FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996
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or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
ACT
For the transition period from to
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Commission File Number: 0-19283
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Omega Health Systems, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3220466
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 Poplar Avenue, Suite 2100, Memphis, Tennessee 38137
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(Address of principal executive offices)
901-683-7868
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
DURING THE PRECEEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 30, 1996
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Common Stock, $0.06 par value 4,716,096
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended March 31, 1996
PART 1 - FINANCIAL INFORMATION
Index to Financial Information: Page
--------
Item 1:
Condensed Consolidated Balance Sheets
as of March 31, 1996 and December 31,
1995 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 1996 and 1995 4
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 1996 and 1995 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2:
Managements Discussion and Analysis of
Financial Condition and Results of
Operations 8
2
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Assets 1996 1995
<S> <C> <C>
Current Assets:
Cash $ 3,041,346 2,735,556
Accounts receivables, net of allowances
for contractual adjustments and
doubtful accounts of $1,803,000 and
$1,680,052 in 1996 and 1995, respectively 4,065,624 3,785,063
Other receivables 624,626 617,585
Prepaid expenses 440,526 268,964
------------ ------------
Total current assets 8,172,122 7,407,168
Equipment, furniture and fixtures 9,849,316 8,754,219
Accumulated depreciation (5,388,876) (5,145,756)
------------ ------------
Net equipment, furniture and fixtures 4,460,440 3,608,463
Intangible assets from acquisition, net of
amortization of $167,229 and $83,858 in
1996 and 1995, respectively 3,598,085 452,532
Other assets 385,764 272,232
------------ ------------
Total assets $ 16,616,411 11,740,395
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 3,211,694 3,306,203
Claims liability 1,276,009 1,319,635
Current installments of long-term debt 1,876,905 1,555,406
Current installments of subordinated debt 393,280 0
------------ ------------
Total current liabilities 6,757,888 6,181,244
Long-term debt, excluding current
installments 1,647,239 1,597,904
Subordinated debt, excluding current
installments 4,089,910 0
------------ ------------
Total liabilities 12,495,037 7,779,148
Stockholders' equity:
Common stock 282,964 282,369
Additional paid in capital 12,085,294 12,047,891
Accumulated deficit (8,246,884) (8,369,013)
------------ ------------
Total stockholders' equity 4,121,374 3,961,247
------------ ------------
Total liabilities and stockholders'
equity $ 16,616,411 11,740,395
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Center net revenues $ 4,915,330 4,662,976
Managed care revenues 3,333,863 2,665,104
Supply and equipment sales 491,778 367,222
Management and other revenues 156,756 178,426
----------- -----------
Total revenues 8,897,727 7,873,728
Center operating expenses 4,501,338 4,187,310
Eye care claims 2,500,967 1,996,407
Cost of sales 353,818 339,305
Provision for doubtful accounts 43,906 138,988
Selling, general, administrative and
development expenses 1,316,742 1,057,991
----------- -----------
Earnings from operations 180,956 153,727
Non-operating revenue (expenses):
Interest expense (115,671) (68,130)
Interest and other revenue 56,844 23,236
----------- -----------
Earnings before income taxes 122,129 108,833
Income tax expense 0 0
----------- -----------
Net earnings $ 122,129 108,833
=========== ===========
Earnings per common share $ 0.03 $ 0.02
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operations:
Net earnings $ 122,129 108,833
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 256,548 271,904
Provision for doubtful accounts 43,906 138,988
(Increase) decrease in:
Receivables (228,561) 5,637
Prepaids and other assets (206,761) (160,740)
Increase (decrease) in:
Accounts payable and accrued expenses (108,117) (17,695)
Eye care claims payable (43,626) 628,184
----------- -----------
Total adjustments (286,611) 866,278
----------- -----------
Net cash provided by (used in)
operating activities (164,482) 975,111
Cash flows from investing activities:
Capital expenditures (213,684) (185,832)
Acquisition of Tallahasse, FL practice (2,014,701) 0
Acquisition of Nashville, TN practice (64,145) 0
----------- -----------
Net cash used in investing activities (2,292,530) (185,832)
Cash flows from financing activities:
Net change in long-term debt 279,612 (88,255)
Net change in subordinated debt 2,483,190 0
----------- -----------
Net cash provided by (used in)
financing activities 2,762,802 (88,255)
----------- -----------
Net increase in cash 305,790 701,024
Cash at beginning of period 2,735,556 2,238,782
----------- -----------
Cash at end of period $ 3,041,346 2,939,806
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Accounting Policies
- ----------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the accounting policies in effect as of December 31,
1995, as set forth in the annual consolidated financial statements of Omega
Health Systems, Inc. Certain prior year interim balances have been reclassified
to conform to the 1996 presentation. In the opinion of management, all
adjustments necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations for the three month
period ended March 31, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
2. Earnings Per Share
- ---------------------------
Earnings per common share for 1996 and 1995 were computed by dividing the
earnings or losses by the weighted average number of shares of common stock
outstanding during the quarter (4,716,096 and 4,684,080, respectively).
3. Acquisitions
- ---------------------
On January 2, 1996, the Company completed the acquisition of the stock of Warren
R. Berrie, MD, PC, of Nashville, Tennessee. This acquisition included
substantially all of the assets of the medical practice of Warren R. Berrie, MD.
Simultaneously with the acquisition, the Company entered into a five year
management agreement with Dr. Berrie.
The total consideration for the acquisition of the assets of the Berrie practice
was $650,000, of which $50,000 was paid in cash, with the balance in the form of
a five year subordinated note. The note is due in monthly intallments, bears
interest at 7% and is convertible into Omega common stock at a conversion price
of $5.89 per share.
On March 12, 1996, the Company completed the acquisition of the assets of the
ophthalmology practice of Paul R. Garland, MD, of Tallahassee, Florida. In
addition, the Company acquired all of the capital stock of the surgery center
associated with Dr. Garland's practice, Capital Eye Surgery Center, Inc.
Simultaneously with the acquisition, the Company entered into a twenty-five year
management agreement with Dr. Garland's professional corporation.
The total consideration for the Garland transactions was $3.4 million, of which
$2 million was paid in cash, with the balance in the form of a five year
6
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
subordinated note. The note is due in monthly installments, bears interest at 7%
and is convertible into Omega common stock at a conversion price of $6.50 per
share.
The following sets forth certain pro forma financial information as if the
acquisition of the assets of the Garland practice and the stock of thesurgery
center had been completed as of January 1, 1996 and January 1, 1995:
1996 1995
----------- ------------
Revenues $ 9,632,221 8,711,322
Net earnings 164,170 153,809
Net earnings per common share .03 .03
4. Bridge Financing
- -------------------------
In connection the Garland acquisition (see note 3), the Company obtained bridge
financing in the form of a 12% $2.5 million subordinated note. The financing was
obtained from an affiliate of the Company's chairman of the board. The note is
due on June 11, 1996 and is expected to be repaid from the proceeds of other
financing.
5. Contingencies
- -----------------------
Omega is engaged in the business of providing support and management services to
the eye care profession, which subjects it to intense federal and state
regulation. Both state and federal laws prohibit fee splitting and other forms
of compensation based on patient referral. These regulations may, in the future,
be amended or interpreted in such a fashion as to adversely affect the business
of Omega.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the quarter increased $1,024,000 or 13% over revenues for the
corresponding period of the prior year.
Center net revenues increased $252,000 or 5% over the same period of 1995. This
increase came in spite of reductions in Medicare reimbursement for many
procedures performed by ophthalmologists, which took effect January 1, 1996. In
addition, the Company's center operations were negatively affected by
weather-related closings in the first quarter of 1996. Center operating expenses
rose 7% or $314,000. The increase in center operating expenses reflected, in
part, the facility expansions made by the centers in Nashville and Omaha in
1995.
The Company's managed care operations continued to experience growth during the
first quarter of 1996. Managed care revenues grew 25% or $669,000 during the
quarter. Cklaims expense also increased 25% during the quarter.
Supply and equipment sales increased $125,000 or 34%. This increase reflects the
introduction of the mobile surgical program in the latter part of 1995.
Selling , general and administrative expenses increased approximately 24% in the
first quarter compared to the same period of 1995. This increase reflects the
expansion of operations at the Eye Health Network and the establishment of
VisionAmerica Laser Centers as a new subsidiary in the first quarter of 1995.
Interest expense increased 71% or $48,000 during the quarter. This increase
reflects the lease financing entered into to finance equipment additions in 1995
and the subordinated financing incurred in 1996 in connection with acquisitions.
ACQUISITIONS
On January 2, 1996, the Company completed the acquisition of the stock of Warren
R. Berrie, MD, PC, of Nashville, Tennessee. This acquisition included
substantially all of the assets of the medical practice of Warren R. Berrie, MD.
Simultaneously with the acquisition, the Company entered into a five year
management agreement with Dr. Berrie.
The total consideration for the acquisition of the assets of the Berrie practice
was $650,000, of which $50,000 was paid in cash, with the balance in the form of
a five year subordinated note. The note is due in monthly intallments, bears
8
<PAGE>
interest at 7% and is convertible into Omega common stock at a conversion price
of $5.89 per share.
On March 12, 1996, the Company completed the acquisition of the assets of the
ophthalmology practice of Paul R. Garland, MD, of Tallahassee, Florida. In
addition, the Company acquired all of the capital stock of the surgery center
associated with Dr. Garland's practice, Capital Eye Surgery Center, Inc.
Simultaneously with the acquisition, the Company entered into a twenty-five year
management agreement with Dr. Garland's professional corporation.
The total consideration for the Garland transactions was $3.4 million, of which
$2 million was paid in cash, with the balance in the form of a five year
subordinated note. The note is due in monthly installments, bears interest at 7%
and is convertible into Omega common stock at a conversion price of $6.50 per
share.
In connection the Garland acquisition (see note 3), the Company obtained bridge
financing in the form of a 12% $2.5 million subordinated note. The financing was
obtained from an affiliate of the Company's chairman of the board. The note is
due on June 11, 1996 and is expected to be repaid from the proceeds of other
financing.
LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES
For the quarter ended March 31, 1996, the Company used $287,000 in cash in
operating activities and $2,293,000 in investing activities. The Company
generated $2,763,000 in cash from financing activities.
Cash flows from operations included significant adjustments for depreciation and
amortization ($257,000) and provision for doubtful accounts ($44,000). Cash
flows from operations were negatively affected by the working capital
requirements associated with the two practice asset acquisitions completed
during the quarter. Investing activities during the quarter included capital
expenditures for equipment of $214,000 and the acquisition of the assets of
opthalmic practices in Nashville and Tallahassee. Financing activities consisted
primarily of debt created in connection with practice asset acquisitions.
The Company anticipates raising additional equity and debt financing during 1996
to finance its program of practice asset acquisitions.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(11) Statement re computation of per share earnings
(27)* Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K on
March 25, 1996. The Form 8-K reported Item 1
Acquisition or Disposition of Assets in
connection with the acquisition of the assets of
the ophthalmology practice of Paul R. Garland
M.D. and the stock of Capital Eye Surgery Center,
Inc.
* Electronic Filing Only
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
OMEGA HEALTH SYSTEMS, INC
-------------------------
Registrant
May 14, 1995 By \s\ Ronald L. Edmonds
-----------------------------------------
Ronald L. Edmonds
Senior Vice President and
Chief Financial Officer
11
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB
For the Quarter Ended March 31, 1996
EXHIBIT
Index to Exhibit: Page
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(11) Computation of Earnings Per Common Share 13
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
Three Months Ended March 31, 1995 and 1994
1995 1994
---------- ----------
<S> <C> <C>
Primary (for Statement of Operations):
Net earnings $ 122,129 108,833
Shares:
Weighted average number of shares outstanding 4,716,096 4,684,080
Assuming exercise of warrants and options, net
of number of shares which could have been
purchased with the exercise of such options
(using average price for the period) 133,300 108,064
---------- ----------
Weighted average number of shares, adjusted 4,849,396 4,792,144
---------- ----------
Primary earnings per common share
and common equivalent share:
Net earnings (loss) $ 0.03 0.02
========== ==========
Assuming full dilution
Net earnings $ 122,129 108,833
Shares:
Weighted average number of shares outstanding 4,716,096 4,684,080
Assuming exercise of warrants and options, net
of number of shares which could have been
purchased with the exercise of such options
(using closing market price) 133,300 124,229
---------- ----------
Weighted average number of shares, adjusted 4,849,396 4,808,309
---------- ----------
Primary earnings per common share
and common equivalent share:
Net earnings (loss) $ 0.03(a) 0.02(a)
========== ==========
(a) This calculation is submitted in accordance with Regulation S-B item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OMEGA HEALTH SYSTEMS, INC., FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1996, 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,041
<SECURITIES> 0
<RECEIVABLES> 5,869
<ALLOWANCES> 1,803
<INVENTORY> 0
<CURRENT-ASSETS> 8,172
<PP&E> 9,849
<DEPRECIATION> 5,389
<TOTAL-ASSETS> 16,616
<CURRENT-LIABILITIES> 6,758
<BONDS> 0
<COMMON> 283
0
0
<OTHER-SE> 3,838
<TOTAL-LIABILITY-AND-EQUITY> 16,616
<SALES> 8,898
<TOTAL-REVENUES> 8,898
<CGS> 354
<TOTAL-COSTS> 8,717
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> 122
<INCOME-TAX> 0
<INCOME-CONTINUING> 122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
