<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-18217
TRICARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0378756
(State or other jurisdiction (I.R.S Employer
of incorporation) Identification No.)
3353 PEACHTREE ROAD, N.E., SUITE 1000, ATLANTA, GEORGIA 30326
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (404) 364-8000
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
----- -----
Indicate the number of shares outstanding of the Registrant's common
stock as of the latest practicable date.
Class Outstanding at May 3, 1995
----- --------------------------
Common Stock, $.01 par value 17,593,454
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1994 and March 31, 1995 1
Consolidated Statements of Operations for the
Three Months Ended March 31, 1994 and 1995 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1994 and 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II. OTHER INFORMATION
Item 6. Exhibits 13
SIGNATURES 14
</TABLE>
<PAGE> 3
TRICARE, INC. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
(See Note 3)
<TABLE>
<CAPTION>
December 31,
December 31, 1994 March 31,
1994 Proforma 1995
------------ ------------ -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . $ 150,000 $ 7,632,000 $ 2,329,000
Accounts receivable, net of allowance for
administrative discounts of $15,000 and
$96,000 respectively . . . . . . . . . . . . . . 700,000 1,285,000 1,597,000
Prepaid expenses, supplies and other . . . . . . . . 62,000 142,000 252,000
----------- ----------- -----------
Total current assets . . . . . . . . . . . . . . 912,000 9,059,000 4,178,000
NET ASSETS RELATED TO DISCONTINUED
OPERATIONS . . . . . . . . . . . . . . . . . . . . . -- 3,923,000 3,617,000
SECURITIES FROM SALE OF OCCU-CARE . . . . . . . . . . . . -- 2,050,000 2,050,000
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
at cost net of accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . . 558,000 850,000 1,291,000
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . 130,000 13,000 14,000
GOODWILL AND OTHER INTANGIBLE ASSETS,
net of accumulated amortization . . . . . . . . . . . 1,080,000 4,321,000 4,868,000
----------- ----------- -----------
Total assets . . . . . . . . . . . . . . . . . . $ 2,680,000 $20,216,000 $16,018,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and
financing leases . . . . . . . . . . . . . . . . $ 21,000 $ 28,000 $ 4,000
Accounts payable . . . . . . . . . . . . . . . . . . 783,000 1,305,000 376,000
Accrued compensation and employee benefits . . . . . 506,000 702,000 1,097,000
Other accrued liabilities . . . . . . . . . . . . . . 578,000 1,363,000 1,119,000
Accrued liabilities related to sale of Occu-Care . . -- 498,000 464,000
Bank line of credit . . . . . . . . . . . . . . . . . 1,000,000 1,000,000 --
Note payable . . . . . . . . . . . . . . . . . . . . 1,025,000 1,025,000 --
Deferred income taxes . . . . . . . . . . . . . . . . -- 45,000 9,000
----------- ----------- -----------
Total current liabilities . . . . . . . . . . . 3,913,000 5,966,000 3,069,000
----------- ----------- -----------
DEFERRED INCOME TAXES RELATED TO
DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . -- 873,000 679,000
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value:
Authorized - 21,000,000 shares
No shares outstanding
Common Stock, $.01 par value:
Authorized - 31,000,000 shares
Issued and outstanding 9,733,000 shares at
December 31, 1994 and 17,533,000 shares
at March 31, 1995 . . . . . . . . . . . 209,000 175,000 175,000
Additional paid-in capital . . . . . . . . . . . . . 1,565,000 16,209,000 16,209,000
Retained earnings (deficit) . . . . . . . . . . . . . (3,007,000) (3,007,000) (4,114,000)
----------- ----------- -----------
Total stockholders' equity . . . . . . . . . . . (1,233,000) 13,377,000 12,270,000
----------- ----------- -----------
Total liabilities and stockholders' equity . . . $ 2,680,000 $20,216,000 $16,018,000
=========== =========== ===========
</TABLE>
1
<PAGE> 4
TRICARE, INC. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
---- ----
(Unaudited)
<S> <C> <C>
SALES . . . . . . . . . . . . . . . . . . . . . . . . . . $2,555,000 $ 4,897,000
DIRECT EXPENSES . . . . . . . . . . . . . . . . . . . . . 2,182,000 4,346,000
---------- -----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . 373,000 551,000
MARKETING AND SALES EXPENSE . . . . . . . . . . . . . . . 169,000 437,000
GENERAL AND ADMINISTRATIVE EXPENSES . . . . . . . . . . . 324,000 1,113,000
AMORTIZATION EXPENSE . . . . . . . . . . . . . . . . . . 97,000 145,000
---------- -----------
OPERATING LOSS . . . . . . . . . . . . . . . . . . (217,000) (1,144,000)
OTHER INCOME (EXPENSES):
Interest Expense . . . . . . . . . . . . . . . . . . (4,000) --
Interest Income . . . . . . . . . . . . . . . . . . . -- 36,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 25,000 --
---------- -----------
TOTAL OTHER INCOME (EXPENSE) . . . . . . . . . . . 21,000 36,000
---------- -----------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . $ (196,000) $(1,108,000)
========== ===========
NET LOSS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT . . . . . . . . . . . . . . . . . . $ (0.02) $ (0.06)
========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING . . . . . . . . . . . . . . . . . . . . 9,733,000 17,533,000
========== ===========
</TABLE>
2
<PAGE> 5
TRICARE, INC. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1995
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . $(196,000) $(1,108,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 123,000 255,000
Changes in assets and liabilities, net of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . (165,000) (145,000)
Prepaid expenses . . . . . . . . . . . . . . . . . . (8,000) (111,000)
Deposits and other assets . . . . . . . . . . . . . . 13,000 (17,000)
Accounts payable . . . . . . . . . . . . . . . . . . 24,000 (929,000)
Accounts compensation and benefits . . . . . . . . . (225,000) 359,000
Accrued expenses . . . . . . . . . . . . . . . . . . (16,000) (189,000)
Deferred income taxes . . . . . . . . . . . . . . . . -- (36,000)
--------- -----------
Total adjustments . . . . . . . . . . . . . . . . . . (254,000) (813,000)
--------- -----------
Net Cash provided by (used in) continuing operations . . (450,000) (1,921,000)
--------- -----------
Net Cash provided by (used in) discontinued operations . -- 79,000
--------- -----------
Net Cash provided by (used in) operating activities . . . (450,000) (1,842,000)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . (136,000) (472,000)
Purchase of Sullivan . . . . . . . . . . . . . . . . -- (285,000)
Acquisitions . . . . . . . . . . . . . . . . . . . . -- (681,000)
--------- -----------
Net Cash provided by (used in) investing activities . . . (136,000) (1,438,000)
--------- -----------
NET CASH FROM FINANCING ACTIVITIES:
Borrowings from short-term debt . . . . . . . . . . . 500,000 --
Payments on short-term debt . . . . . . . . . . . . -- (1,007,000)
Payments under line of credit agreement . . . . . . . -- (1,200,000)
Proceeds - Common Stock, net . . . . . . . . . . . . 9,000 --
Proceeds - Stock Options, net . . . . . . . . . . . . -- --
--------- -----------
Net Cash provided by (used in) financing activities . . . 509,000 (2,027,000)
--------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . (77,000) (5,307,000)
CASH AND CASH EQUIVALENTS, at
beginning of period . . . . . . . . . . . . . . . 131,000 150,000
CASH ACQUIRED FROM ACQUISITIONS . . . . . . . . . . . . . -- 7,486,000
--------- -----------
CASH AND CASH EQUIVALENTS, at end of period . . . . . . . $ 54,000 $ 2,329,000
========= ===========
</TABLE>
3
<PAGE> 6
TRICARE, INC. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994 AND 1995
(1) The unaudited financial information furnished herein in the opinion of
management reflects all adjustments which are necessary to fairly state the
Company's financial position, the results of its operations and its cash flows.
For further information refer to the combined financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 1994. Footnote disclosure which would substantially duplicate the
disclosure contained in those documents have been omitted.
(2) Net loss per common share has been computed based on the weighted
number of the Company's common shares and common share equivalents (dilutive
stock options) outstanding. The common stock equivalents related to stock
options were not included in the computation due to their antidilutive effect.
Fully diluted net loss per share has not been presented since it is not
materially different from primary net loss per share.
(3) On January 10, 1995, TriCare acquired Transcend Services, Inc., a
Georgia corporation ("Transcend") by the merger of Transcend into First Western
Health Corporation ("Merger"). Inasmuch as the merger is being treated for
financial accounting purposes as the acquisition of TriCare by Transcend,
following the merger, the historical financial statements of Transcend have
become the financial statements of TriCare and include the businesses of both
companies after the effective date of the merger.
(4) On January 31, 1995, the Company acquired the assets of International
Dictating Services ("IDS"), a Boston based medical transcription business for
approximately $831,000, which consisted of approximately $681,000 paid in cash
at closing with the balance payable to the sellers over the next two years.
The intangibles related to customer lists is being amortized over seven years
and a non-compete agreement is being amortized over a two year period. The
balance of the additional intangibles is goodwill which is being amortized over
twenty years.
(5) The pro-forma amounts presented below represent the results of
operations for the three months ended March 31, 1994 adjusted to include
Sullivan Health & Rehabilitation, Inc., Script-Ease, Inc. and the additional
overhead expenses for the entire period as compared to the three months ended
March 31, 1995 as if they had occurred for all periods presented.
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
---------
1994 1995
---- ----
(Unaudited)
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,826,000 $ 4,897,000
=========== ===========
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . $ (439,000) $(1,108,000)
=========== ===========
Net Income (Loss) per Share . . . . . . . . . . . . . . . $ (0.02) $ (0.06)
=========== ===========
Weighted Average Common . . . . . . . . . . . . . . . . . 17,533,000 17,533,000
Shares Outstanding =========== ===========
</TABLE>
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On January 10, 1995, TriCare acquired Transcend Services, Inc., a Georgia
corporation ("Transcend") by the merger of Transcend into First Western Health
Corporation ("Merger"). Inasmuch as the Merger is being treated for financial
accounting purposes as the acquisition of TriCare by Transcend, following the
merger, the historical financial statements of Transcend have become the
financial statements of TriCare and include the businesses of both companies
after the effective date of the merger. As a result, the operations of
Sullivan prior to January 1995 are excluded from the historical financial
statements. Transcend is a hospital services company focused on the
outsourcing of Health Information Management (HIM) for health care providers.
TriCare ("TriCare" or the "Company") was incorporated in California in 1976
and was reorganized as a Delaware corporation in 1988. The Company's applicant
related service businesses of First Western Health Corporation ("First
Western") and Veritas Healthcare Management ("Veritas") were discontinued on
April 30, 1993 and substantially all of the assets and liabilities of another
subsidiary, Occu-Care,Inc. ("Occu-Care") were sold on September 16, 1994. The
net assets of discontinued operations is shown on the combined balance sheet
and the related statement of cash flows as a separate line item and includes
the discontinued operations of First Western, Veritas and Occu-Care. See
"Discontinued Operations" below for further information. On June 15, 1994,
TriCare acquired Sullivan Health and Rehabilitation, Inc. a healthcare case
management company ("Sullivan").
Certain states in which the Company currently operates have established fee
schedules under their workers' compensation laws which apply to certain
services provided by the Company. In addition, political, economic and
regulatory influences are causing fundamental changes in the healthcare
industry in the United States. Congress and various state legislatures are
considering a number of legislative proposals to reform the healthcare system.
The Clinton administration has expressed a commitment to increasing access to
healthcare for the uninsured and controlling healthcare expenditures by both
the public (Medicare and Medicaid) and private sectors. Reforms under
consideration include mandated basic healthcare benefits, controls on
healthcare spending through limitations on increases in private health
insurance premiums and Medicare and Medicaid reimbursement, and fundamental
changes to the healthcare delivery and payment system. In addition, some
states in which TriCare operates are considering various healthcare reform
proposals. TriCare anticipates that Congress and state legislatures will
continue to review and assess alternative healthcare delivery systems and
payment methods and that public debate of these issues will likely continue in
the future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, no prediction can be made
as to which, if any, reform proposals will be adopted, when they may be adopted
or what impact they may have on the operations of TriCare. There can be no
assurance that such reforms, if enacted, will not have a material adverse
effect on TriCare.
5
<PAGE> 8
All interentity accounts and transactions have been eliminated in the
accompanying combined financial statements.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the combined
financial statements of TriCare contained elsewhere herein.
The following table sets forth for TriCare's quarters ending March 31, 1994
and 1995, the dollar amount of its total revenues from each of its principal
lines of business during such periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1994 1995
------ ------
(in thousands)
<S> <C> <C>
Contract Management . . . . . . . . . . . . . . . . . . . . . $1,906 $2,807
Medical Transcription . . . . . . . . . . . . . . . . . . . . 457 1,208
Consulting and Coding . . . . . . . . . . . . . . . . . . . . 192 158
Case Management and Rehabilitation Services ("Sullivan") . . - 724
------ ------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $2,555 $4,897
====== ======
</TABLE>
Revenue increased 91.7% to $4,897,000 in the three months ended March
31, 1995 from $2,555,000 in the same prior year period. The increase in net
revenues is primarily attributable to the Company's contract management
division, reflecting the full year impact of contracts to manage the medical
records department in a hospital entered into on June 1, 1994 and the
transcription acquisitions of Script-Ease on September 1, 1994 and IDS on
January 31, 1995. This increase also included the impact of case management
revenue due to the Merger that occurred on January 10, 1995. The foregoing
increases in revenue are offset slightly by a decline in consulting and coding
revenue due to a greater emphasis on contract management.
Gross profit increased 47.7% to $551,000 for the quarter ended March
31, 1995 from $373,000 in the first quarter of the prior year. Gross profit as
a percentage of revenues declined to 11.3% for the three months ended March 31,
1995 from 14.6% in the same prior year period. This decrease was primarily
attributable to the change in the overall revenue mix provided by the addition
of case management revenues, which provided $724,000 in revenue and accounted
for 28.3% of the total revenue increase. Case management profit margins were
lower, on average, than either contract management or medical transcription.
Transcription revenues, which historically have enjoyed higher profit margins
than contract management revenue and case management revenue, increased 164.3%
and accounted for 29.4% of the total revenue increase.
6
<PAGE> 9
The Company believes that, with respect to contract management
revenues from any particular medical records management contract, its profit
margin should increase over the life of the contract, due both to the nature of
the Company's pricing of its contract management services and to operating
efficiencies expected to be achieved over the life of such a contract. The
Company negotiates its contract management fees on a basis which will
represent, at contract inception, immediate savings to the contracting hospital
over historical costs of operating the managed functions, and for this purpose,
the Company utilizes fixed installment fee payment arrangements. In the early
term of such a contract, the Company's expenses in providing the contract
services remain relatively high, as a percentage of contract revenues received,
as set-up and training costs are incurred, new procedures are implemented and
departmental reorganizations are implemented. Completion of such steps should
result in lower operating expenses, which in turn should increase the profit
margin of a constant revenue stream over time. Assuming increases in the
number of its contract management clients, possible centralization of certain
of the services provided to multiple clients, as well as related economies of
scale, profit margins on contract management revenues should trend higher. The
Company is also seeking to alleviate its current declining trend of profit
margins as a percentage of total revenues, both by seeking to achieve greater
operating efficiencies in its contract management operations and by increasing
the amount of its medical records transcription revenues, which historically
have enjoyed higher profit margins than contract management service revenues.
Moreover, for the reasons discussed above, Transcend believes that its margins
on contract management revenues will increase in the future. However, there
can be no assurance as to future margin trends.
Marketing and sales expenses increased 158.6% to $437,000 in the three
months ended March 31, 1995 from $169,000 in the same prior year period and
increased as a percentage of revenues to 8.9% for the quarter ended March 31,
1995 from 6.6% in the first quarter of the prior year. The increase reflects
increased expenses associated with heightened marketing of the contract
management division's services, including expansion of its sales force and the
additional marketing and sales costs related to case management services of
Sullivan. A majority of the increase in costs in this category was in the form
of additional salaries and sales commissions. Management expects this staffing
level will be sufficient to support Transcend's growth needs for the reasonably
foreseeable future.
General and administrative expenses increased 243.5% to $1,113,000 in
the three months ended March 31, 1995 from $324,000 in the same prior year
period and increased as a percentage of revenues, to 22.7% for the quarter
ended March 31, 1995 from 12.7% in the first quarter of the prior year. The
increase reflects additional expense for increased management and support staff
to support the Company's present and future growth and the additional overhead
of TriCare and Sullivan due to the merger that occurred on January 10, 1995.
Management expects this corporate structure will be sufficient to support
Transcend's growth needs for the reasonably foreseeable future.
The increase in amortization expenses to $145,000 from $97,000 in the
first quarter of the prior year reflects the impact of the intangible assets
associated with the acquisition of Script-Ease which occurred on September 30,
1994, the acquisition of IDS which occurred on January 31,
7
<PAGE> 10
1995 and the additional amortization expense related to the Merger which
occurred on January 10, 1995.
Transcend's loss from operations increased to $1,108,000 for the
quarter ended March 31, 1995 from $196,000 in the first quarter of the prior
year period.
Other income increased to $36,000 in for the quarter ended March 31,
1995 from $21,000 in the first quarter of the prior year period, primarily as
the result of the impact of interest income.
DISCONTINUED OPERATIONS
First Western / Veritas
During fiscal 1993, the Company experienced negative trends in its
applicant related service businesses, First Western and Veritas. As conditions
further deteriorated within the industry, the Company's healthcare
subsidiaries, First Western and Veritas, and their related managed medical
groups decided on April 30, 1993 to abandon their businesses related to
medical/legal evaluations and related services.
The net assets of the discontinued operations of First Western and
Veritas are shown on the combined balance sheet and the related statement of
cash flows as a separate line item.
The net assets related to the discontinued operations at March 31,
1995 were $3,617,000. This amount consisted of $5,871,000 in net accounts
receivable and $2,254,000 in accrued liabilities, which consisted primarily of
amounts accrued for the cost of collections, rental obligations and
miscellaneous future obligations and liabilities of First Western and Veritas.
The Company intends to continue vigorously pursuing the collection of its
accounts receivable and expects to realize substantially all of its net assets
over the next several years. The Company will continue to evaluate the net
realizability of the net assets related to discontinued operations. Any such
evaluation could result in an adjustment that may potentially be material to
the carrying value of this asset.
On September 17, 1993, TriCare and its healthcare subsidiaries and the
physician-owned medical groups that have contracts with the healthcare
subsidiaries initiated a lawsuit in the Superior Court of the State of
California, County of Los Angeles, against twenty-two insurance carriers
seeking $115 million in compensatory damages claiming abuse of process,
intentional interference with contractual and prospective economic relations
and unfair business practices which led to the discontinuation of the business
of TriCare's healthcare subsidiaries and their contracting associated medical
groups in April 1993 (the "Lawsuit"). Certain of the defendants in the Lawsuit
have filed cross complaints seeking restitution from TriCare, its healthcare
subsidiaries and their associated managed medical groups for funds previously
paid to the medical groups and other damages. The costs associated with the
above claims cannot be ascertained with any certainty but are expected to be
substantial. The Company intends to defer such costs until
8
<PAGE> 11
resolution of the litigation. There can be no assurance as to the outcome of
this litigation, including potential recovery, if any, of the Company's claims,
or damages if any. Based upon facts and circumstances known to date, in the
opinion of management, final resolution of this matter will not have a material
adverse effect on the Company's financial condition or results of operations.
Occu-Care
Pursuant to an Asset Acquisition Agreement dated September 16, 1994,
TriCare sold substantially all of the assets and liabilities of its
wholly-owned subsidiary, Occu-Care to AmHealth, Inc. ("AmHealth") for a sales
price of $4,000,000, consisting of $1,500,000 in cash paid at closing and
$2,500,000 in notes receivable.
TriCare did not receive its first interest payment on its $2,500,000
notes receivable from its sale of the assets of Occu-Care, which constituted an
event of default. Therefore, TriCare has deferred recognition of the gain from
the transaction in the amount of $450,000. Any recognition of the deferred
gain will be determined under the cost recovery method. The Company also has
not recognized any interest income from the notes receivable. TriCare entered
into negotiations with the buyer, and on December 30, 1994, the Company entered
into an agreement to exchange its notes receivable of $2,500,000 for 2,500,000
shares of $1.00 convertible redeemable preferred stock. The dividend is
cumulative at a rate of 6.5% per annum. Under certain circumstances and at
TriCare's option, the preferred stock is convertible into common stock of
AmHealth, Inc. The preferred stock is subject to mandatory redemption as
follows: 1,500,000 shares (less any shares previously converted) are to be
redeemed on December 1, 1995, and the balance redeemed in nineteen quarterly
installments commencing December 1, 1995 which was consistent with the payment
schedule of the original notes. The amount the Company will ultimately
realize could differ materially from the carrying value of the investments as
reflected in the financial statements due to changes in the financial condition
of the purchaser.
The securities from the sale of Occu-Care and the accrued liabilities
related to the sale of Occu-Care are shown as separate line items on the
balance sheet. The related statement of cash flow is shown as a separate line
item along with First Western and Veritas as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are internally generated funds
and the net assets of the Company's discontinued operations, which it expects
to collect over the next several years, together with its cash on hand.
9
<PAGE> 12
The Company's working capital increased during the three months ended
March 31, 1995, from a deficit of $3,093,000 at December 31, 1994 to $1,109,000
at March 31, 1995. This increase in working capital for the three months ended
March 31, 1995, as compared with the period ended December 31, 1994, arises
from the combination of several factors. The Merger increased working capital
by $6,195,000, which was offset by the following: first, the acquisition of
another transcription business (IDS) as described below; second, the financing
from current cash sources of capital expenditures for equipment during the
three months ended March 31, 1995, as described below; and finally, the
continued funding of losses from Transcend's operations. The latter factor
results from increases in Transcend's administrative and marketing departments,
which increased significantly in the fourth quarter of 1994, in anticipation of
targeted increases in Transcend's contract records management business. Such
increases should be offset by operating revenues as the number of Transcend's
management contracts increases, although there can be no assurances in that
regard.
During the three months ended March 31, 1995, TriCare's cash balance
increased by $2,179,000, from $150,000 to $2,329,000. This change resulted
primarily from $7,486,000 cash received from the Merger, offset by using cash
reserves to repay Transcend's outstanding indebtedness under both of
Transcend's bank credit facilities totaling $2,025,000; $1,921,000 used in
operating activities including approximately $450,000 in merger costs; capital
expenditures of $472,000 (principally computer and optical imaging equipment);
$285,000 for the final payment related to the acquisition of Sullivan and
approximately $680,000 related to the January 31, 1995 acquisition of IDS, a
medical transcription company.
Net cash provided by discontinued operations for the three months
ended March 31, 1995 was $79,000. The majority of the cash was generated by
the discontinued applicant medical/legal evaluation business and related
primarily to the collection of accounts receivable, offset by the related costs
of First Western and Veritas and the pay down of liabilities related to the
sale of Occu-Care. Management believes that TriCare has experienced
unreasonable delays from some insurance carriers in making payments on claims
for receivables from discontinued operations of First Western and Veritas.
Based upon existing legislation, management believes the ultimate
collectability of its accounts receivable has been properly reflected in the
Company's financial statements. However, there are no assurances that changes
in state workers' compensation laws or interpretations of administrative rules
will not occur which would further lengthen the collection process beyond
management's expectations, or otherwise impair ultimate collectability.
Cash flow used in investing activity for the three months ended March
31, 1995 consisted principally of purchases of capital equipment totalling
$472,000; final payment of $285,000 for the Sullivan acquisition and $681,000
related to the purchase of IDS in January 1995. Upon consummation of the
Merger, the Company used $2,027,000 in financing activities to repay
Transcend's bank credit facilities.
10
<PAGE> 13
TriCare continues to experience negative cash flow from operations.
For the three months ended March 31, 1995, negative cash flow from operations
was $1,842,000, which included approximately $500,000 paydown of higher than
normal aging of Transcend's payables and approximately $450,000 in merger
costs. For the month ended April 30, 1995, negative cash flow was
approximately $250,000. Moreover, on April 19, 1995, Transcend acquired
Medical Transcription of Atlanta ("MTA"), for $550,000 in cash paid at closing
plus additional non-cash consideration (see SUBSEQUENT EVENTS below). This
leaves the Company with a cash balance of approximately $1,200,000 at April 30,
1995. Notwithstanding the foregoing, the Company anticipates that margin
contribution from expected new contract management sales and from recently
acquired transcription businesses, increasing margins in existing contract
management and transcription operations and a planned reduction of sales,
general and administrative costs (as a percentage of total revenue) will permit
the Company during the course of 1995 to slow the rate of negative cash flow
from operations recently experienced by the Company and achieve positive cash
flow from operations by the end of 1995. Based on the foregoing, the Company
anticipates that cash on hand, together with internally generated funds and
cash collected from discontinued operations, will be sufficient to finance
continuing operations and the cash requirements of its discontinued operations
for the next twelve months. Although the Company's goal is to achieve positive
cash flow by the end of 1995, there can be no assurances in that regard.
The Company is currently seeking a lender to provide a credit facility to
support its short-term cash needs as well as to finance cash required for
future acquisitions. The Company believes that such financing may be obtained
from banks or other financing alternatives, although the availability of such
financing may be dependent upon the Company providing and a security interest
in the Company's accounts receivable or the assets to be acquired. The Company
will not make any further acquisitions except in consideration of issuance of
its securities until such time, if any, as its operations become profitable or
it is able to obtain a credit facility to finance acquisitions. There can be
no assurances that additional financing can be obtained particularly if the
Company continues to experience negative cash flow.
INFLATION
Inflation has not had a material effect on the Company to date.
However, the effects of inflation on future operating results will depend in
part, on the Company's ability to increase prices and/or lower expenses in
amounts offsetting inflationary cost increases and on reimbursement levels
established by state authorities.
SUBSEQUENT EVENTS
On April 19, 1995 the Company purchased defined assets and liabilities
of Medical Transcription of Atlanta, Inc. ("MTA"), a medical transcription
company, for a negotiated price of One million, three hundred seventy-two
thousand five hundred dollars ($1,372,500) as follows:
11
<PAGE> 14
(i) The sum of Five hundred fifty thousand dollars ($550,000) in cash at
closing; (ii) a Subordinated Promissory Note, secured by a security interest in
the acquired fixed assets, in the face amount of One hundred thousand dollars
($100,000) bearing interest at 8.5% per annum. (All accrued interest and
principal shall be paid on the maturity date of January 2, 1996); (iii) a
Subordinated Promissory Note, secured by a security interest in the acquired
fixed assets, in the face amount of Five hundred fifty thousand dollars
($550,000) bearing interest at 8.5% per annum commencing May 19, 1995, payable
monthly thereafter, with the principal and interest payable in sixty equal
monthly installments starting May 19, 1995 and continuing until April 19, 2000;
(iv) One hundred seventy-two thousand five hundred dollars ($172,500) of
TriCare Stock (60,000 shares) issued at closing.
12
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits
a. Exhibits
11 Computation of per share net income (loss).
27 Financial Data Schedule (for SEC use only)
13
<PAGE> 16
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.
Date: May 9, 1995 By: /s/ Larry G. Gerdes
----------------------------------
Larry G. Gerdes
President, Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 1995 By: /s/ David W. Murphy
----------------------------------
David W. Murphy
Chief Financial Officer
(Principal Financial Officer)
14
<PAGE> 1
Exhibit 11
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1993 1994
---- ----
(Unaudited)
<S> <C> <C>
Net Income (Loss) . . . . . . . . . . . . . . . . . . . . $ (196,000) $(1,108,000)
========== ===========
Average Shares Outstanding . . . . . . . . . . . . . . . 9,733,000 17,533,000
Common stock equivalents assuming
exercise of stock options . . . . . . . . . . . . . . -- --
---------- -----------
9,733,000 17,533,000
========== ===========
Net income (loss) per common share and
common share equivalent . . . . . . . . . . . . . . . $ (0.02) $ (0.06)
========== ===========
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRICARE, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,329
<SECURITIES> 0
<RECEIVABLES> 1,693
<ALLOWANCES> (96)
<INVENTORY> 0
<CURRENT-ASSETS> 4,178
<PP&E> 2,035
<DEPRECIATION> (744)
<TOTAL-ASSETS> 16,018
<CURRENT-LIABILITIES> 3,069
<BONDS> 0
<COMMON> 175
0
0
<OTHER-SE> 12,095
<TOTAL-LIABILITY-AND-EQUITY> 16,018
<SALES> 0
<TOTAL-REVENUES> 4,897
<CGS> 0
<TOTAL-COSTS> 4,346
<OTHER-EXPENSES> 1,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,108)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
