentage increase in
average interest rates to interest expense incurred in the same period in 1994.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for the six months
ended June 30, 1995 was 33.9% compared to 42.1% for the same period in 1994.
Such effective tax rate was substantially lower in 1995 primarily due to a
permanent book and tax difference created by a nontaxable recovery of certain
nonrecurring payroll related costs in 1995. See also Note 5 to the accompanying
condensed financial statements for more detailed information concerning the
items causing the difference between the effective tax rate and the statutory
tax rate of 34% for these periods and the differences between the two periods.
LIQUIDITY AND CAPITAL RESOURCES. The following table sets forth, for the periods
indicated, the level of the Company's cash and cash equivalents (including
short-term investments), working capital and its current and debt-to-equity
ratios (including the restatement to reflect the merger with HHCC which was
accounted for as a pooling of interests):
LIQUIDITY AND CAPITAL RESOURCES
(DOLLAR AMOUNTS IN THOUSANDS)
-------------------------------
JUNE 30, DECEMBER 31,
1995 1994
-------------- -------------
Cash and cash equivalents ................... $ 773 $ 1,616
Working capital (deficiency) ................ $(4,889) $3,812
Current ratio ............................... .74 1.43
Debt-to-equity ratio ........................ 2.40 2.42
GENERAL
Cash and cash equivalents at June 30, 1995 decreased by approximately $843,000
from December 31, 1994. Working capital (a deficiency at June 30, 1995) also
decreased by approximately $8,701,000 during this period. This decrease results
primarily because, at December 31, 1994, the Company's revolving credit
facilities with outstanding balances totalling $3,225,000 ($3,025,000 at June
30, 1995) and the New Term Note of $5,450,000 were classified as noncurrent, but
were classified as current at June 30, 1995 due to their maturity dates of March
31, 1996 and June 6, 1996, respectively; a change of $8,475,000 in the
noncurrent to current classifications between the two balance sheet dates. This
change in balance sheet classification is also primarily the reason that the
current ratio decreased from 1.43 at December 31, 1994 to .74 at June 30, 1995.
Further, accounts receivable, net of reserves, at June 30, 1995 increased by
approximately $1,932,000, or 19.7%, from December 31, 1994, due to the Company's
growth in revenues and the other matters as set forth below. Additionally,
accounts payable and accrued liabilities increased by approximately $439,000 and
accrued compensation and benefits increased by approximately $82,000 from
December 31, 1994 to June 30, 1995. For the six months ended June 30, 1995, net
cash of approximately $293,000 was used for financing activities, while cash of
approximately $174,000 was used
15
for operating activities during this period. Also during this period, the
Company used cash of approximately $26,000 to acquire property and equipment and
approximately $149,000 for other investing activities.
The Company has entered into various debt obligations with the Bank and others,
including the former owners of acquired companies, resulting in total
outstanding borrowings of $12,183,000 at June 30, 1995. Such total debt amount
is exclusive of an obligation to the former owners of PVNS, which is addressed
in the discussion below concerning the Company's other commitments. At June 30,
1995, the Company had borrowing availability of $700,000 under its revolving
credit facilities with the Bank. The terms and other information regarding such
borrowings are described more fully in Note 6 to the accompanying condensed
consolidated financial statements.
During the quarter ended June 30, 1995, primarily for the reasons set forth
below in the third paragraph under ITEMS AFFECTING LIQUIDITY AND CAPITAL
RESOURCES, the Company entered into additional borrowings for working capital
purposes, including $1,000,000 from the Bank under a new revolving credit
facility and $300,000 from the Company's president, which was repaid prior to
the end of the quarter. The previously existing revolving credit facilities were
also utilized at increased levels during the quarter.
The Company's stockholders' equity at June 30, 1995 was $8,692,815, which
increased approximately $621,650 from December 31, 1994, including the effect of
the restatement for the merger of HHCC which was accounted for as a pooling of
interests. The debt-to-equity ratio remained approximately the same at these
dates.
ITEMS AFFECTING LIQUIDITY AND CAPITAL RESOURCES
The Company's total debt outstanding at June 30, 1995 will require approximately
$12,229,000 for principal and interest payments during the twelve months ending
June 30, 1996, based on the assumptions that interest rates and the Company's
borrowing levels remain constant and such debt is not refinanced with extended
maturity dates. The Company also has commitments under employment agreements to
various officers and other employees, as well as an obligation to the former
owners of PVNS that requires total payments over the twelve months ending June
30, 1996 of approximately $332,000, as more fully described in Note 3 to the
accompanying condensed consolidated financial statements. In addition, the
Company is committed under various operating leases (primarily office facilities
and equipment), for payments totalling approximately $2,525,000 (including
month-to-month leases that are expected to be continued or replaced) over the
twelve months ending June 30, 1996. Also in connection with the PharmaThera
Branch acquisition, as more fully described in Note 3 to the accompanying
condensed consolidated financial statements, the Company has remaining
obligations to the seller at June 30, 1995 of up to approximately $495,000,
payable at various dates through May 15, 1996. As of June 30, 1995 and through
this date, the Company had no other significant commitments and no material
planned purchases of property and equipment.
Primary sources of liquidity include cash generated from operations, amounts
available under the Company's revolving credit facilities with the Bank, and
loans from and guarantees of loans by the Company's president and another
director (see above and Note 6 in the accompanying condensed consolidated
financial statements). At June 30, 1995, (i) approximately $1,440,000 was being
withheld by a Medicare intermediary in connection with the determination letters
issued for the PVNS June 30, 1990 and 1991 Cost Reports, of which approximately
$1,030,000 is expected to be received by the Company within the next thirty days
in connection with the completion of the reopening audits of such Cost Reports,
(ii) approximately $850,000 of receivable claims were due from the PRN Nevada
Medicaid intermediary that exceed the normal amount of receivables outstanding
for this operation (included therein are claims
16
totalling approximately $525,000 on which an informal appeal for payment has
been made to the Nevada Medicaid program), (iii) receivables of approximately
$650,000 were due from a Medicare intermediary for the PVNS 1993 and 1994
tentative Cost Report settlements and a 1995 lump sum payment, and (iv)
approximately $1,300,000 of receivable claims were due from a Texas welfare
program that exceed the normal amount of receivables outstanding for this
operation. Such amounts totalling approximately $4,240,000 were somewhat offset
by excess and accelerated payments of approximately $1,000,000 received by PRN
Nevada from Medicare intermediaries for the 1995 cost reporting period, which
credits are included in accounts receivable in the accompanying condensed
consolidated balance sheet at June 30, 1995. These withheld and delayed
receivable collections (net of excess and accelerated payments) were the primary
reasons for the need to obtain the additional working capital loans as described
above. The Company believes the excess and accelerated payments received from
the Medicare intermediaries will be repaid within the next 120 days. In addition
to the expected receipt of approximately $1,030,000 on the amount withheld from
the Medicare intermediary, the Company expects that it will collect a large
portion of the outstanding receivables described above during 1995. However,
collection is based on a number of variables and determinations by government
programs or their intermediaries which are not completely within the Company's
control. Thus, the amounts referred to above could be withheld longer than
expected, could continue to be delayed in collection and could be adversely
impacted by third-party determinations and accordingly, the additional working
capital loan entered into during the second quarter may not be repaid in the
time frame expected (by November 1, 1995) and additional borrowings may be
required.
Taking into account the Company's commitments and the matters described above,
management believes that the Company's existing capital resources and sources of
liquidity are sufficient to finance its existing operations during the next
twelve months. If cash generated from operations is less than anticipated, or if
other currently unforeseen events occur including the outcome of the matters
described above, the Company may be required to seek additional financing.
Potential sources of additional financing include private or public equity or
debt financing or additional bank financing. The Company's credit facilities
with the Bank generally prohibit additional borrowings by the Company without
the Bank's consent. Although the Company has historically been able to refinance
its debt, as needed, there can be no assurance that the Company would be able to
obtain additional financing, if required, on acceptable terms.
17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index on page 20 for location of exhibits required by
Item 601 of Regulation S-K.
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K, dated May 19, 1995,
reporting the acquisition of all of the issued and outstanding common stock of
Hospital HomeCare Corporation ("HHCC"), in a stock for stock transaction,
pursuant to an Agreement and Plan of Reorganization dated May 19, 1995.
Financial statements of HHCC and pro forma combined financial information
relating to HHCC and the Company was filed in an amendment on August 4, 1995.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Medical Innovations, Inc.
Date: August 14, 1995 By /s/ MARK H. FISHER
Mark H. Fisher
President and Chief
Executive Officer
By /s/ DAVID C. HORN
David C. Horn
Chief Financial Officer
19
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT DESCRIPTION
------- -------------------
11 Computation of Per Share Earnings
20
EXHIBIT 11
MEDICAL INNOVATIONS, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
PRIMARY: 1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income applicable to common stock ...................... $ 354,678 $ 174,955 $ 616,069 $ 467,872
Adjustment to net income to reduce interest expense
and increase interest income, net of tax effect ......... 17,921 -- 17,921 --
----------- ----------- ----------- -----------
Net income applicable to common and
common equivalent shares ................................ $ 372,599 $ 174,955 $ 633,990 $ 467,872
=========== =========== =========== ===========
Weighted average common shares outstanding ................. 15,834,873 16,634,521 15,833,229 16,443,221
Effect of stock options and warrants ....................... 1,132,025 1,260,051 566,012 1,359,245
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares ....................................... 16,966,898 17,894,572 16,399,241 17,802,466
=========== =========== =========== ===========
Net income per common and common
equivalent share - primary .............................. $ 0.02 $ 0.01 $ 0.04 $ 0.03
=========== =========== =========== ===========
FULLY DILUTED:
Net income applicable to common stock ...................... $ 354,678 $ 174,955 $ 616,069 $ 467,872
Adjustment to net income to reduce interest expense
and increase interest income, net of tax effect .......... 8,431 -- 8,431 --
----------- ----------- ----------- -----------
Net income applicable to common and common
equivalent shares ........................................ $ 363,109 $ 174,955 $ 624,500 $ 467,872
=========== =========== =========== ===========
Weighted average common and common
equivalent shares ........................................ 16,966,898 17,894,572 16,399,241 17,802,466
Additional effect of stock options and warrants ............ -- 126,997 -- 82,160
----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares ........................................ 16,966,898 18,021,569 16,399,241 17,884,626
=========== =========== =========== ===========
Net income per common and common
equivalent shares - fully diluted ........................ $ 0.02 $ 0.01 $ 0.04 $ 0.03
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S UARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 772,883
<SECURITIES> 0
<RECEIVABLES> 11,762,365
<ALLOWANCES> 0<F1>
<INVENTORY> 295,944
<CURRENT-ASSETS> 14,198,787
<PP&E> 1,931,499
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 29,588,977
<CURRENT-LIABILITIES> 19,088,037
<BONDS> 0
<COMMON> 118,717
0
0
<OTHER-SE> 0<F3>
<TOTAL-LIABILITY-AND-EQUITY> 29,588,977
<SALES> 18,030,111
<TOTAL-REVENUES> 18,030,111
<CGS> 10,881,826<F4>
<TOTAL-COSTS> 17,133,465
<OTHER-EXPENSES> 6,251,639
<LOSS-PROVISION> 175,802
<INTEREST-EXPENSE> 287,224
<INCOME-PRETAX> 609,422
<INCOME-TAX> 254,744
<INCOME-CONTINUING> 354,678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354,678
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>ALLOWANCES ARE NETTED AGAINST RECEIVABLES ON THE BALANCE SHEET, BUT ARE
DISCLOSED IN THE NOTES.
<F2>DEPRECIATION IS INCLUDED IN PP&E AND IS DISCLOSED IN NOTES SEPARATELY.
<F3>OTHER-SE INCLUDES ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS.
<F4>CGS INCLUDES DIRECT PATIENT CARE COSTS.
</FN>
</TABLE>
