<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10 - Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995 Commission file number 0-17821
The Care Group, Inc.
(Exact name of registrant
as specified in its charter)
Delaware 11-2962027
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Hollow Lane, Lake Success, New York, N.Y. 11042
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 516-869-8383
N/A
(Former name, former address and former fiscal year, if changed from
last report)
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
As of May 4, 1995, the registrant had 8,390,015 shares of common stock,
$.001 par value per share, outstanding.
<PAGE>
THE CARE GROUP, INC.
AND
SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 1995
PART I
FINANCIAL INFORMATION
Page 2 of 12 pages
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<TABLE>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(In thousands, except
per share data) March 31, December 31, March 31,
1995 1994 1994
(Unaudited) (Audited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $301 $577 $323
Marketable securities 737 711 1,007
Accounts receivable (Net of allowances of $3,477 March 31, 1995,
$4,186 December 31, 1994 and $3,309
March 30, 1994) 15,566 15,585 13,536
Inventories 1,430 1,163 502
Prepaid expenses and other
current assets 642 593 706
Total Current Assets 18,676 18,629 16,074
PROPERTY AND EQUIPMENT
- At Cost 4,318 3,808 2,173
LESS: Accumulated
depreciation (1,321) 1,195 742
Net property and equipment 2,997 2,613 1,431
INTANGIBLES - Net 13,791 13,851 7,176
OTHER ASSETS 350 315 174
TOTAL ASSETS $35,814 $35,408 $24,855
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank $ -0- $ -0- $ -0-
Current portion of
long-term debt 852 568 8
Accounts payable 921 1,374 607
Accrued expenses 749 851 586
Income taxes payable 213 264 133
Deferred income taxes -0- -0- 330
Total Current Liabilities 2,735 3,057 1,664
LONG-TERM LIABILITIES
NOTE PAYABLE TO BANK 6,400 6,000 4,100
LONG-TERM DEBT, excluding
current portion 2,480 2,856 12
DEFERRED INCOME TAXES 305 158 130
Total Liabilities 11,920 12,071 5,906
COMMITMENTS AND CONTINGENCIES -0- -0- -0-
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 par value per share, 1,000
shares authorized; no shares issued
and outstanding -0- -0- - 0-
Common Stock, $.001 par value per share, 20,000 shares authorized;
8,578, 8,359, 7,295; shares issued and
outstanding for March 31, 1995, December 31, 1994
and March 31, 1994 9 8 7
Additional Paid-In-Capital 20,916 20,390 16,919
Retained earnings 3,999 3,858 2,942
Common Stock held in treasury, at cost - (217, 207, 207 Shares for
March 31, 1995, December 31, 1994 and March 31, 1994
respectfully) (1,030) (919) (919)
Total Stockholders'
Equity 23,894 23,337 18,949
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $35,814 $35,408 $24,855
</TABLE>
Page 3 of 12 pages
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For The Three Months Ended
March 31,
(In thousands, except 1995 1994
per share data) (Unaudited) (Unaudited)
NET REVENUES $10,037 $7,599
COST OF REVENUES 5,311 4,469
GROSS PROFIT 4,726 3,130
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 4,269 2,506
OPERATING INCOME 457 624
<PAGE>
INTEREST:
Interest income 10 1
Interest expense (159) (65)
Net Interest (Expense) (149) (64)
INCOME BEFORE INCOME TAXES 308 560
PROVISION FOR INCOME TAXES 167 262
NET INCOME $141 $298
INCOME PER COMMON AND COMMON
EQUIVALENT SHARES $.02 $.04
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 8,293 7,305
Page 4 of 12 pages
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THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In Thousands) Common Additional
Stock Paid-In
Shares Amount Capital
Balance -
January 1, 1994 7,295 $7 $16,919
Proceeds from Exercise
of Stock Options 272 -0- 654
Adjust for stock distributed to employees pursuant to employment
agreements - -0- (91)
Stock distributed to employees pursuant to employment
agreements 30 -0- 200
Stock issued
for acquisitions 762 1 2,708
Net income - -0- -0-
<PAGE>
Balance -
December 31, 1994 8,359 8 20,390
Proceeds from exercise of
stock options 209 1 526
Treasury stock acquired -0- -0-
Treasury stock sold -0- -0-
Net income -0- -0-
Balance -
March 31, 1995 8,568 $9 $20,916
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In Thousands)
Retained
Earnings Shares
Balance -
January 1, 1994 $2,644 207
Proceeds from Exercise
of Stock Options -0-
Adjust for stock distributed
to employees pursuant to
employment agreements -0-
Stock distributed to
employees pursuant
to employment agreements -0-
Stock issued for acquisitions -0-
Net income 1,214
Balance -
December 31, 1994 3,858 207
Proceeds from exercise
of stock options -0-
Treasury stock acquired -0- 30
Treasury stock sold -0- (20)
Net income 141
Balance -
March 31, 1995 $3,999 217
<PAGE>
THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In Thousands) Treasury
Stock
Amount Total
Balance -
January 1, 1994 ($919) $18,651
Proceeds from Exercise
of Stock Options -0- 654
Adjust for stock distributed
to employees pursuant to
employment agreements -0- (91)
Stock distributed to
employees pursuant
to employment agreements -0- 200
Stock issued for acquisitions -0- 2,709
Net income -0- 1,214
Balance -
December 31, 1994 (919) 23,337
Proceeds from exercise
of stock options -0- 527
Treasury stock acquired (200) (200)
Treasury stock sold 89 89
Net income -0- 141
Balance -
March 31, 1995 ($1,030) $23,894
Page 5 of 12 pages
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THE CARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31,
(In thousands)
1995 1994
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net Income $141 $298
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 309 229
Provision for bad debts 297 -0-
Unrealized gain on marketable securities (3) -0-
Loss (gain) on sale of marketable
securities 23 (17)
Changes in assets and liabilities, net of effect of acquisitions:
Marketable securities 10 -0-
Accounts receivable (278) (872)
Inventories (267) (111)
Prepaid expenses and other current
assets (106) (59)
Other assets (35) (78)
Accounts payable (453) (226)
Accrued expenses (102) 208
Income taxes payable (51) 66
Deferred income taxes 147 (90)
Net cash used in operating activities (368) (652)
INVESTING ACTIVITIES:
Purchases of property and equipment (510) (54)
Payments for intangible asssets acquired -0- (320)
Restrictive covenant (66) -0-
Purchases of marketable securities, net (56) (135)
Net cash used in investing activities (632) (509)
FINANCING ACTIVITIES:
Proceeds from bank loan 400 4,100
Repayments of bank loan -0- (3,000)
Repayment of long-term debt (92) (958)
Proceeds from exercise of stock options 527 -0-
Purchase of treasury stock (200) -0-
Sale of treasury stock 89 -0-
Net cash provided by
financing activities 724 142
DECREASE IN CASH AND CASH
EQUIVALENTS (276) (1,019)
CASH AND CASH EQUIVALENTS,
beginning of year 577 1,342
CASH AND CASH EQUIVALENTS, end of year $301 $323
Page 6 of 12 pages
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THE CARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - 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-Q
and Article 10 of Regulation S-X. 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 of normal recurring accruals)
considered necessary for a fair presentation have been included. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
Page 7 of 12 pages
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ITEM. 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's analysis is intended to describe narratively the Company's
consolidated financial condition and its consolidated results of
operations. It should be read in conjunction with the Company's
consolidated financial statements and the accompanying notes.
RESULTS OF OPERATION
Net revenues for the three months ended March 31, 1995 increased to
$10,037,000 as compared to $7,599,000 for the comparable period last
year. The increase of $2,438,000 or 32% is attributable to revenues
generated from the acquisitions of Advanced Care Associates, Inc. and
Clinical Care Services, Inc. (which occurred in 1994) and to increased
revenues from the Company's infusion division.
Cost of revenues for the three months ended March 31, 1995 as a
percentage of net revenues was 53% as compared to 59% for the same
period in 1994. The decrease in the cost of revenues as a percentage
of net revenues was attributable to the impact of the Company's durable
medical equipment ("DME") business, which has a lower cost of revenues
than the nursing and infusion therapy business. DME sales for the
quarter were approximately $1.3 million versus no sales in the
comparable quarter last year. For the first quarter of 1995, the
Company's DME operations had a gross profit percentage of 74%. Most of
the Company's DME business is conducted by Advanced Care Associates,
Inc.
The Company's selling, general and administrative ("SG&A")costs as a
percentage of net revenues for the three months ended March 31, 1995
increased to 43% as compared to 33% for the same period in 1994. This
increase is due to the DME business and costs associated with the
establishment of the Company's new subsidiary Mail Order Meds, Inc.
("MOM"). The Company's DME operation has twenty sales people that are
included in the SG&A costs. Total SG&A costs as a percentage of net
revenues for the DME operation is 55%.
Net income for the three months ended March 31, 1995 decreased to
$141,000 ($.02 per share) as compared with $298,000 ($.04 per share)
for the same period in 1994. Net income as a percentage of net revenues
for the three months ended March 31, 1995 was 1.4% as compared to 3.9%
for the same period last year. The decrease in net income is primarily
attributable to the establishment of MOM which began operating in
January 1995. MOM sells pharmaceuticals, vitamins, nutrients, books and
of 1995 the first quarter the Company recorded a loss of $300,000 on
this new subsidiary. Management believes that this subsidiary will
achieve break even by the end of 1995, althoughthere can be no
assurance.
Page 8 of 12 pages
<PAGE>
(Item 2. Continued)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Current assets have increased to $18,676,000 at March 31, 1995 from
$16,074,000 at March 31, 1994. The net increase of $2,602,000 in current
assets is due to the Company's increase in accounts receivable and
inventories.
At March 31, 1995, working capital was $15,941,000 as compared to
$14,410,000 at March 31, 1994. The increase of $1,531,000 is primarily
attributable to the increase in accounts receivable and inventory.
The Company acquired 29,630 shares of its stock for $200,000 pursuant
to an acquisition agreement entered into June 1991.
The Company has a term revolving credit agreement with its bank which
provides for borrowing up to $7,500,000, expiring February 14, 1997.
The Company may borrow up to 70% of eligible receivables, as defined
pursuant to the terms of the revolving credit agreement. Interest is
charged at prime (9.0 percent at March 31, 1995) plus one-half percent.
The outstanding balance under this arrangement at March 31, 1995 was
$6,400,000.
The average days sales in outstanding receivables decreased from 160
days at March 31, 1994 to 140 days at March 31, 1995 based upon net
sales and net accounts receivable during the respective quarters. The
reduction is the result of management's continued effort to reduce the
accounts receivable days outstanding. Delays resulting from increased
third-party payor scrutiny of invoices, refusal to pay or an increased
proportion of Medicare and Medicaid patients could in the future have a
materially adverse effect on the Company's liquidity and general
financial condition.
During the period January 1, 1995 through March 31, 1995, the Company
received approximately $527,000 from the exercise of 209,000 stock
options.
Page 9 of 12 pages
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Financial Condition and Liquidity (continued)
Although management anticipates that income from operations will
increase, cash from operations may decrease because the Company's
expanded operations will require increased investment in accounts
receivable and inventories which may not be offset by increases in
accounts payable.
Management believes that available marketable securities and cash
generated from operations and funds available under its revolving
credit agreement will be sufficient for the Company to satisfy the
capital requirements associated with the Company's future growth plans
and to finance working capital requirements for the foreseeable future.
The Company also anticipates seeking additional financing from other
sources to continue its expansion.
Inflation has not significantly impacted the Company's financial
position or operations.
Page 10 of 12 pages
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information
On May 18, 1994, the Company acquired all the stock of Advanced Care
Associates, Inc., Advanced Care CPM, Inc. and Millwo Management, Inc.
("Advanced Care") for an aggregate consideration of $5,268,000, of
which $3,000,000 is in the form of two promissory notes due in twenty-
four equal payments beginning July 10, 1995.
As previously disclosed, on September 30, 1994, Advanced Care and its
former owners were served with a civil lawsuit by the Department of
Justice (United States District Court of Pennsylvania, Eastern
District) alleging improper Medicare billing and reimbursement practices
during some or all of the period from 1989 through May 1994. The
allegations in the complaint only involve the time prior to Advanced
Care's acquisition by the Company. The government is currently seeking
unspecified monetary damages.
Pursuant to the terms of the purchase agreement, the Company is
indemnified by the prior owners of Advanced Care from and against
activities of Advanced Care prior to its acquisition. The Company has
advised the previous owners that they will be held responsible for this
claim pursuant to the indemnification agreement. The agreement also
provides that in the event indemnification is required, the Company has
the right to reduce the outstanding principal amounts due under the
promissory notes by the indemnified amounts, including legal and other
costs of litigation. As of March 31, 1995, the Company has incurred
costs relating to the litigation of approximately $279,000, which have
been offset against the $3,000,000 subordinated promissory notes.
Management has entered into settlement discussions with the government
and believes that the cost of settling with the government will be
less than the $3,000,000 principal amount of the subordinated promissory
notes. Management believes that Advanced Care will enter into a
settlement with the government within the next three months, although
there can be no assurance of these events, including the cost of
settlement.
On October 17, 1994 the Company filed a lawsuit against the former
owners of Advanced Care (New York Supreme Court, Nassau County). The
lawsuit alleges, among other matters, that the former owners knowingly
misrepresented the financial condition of Advanced Care to the Company
causing the Company to enter into the purchase agreement dated May 18,
1994. The Company is seeking rescission of their employment agreements
and monetary damages.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
None
b. Reports on Form 8-K.
None
Page 11 of 12 pages
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SIGNATURES
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 thereunto duly authorized.
The Care Group, Inc.
______________________
(Registrant)
Dated: May 11, 1995
/s/ Ann T. Mittasch
______________________
Ann T. Mittasch
President and Chairman
Dated: May 11, 1995
/s/ Pat H. Celli
______________________
Pat H. Celli
Chief Financial Officer
(Principal Financial Officer)
Page 12 of 12 pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FDS FOR FIRST QUARTER 10-Q FOR THE CARE GROUP, INC.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 301
<SECURITIES> 737
<RECEIVABLES> 15566
<ALLOWANCES> 3477
<INVENTORY> 1430
<CURRENT-ASSETS> 18676
<PP&E> 4318
<DEPRECIATION> (1321)
<TOTAL-ASSETS> 35814
<CURRENT-LIABILITIES> 2735
<BONDS> 8580
<COMMON> 9
0
0
<OTHER-SE> 23885
<TOTAL-LIABILITY-AND-EQUITY> 35814
<SALES> 10037
<TOTAL-REVENUES> 10037
<CGS> 2344
<TOTAL-COSTS> 5311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 308
<INCOME-TAX> 167
<INCOME-CONTINUING> 457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
