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 June 30, 1996
------------------------------------------
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
ACT
For the transition period from to
---------------------------------
Commission File Number: 0-19283
--------------------------
Omega Health Systems, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-3220466
- ------------------------- -------------------------
(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 July 31, 1996
- ---------------------------------------------------------------------------
Common Stock, $0.06 par value 4,969,552
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1996
PART 1 - FINANCIAL INFORMATION
Index to Financial Information: Page
------
Item 1:
Condensed Consolidated Balance Sheets
as of June 30, 1996 and December 31,
1995 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
June 30, 1996 and 1995 4
Condensed Consolidated Statements of
Operations for the Six Months Ended
June 30, 1996 and 1995 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1996 and 1995 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2:
Managements Discussion and Analysis of
Financial Condition and Results of
Operations 10
2
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
Assets 1996 1995
Current Assets:
Cash $ 5,489,416 2,735,556
Accounts receivables, net of allowances
for contractual adjustments and
doubtful accounts of $1,925,785 and
$1,680,052 in 1996 and 1995, respectively 4,142,442 3,785,063
Other receivables 630,887 617,585
Prepaid expenses 569,402 268,964
------------ ------------
Total current assets 10,832,147 7,407,168
Equipment, furniture and fixtures 10,078,313 8,754,219
Accumulated depreciation (5,593,282) (5,145,756)
------------ ------------
Net equipment, furniture and fixtures 4,485,031 3,608,463
Intangible assets from acquisition, net of
amortization of $222,506 and $83,858 in
1996 and 1995, respectively 3,590,678 452,532
Other assets 454,892 272,232
------------ ------------
Total assets $ 19,362,748 11,740,395
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 2,347,899 3,306,203
Claims liability 1,029,425 1,319,635
Current installments of long-term debt 1,807,555 1,555,406
Current installments of subordinated debt 393,280 0
------------ ------------
Total current liabilities 5,578,159 6,181,244
Long-term debt, excluding current
installments 1,345,237 1,597,904
Subordinated debt, excluding current
installments 1,474,412 0
------------ ------------
Total liabilities 8,397,808 7,779,148
Stockholders' equity:
Common stock 282,964 282,369
Preferred stock 6,546,237 0
Additional paid in capital 12,158,193 12,047,891
Accumulated deficit (8,022,454) (8,369,013)
------------ ------------
Total stockholders' equity 10,964,940 3,961,247
------------ ------------
Total liabilities and stockholders'
equity $ 19,362,748 11,740,395
============ ============
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Ended June 30, 1996 and 1995
(unaudited)
1996 1995
Center net revenues $ 6,187,831 $ 5,091,997
Managed care revenues 3,586,677 2,630,352
Supply and equipment sales 583,315 478,310
Management and other revenues 104,672 209,819
------------ ------------
Total revenues 10,462,495 8,410,478
Center operating expenses 5,144,917 4,466,260
Eye care claims 2,898,670 2,027,010
Cost of sales 424,614 469,259
Provision for doubtful accounts 134,402 53,035
Selling, general, administrative and
development expenses 1,439,315 1,174,690
------------ ------------
Earnings from operations 420,577 220,224
Non-operating revenue (expenses):
Interest expense (179,182) (73,980)
Interest and other revenue 55,935 54,012
------------ ------------
Earnings before income taxes 297,330 200,256
Income tax expense 0 0
------------ ------------
Net earnings $ 297,330 $ 200,256
============ ============
Earnings per common share $ 0.05 $ 0.04
============ ============
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1996 and 1995
(unaudited)
1996 1995
Center net revenues $ 11,103,161 $ 9,754,973
Managed care revenues 6,920,540 5,295,456
Supply and equipment sales 1,075,093 845,532
Management and other revenues 261,428 388,245
------------ ------------
Total revenues 19,360,222 16,284,206
Center operating expenses 9,646,255 8,653,570
Eye care claims 5,399,637 4,023,317
Cost of sales 778,432 808,564
Provision for doubtful accounts 178,308 192,023
Selling, general, administrative and
development expenses 2,756,057 2,232,681
------------ ------------
Earnings from operations 601,533 374,051
Non-operating revenue (expenses):
Interest expense (294,853) (142,110)
Interest and other revenue 112,779 77,248
------------ ------------
Earnings before income taxes 419,459 309,189
Income tax expense 0 0
------------ ------------
Net earnings $ 419,459 $ 309,189
============ ============
Earnings per common share $ 0.07 $ 0.07
============ ============
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
(unaudited)
1996 1995
Cash flows from operations:
Net earnings $ 419,459 309,189
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 548,755 544,958
Provision for doubtful accounts 178,308 192,023
(Increase) decrease in:
Receivables (439,781) (276,949)
Prepaids and other assets (414,987) (496,521)
Increase (decrease) in:
Accounts payable and accrued expenses (971,912) 123,445
Eye care claims payable (290,210) 590,278
----------- -----------
Net cash provided by (used in)
operating activities (970,368) 986,423
Cash flows from investing activities:
Capital expenditures (471,245) (750,938)
Acquisition of Tallahasse, FL practice (2,062,571) 0
Acquisition of Nashville, TN practice (64,145) 0
Other 0 (64,460)
----------- -----------
Net cash used in investing activities (2,597,961) (815,398)
Cash flows from financing activities:
Proceeds from issuance of preferred stock 6,546,237 0
Net change in long-term debt (91,740) 148,293
Net change in subordinated debt (132,308) 0
----------- -----------
Net cash provided by financing
activities 6,322,189 148,293
----------- -----------
Net increase in cash 2,753,860 319,318
Cash at beginning of period 2,735,556 2,238,782
----------- -----------
Cash at end of period $ 5,489,416 2,558,100
=========== ===========
See accompanying notes to condensed consolidated financial statements.
6
<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 six month
period ended June 30, 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 common and common
equivalent shares outstanding during the quarter (4,882,929 and 4,807,842,
respectively) and the six month period (4,872,065 and 4,802,188, 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 installments, 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
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.
7
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following sets forth certain pro forma financial information as if the
acquisition of the assets of the Garland practice and the stock of the surgery
center had been completed as of January 1, 1996 and January 1, 1995:
1996 1995
Revenues $20,144,624 17,959,394
Net earnings 449,710 399,141
Net earnings per common share .08 .08
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 was
repaid June 12, 1996 with the proceeds of the sale of preferred stock.
5. Issuance of Preferred Stock
- -----------------------------------
On May 17, 1996, the Company completed the sale of $7,290,000 in convertible
preferred stock. Subject to certain limitations, the preferred stock is
convertible into common stock at an exercise price equal to the lesser of $5.75
or 85% of the average bid price of the common stock at the time of conversion.
The preferred stock has a dividend rate of 8%, which is paid in the form of
common stock at the time of conversion. The preferred stock automatically
converts at the end of three years if not already converted. In addition, the
investors received warrants to purchase approximately 634,000 additional shares
at an exercise price of $5.75.
The net proceeds were approximately $6.55 million and were used to repay the
bridge financing incurred in the Tallahassee practice acquisition. The remainder
of the proceeds will be used to finance future acquisitions of eye care
practices and for working capital.
8
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. 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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the quarter ended June 30, 1996 increased $2,052,000 or 24% over
revenues for the corresponding period of the prior year. Total revenues for the
six months ended June 30, 1996 increased $3,076,000 over the same period in
1995.
Center net revenues increased $1,096,000 or 21% for the quarter and $1,348,000
or 14% for the six months compared to the same periods in 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. The increase resulted primarily from the
addition of the practice in Tallahassee, Florida purchased late in the first
quarter of 1996. Center operating expenses rose 15% or $314,000 for the quarter
and 11% or $993,000 for the six months. The increase in center operating
expenses reflected, in part, the facility expansions made by the centers in
Nashville and Omaha in 1995, as well as the addition of the practice in
Tallahassee.
The Company's managed care operations continued to experience growth with
revenue increases of 36% or $956,000 for the quarter and 31% or $1,625,000 for
the six months ended June 30, 1996. Claims expense also increased 43% during the
quarter and 34% for the six months.
Supply and equipment sales increased $105,000 or 22% for the quarter and
$230,000 or 27% for the six months ended June 30, 1996 over the same periods of
1995. This increase reflects the introduction of the mobile surgical program in
the latter part of 1995.
Selling , general and administrative expenses increased approximately 23% in
both the quarter and for the six months ended June 30, 1996 compared to the same
periods 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 $105,000 during the quarter and $152,743 for the six
months ended June 30, 1996 compared to the same periods of 1995. 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.
10
<PAGE>
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 installments, 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
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 with 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 was repaid on June 12, 1996 with proceeds from the sale of convertible
preferred stock.
Liquidity, Cash Flow and Capital Resources
For the six months ended June 30, 1996, the Company used $970,000 in cash in
operating activities and $2,598,000 in investing activities. The Company
generated $6,322,000 in cash from financing activities.
Cash flows from operations included significant adjustments for depreciation and
amortization ($549,000) and provision for doubtful accounts ($178,000). 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 $471,000 and the acquisition of the assets of
ophthalmic practices in Nashville and Tallahassee.
11
<PAGE>
Financing activities consisted of debt reduction and the issuance of convertible
preferred stock. On May 17, the sale of $7,290,000 in convertible preferred
stock was completed. Subject to certain limitations, the preferred stock is
convertible into common stock at an exercise price equal to the lesser of $5.75
or 85% of the average bid price of the common stock at the time of conversion.
The preferred stock has a dividend rate of 8%, which is paid in stock at the
time of conversion. In addition, the investors received warrants to purchase an
additional 634,000 shares at an exercise price of $5.75. The net proceeds were
$6,546,000 and was used to repay the bridge financing from the Tallahassee
acquisition and the remainder will be used to finance the acquisition of eye
care practices and working capital.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable.
Item 2. Changes in Securities.
On May 17, 1996, the Registrant issued 729 shares of its Series
A preferred stock. The preferred stock has a coupon dividend
rate of 8%, which is payable in common stock at the time of
conversion. The preferred stock was issued at $10,000 per share
and is convertible into common stock at the lessor of $5.75 or
85% of the average bid price for the common stock over the five
days preceding conversion. The preferred stock automatically
converts at the end of three years if not previously converted.
The preferred stock has a liquidation preference.
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 (Electronic filing only)
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K on May 31, 1996.
The Form 8-K reported Item 5 Other Events in connection with the
sale of convertible preferred stock.
13
<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
August 14, 1996 By \s\ Ronald L. Edmonds
----------------------------------------------
Ronald L. Edmonds
Senior Vice President and
Chief Financial Officer
14
<PAGE>
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB
For the Quarter Ended June 30, 1996
EXHIBIT
Index to Exhibit: Page
--------
(11) Computation of Earnings Per Common Share 16
15
EXHIBIT 11
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary (for Statement of Operations):
Net earnings $ 297,330 200,256 419,459 309,189
Preferred stock dividends 72,900 0 72,900 0
---------- ---------- ---------- ----------
Net earnings per common share 224,430 200,256 346,559 309,189
Shares:
Weighted average number of shares outstanding 4,716,096 4,688,384 4,716,096 4,686,244
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) 166,833 119,458 155,969 115,944
---------- ---------- ---------- ----------
Weighted average number of shares, adjusted 4,882,929 4,807,842 4,872,065 4,802,188
---------- ---------- ---------- ----------
Primary earnings per common share
and common equivalent share:
Net earnings (loss) $ 0.05 0.04 $ 0.07 0.06
========== ========== ========== ==========
Assuming full dilution (for Statement of Operations):
Net earnings $ 297,330 200,256 419,459 309,189
Preferred stock dividends 72,900 0 72,900 0
---------- ---------- ---------- ----------
Net earnings per common share 224,430 200,256 346,559 309,189
Shares:
Weighted average number of shares outstanding 4,716,096 4,688,384 4,716,096 4,686,244
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) 191,600 113,072 191,384 113,072
---------- ---------- ---------- ----------
Weighted average number of shares, adjusted 4,907,696 4,801,456 4,907,480 4,799,316
---------- ---------- ---------- ----------
Primary earnings per common share
and common equivalent share:
Net earnings (loss) $0.05(a) 0.04(a) $0.06(a) 0.07(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>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OMEGA HEALTH SYSTEMS, INC., FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,489
<SECURITIES> 0
<RECEIVABLES> 6,068
<ALLOWANCES> 1,926
<INVENTORY> 0
<CURRENT-ASSETS> 10,832
<PP&E> 10,078
<DEPRECIATION> 5,593
<TOTAL-ASSETS> 19,363
<CURRENT-LIABILITIES> 5,578
<BONDS> 0
<COMMON> 283
0
6,546
<OTHER-SE> 4,136
<TOTAL-LIABILITY-AND-EQUITY> 19,363
<SALES> 19,360
<TOTAL-REVENUES> 19,360
<CGS> 778
<TOTAL-COSTS> 18,759
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 178
<INTEREST-EXPENSE> 295
<INCOME-PRETAX> 419
<INCOME-TAX> 0
<INCOME-CONTINUING> 419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
