<PAGE> 1
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 JUNE 30, 1999
----------------------------------------------
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.
- --------------------------------------------------------------------------------
(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.)
5350 Poplar Avenue, Suite 900, Memphis, Tennessee 38119
- --------------------------------------------------------------------------------
(Address of principal executive offices)
901-683-7868
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(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, 1999
- --------------------------------------------------------------------------------
Common Stock, $0.06 par value 9,037,809
<PAGE> 2
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Index to Financial Information: Page
----
<S> <C>
Item 1:
Condensed Consolidated Balance Sheets
as of June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
June 30, 1999 and 1998 4
Condensed Consolidated Statements of
Operations for the Six Months Ended
June 30, 1999 and 1998 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1999 and 1998 6
Notes to Condensed Consolidated
Financial Statements 7
Item 2:
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3:
Quantitative and Qualitative Disclosures about 13
Market Risks
</TABLE>
2
<PAGE> 3
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
(unaudited)
<S> <C> <C>
Current Assets:
Cash $ 3,465,147 3,100,145
Accounts receivable, net of allowances
for contractual adjustments and
doubtful accounts 18,125,878 14,469,802
Prepaid expenses and other assets 5,503,789 2,774,845
------------ -----------
TOTAL CURRENT ASSETS 27,094,814 20,344,792
Equipment, furniture and fixtures 23,746,500 21,577,103
Less: Accumulated depreciation (9,641,844) (8,581,509)
------------ -----------
NET EQUIPMENT, FURNITURE AND FIXTURES 14,104,656 12,995,594
Management service agreements and other intangible
assets, net of accumulated amortization of
$2,970,072 and $2,228,742 in 1999 and 1998,
respectively 35,044,184 34,748,320
Deferred tax asset 923,000 1,923,000
Net assets of discontinued operations 1,095,426 --
Other assets 1,407,493 1,760,668
------------ -----------
TOTAL ASSETS $ 79,669,573 71,772,374
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,525,578 7,614,548
Current installments of obligations under capital
leases and long-term debt 4,596,899 1,289,335
------------ -----------
TOTAL CURRENT LIABILITIES 15,122,477 8,903,883
Obligations under capital leases, excluding
current installments 3,052,811 1,746,094
Long-term debt, excluding current
installments 28,839,134 29,724,505
------------ -----------
TOTAL LIABILITIES 47,014,422 40,374,482
Minority interest 544,604 573,278
Stockholders' equity:
Common stock 540,178 540,178
Treasury stock (138,346) (138,346)
Additional paid-in capital 33,885,354 33,885,353
Accumulated deficit (2,176,639) (3,462,571)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 32,110,547 30,824,614
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 79,669,573 71,772,374
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Center net revenues $ 14,054,112 12,491,181
Optometric practice services 10,321,342 10,570,317
Other revenues 2,031,276 1,448,016
------------ -----------
TOTAL REVENUES 26,406,730 24,509,514
Center operating expenses 11,488,547 10,143,339
Cost of sales 10,428,849 10,444,275
Provision for doubtful accounts 741,331 386,723
Selling, general, administrative and
development expenses 2,528,774 1,733,673
------------ -----------
EARNINGS FROM OPERATIONS 1,219,229 1,801,504
Non-operating revenue (expenses):
Interest and other income 737,664 29,568
Interest expense (846,670) (655,225)
------------ -----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE 1,110,223 1,175,847
MINORITY INTEREST AND INCOME TAXES
Minority interest in net income of partnerships (162,842) (194,167)
------------ -----------
EARNINGS FROM CONTINUING OPERATIONS 947,381 981,680
BEFORE INCOME TAXES
Income tax expense (255,000) (346,000)
------------ -----------
NET EARNINGS FROM CONTINUING 692,381 635,680
OPERATIONS
------------ -----------
Discontinued operations, net of tax -- (91,601)
------------ -----------
NET EARNINGS $ 692,381 544,079
============ ===========
Earnings from continuing operations per common share:
Basic $ 0.08 0.07
============ ===========
Diluted $ 0.08 0.07
============ ===========
Loss from discontinued operations:
Basic $ 0.00 (0.01)
============ ===========
Diluted $ 0.00 (0.01)
============ ===========
Earnings per common share:
Basic $ 0.08 0.06
============ ===========
Diluted $ 0.08 0.06
============ ===========
Weighted average number of common shares:
Basic 8,992,347 8,715,994
============ ===========
Diluted 9,174,454 8,892,415
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Center net revenues $ 27,651,239 24,545,157
Optometric practice services 20,254,687 20,494,400
Other revenues 4,426,437 2,652,432
------------ -----------
TOTAL REVENUES 52,332,363 47,691,989
Center operating expenses 22,721,530 19,975,146
Cost of sales 20,708,518 20,153,097
Provision for doubtful accounts 1,353,344 673,514
Selling, general, administrative and
development expenses 4,690,442 3,512,241
------------ -----------
EARNINGS FROM OPERATIONS 2,858,529 3,377,991
Non-operating revenue (expenses):
Interest and other income 759,083 50,195
Interest expense (1,585,931) (1,231,530)
------------ -----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE 2,031,681 2,196,656
MINORITY INTEREST AND INCOME TAXES
Minority interest in net income of partnerships (295,749) (298,588)
------------ -----------
EARNINGS FROM CONTINUING OPERATIONS 1,735,932 1,898,068
BEFORE INCOME TAXES
Income tax expense (450,000) (689,000)
------------ -----------
NET EARNINGS FROM CONTINUING 1,285,932 1,209,068
OPERATIONS
------------ -----------
Discontinued operations, net of tax -- (141,913)
------------ -----------
NET EARNINGS $ 1,285,932 1,067,155
============ ===========
Earnings from continuing operations per common share:
Basic $ 0.14 0.14
============ ===========
Diluted $ 0.14 0.14
============ ===========
Loss from discontinued operations:
Basic $ 0.00 (0.02)
============ ===========
Diluted $ 0.00 (0.02)
============ ===========
Earnings per common share:
Basic $ 0.14 0.12
============ ===========
Diluted $ 0.14 0.12
============ ===========
Weighted average number of common shares:
Basic 8,991,474 8,715,408
============ ===========
Diluted 9,101,253 8,899,485
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,285,932 1,067,155
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,803,463 1,424,502
Deferred taxes 1,000,000 513,000
Provision for doubtful accounts 1,353,344 673,514
Minority interest in partnerships 295,749 298,588
Increase in:
Receivables (4,971,838) (5,107,583)
Other receivables (37,582) 157,948
Prepaids and other assets (2,375,766) (697,359)
Increase in:
Accounts payable and accrued expenses 2,911,030 2,082,876
----------- ----------
NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES 1,264,332 412,641
DISCONTINUED OPERATIONS, NET (1,095,426) 198,814
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 168,906 611,455
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (784,625) (565,585)
Acquisition of assets of physician practices (520,520) (1,435,250)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,305,145) (2,000,835)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,516,410 2,737,694
Principal payments on long-term debt (331,288) (129,427)
Principal payments on capital lease obligations (359,458) (144,079)
Distributions to minority interest (324,423) (235,781)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,501,241 2,228,407
----------- ----------
NET INCREASE IN CASH 365,002 839,027
CASH AT BEGINNING OF PERIOD 3,100,145 2,742,444
----------- ----------
CASH AT END OF PERIOD $ 3,465,147 3,581,471
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
OMEGA HEALTH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. COMPANY NAME CHANGE
On August 11, 1999, the Company's shareholders approved an amendment to its
Articles of Incorporation changing the Company's name to VisionAmerica
Incorporated, effective August 16, 1999.
2. ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the accounting policies in effect as of December 31,
1998, 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 1999 presentation. In addition, 1998 information has been
restated to give effect to an adjustment to center net revenues and the
provision for doubtful accounts. 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,
1999 are not necessarily indicative of the results to be expected for the full
year.
The company has adopted a plan to transition the ownership and operation of its
managed care subsidiary to a strategic partner. The sale was completed
subsequent to June 30, 1999. As a result of these plans, the operations of EHN
have been classified as discontinued operations for each period presented in
the accompanying financial statements.
3. EARNINGS PER SHARE
Basic earnings per common share for 1999 and 1998 were computed by dividing the
earnings by the weighted average number of common shares outstanding during the
quarter (8,992,347 and 8,715,994, respectively) and the six month period
(8,991,474 and 8,715,408, respectively). Diluted earnings per common share for
1999 and 1998 were computed by dividing the earnings by the weighted average
number of common shares and common equivalent shares outstanding during the
quarter (9,174,454 and 8,892,415, respectively) and the six month period
(9,101,253 and 8,892,415, respectively).
4. ACQUISITIONS
On January 31, 1999, the Company completed the acquisition of the assets of the
ophthalmology practice of George M. Kopf, M.D. of Zanesville, Ohio in exchange
for $430,000 in cash financed under the Company's revolving credit facility with
NationsCredit.
5. SALE OF INVESTMENT
In June 1999, the Company sold an equity investment resulting in a gain of
$724,000, which is included in Interest and other income in the Condensed
Consolidated Statements of Operations for the three months and six months ended
June 30, 1999.
6. REVOLVING CREDIT AGREEMENT
In February 1997, the Company entered into a $15,000,000 Credit Facility with
NationsCredit Commercial Corporation, an affiliate of NationsBank, for the
purpose of refinancing certain existing debt, providing working capital and
financing acquisitions. The Credit Facility was initially a $15 million
committed facility, comprised of a $13 million acquisition facility (the
"Acquisition Facility") and a $2 million working capital facility (the "Working
Capital Facility"). Interest only is due monthly until January 2000, at which
time the borrowings will be due in installments over a four-year period. The
Credit Facility bears interest at a variable rate equal to the 30-day commercial
paper rate quoted in The Wall Street Journal plus 4.25%. In December 1997, the
Credit Facility was amended and restated, increasing the availability to
$30,000,000 and in December 1998 increasing it again to $50,000,000.
7. SEGMENT INFORMATION
The Company's operations have been classified into two business segments: center
operations and optometric practices services. The center operations segment
includes all activity related to managing the ophthalmology practices and
ambulatory surgical centers. The optometric practices services segment includes
the operations of Primary Eyecare Network, Inc. which provides support services
to optometry practices. The other category includes amounts which do not meet
the quantitative thresholds of SFAS No. 131. These amounts are attributable to
the operations of Omega Medical Services, Inc., which provides mobile surgical
and other supplies and services to eye care providers and of Providers Optical,
Inc., a wholesale optical laboratory. The
7
<PAGE> 8
corporate category includes general and administrative expenses associated with
the operation of the Company's corporate office.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. There are no material intersegment
sales and operating income by business segment excludes interest income,
interest expense, and corporate expenses.
Summarized financial information by business segment for the three months and
six months ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
------------------------------- --------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Center operations $ 14,054,112 12,491,181 $ 27,651,239 24,545,157
Optometric practice services 10,321,342 10,570,317 20,254,687 20,494,400
Other 2,031,276 1,448,016 4,426,437 2,652,432
------------ ---------- ------------ -----------
Total segments 26,406,730 24,509,514 52,332,363 47,691,989
Corporate -- -- -- --
============ ========== ============ ===========
Total revenues $ 26,406,730 24,509,514 $ 52,332,363 47,691,989
============ ========== ============ ===========
Earnings:
Center operations $ 2,331,145 2,415,892 $ 4,606,276 4,825,721
Optometric practice services 185,735 271,622 365,676 516,685
Other 147,142 206,834 262,906 299,745
------------ ---------- ------------ -----------
Total segments 2,664,022 2,894,348 5,234,858 5,642,151
Corporate (707,129) (1,063,276) (1,617,246) (2,213,965)
Interest expense (846,670) (655,225) (1,585,931) (1,231,530)
Minority interest (162,842) (194,167) (295,749) (298,588)
Income tax expense (255,000) (346,680) (450,000) (689,000)
============ ========== ============ ===========
Total earnings from continuing
operations $ 692,381 635,680 $ 1,285,932 1,209,068
============ ========== ============ ===========
</TABLE>
8
<PAGE> 9
8. CONTINGENCIES
The Company 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 the Company.
The Company maintains professional liability coverage on a claims made basis for
its centers, employees, and independent contractors, including center directors,
with minimum requirements of $3,000,000 per occurrence and $3,000,000 annually.
The Company also maintains general liability coverage. Additionally, the
physicians associated with the Company maintain professional liability coverage.
Providing support associated with health care services may give rise to claims
from patients or others for damages. The Company has been named in certain
professional liability claims. The Company believes that the ultimate resolution
of these matters will not have a significant effect on the Company's financial
position or results of operations. To the extent that any claims-made coverage
is not renewed or replaced with equivalent insurance, claims based on
occurrences during the term of such coverage, but reported subsequently, would
be uninsured. Management anticipates that the claims-made coverage currently in
place will be renewed or replaced with equivalent insurance as the term of such
coverage expires.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Center net revenues 53.2% 51.0 52.8% 51.4
Optometric practice services 39.1 43.1 38.7 43.0
Other revenues 7.7 5.9 8.5 5.6
------- ------- ------ -------
Total revenues 100.0 100.0 100.0 100.0
Center operating expenses 43.5 41.4 43.4 41.9
Selling, general, administrative
and development expenses 9.6 7.1 9.0 7.4
Cost of sales 39.5 42.6 39.6 42.3
Provision for doubtful accounts 2.8 1.6 2.6 1.4
------- ------- ------ -------
Earnings from operations 4.6% 7.3 5.4% 7.0
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Total Revenues. Total revenues increased from $24,510,000 for the three
months ended June 30, 1998 to $26,407,000 for the three months ended June 30,
1999, an increase of $1,897,000 or 7.7%.
Center net revenues increased from $12,491,000 for the 1998
period to $14,054,000 for the 1999 period, an increase of $1,563,000,
or 12.5%. The increase resulted primarily from the additions of Centers
in Orlando, Florida; New Orleans, Louisiana in 1998; and Zanesville,
Ohio during the 1999 period as well as the addition of an ASC in the
Orlando Center.
Optometric practice service revenues decreased from $10,570,000
for the three months ended June 30, 1998 to $10,321,000 for the
corresponding period in 1999, a decrease of $249,000 or 2.4%.
Optometric practice services provides products and services to
independent optometrists, including purchasing, education, training,
management, and publications.
Other revenues increased from $1,448,000 for the 1998 period to
$2,031,000 for the 1999 period, an increase of $583,000 or 40.3%. The
increase resulted primarily from mobile surgical revenues and optical
lab sales.
Center Operating Expenses. Center operating expenses increased from
$10,143,000 for the three months ended June 30, 1998 to $11,489,000 for the
three months ended June 30, 1999, an increase of $1,346,000 or 13.3%. The
increase reflects the additions of the practices in Orlando, New Orleans, and
Zanesville as well as increases in same-center operating expense during the 1999
period. The Company is engaged in a project to upgrade its information
technology infrastructure at each center location. This project had the effect
of increasing center operating expense in the short-term. In addition, the
Company incurred additional expenses in connection with the roll-out of its
laser vision correction program. Depreciation and amortization included in
center operating expenses increased approximately $231,000 due to lasers and
related equipment related to the Company's laser program. As a percentage of
center net revenues, center operating expenses increased from 81.2% in the 1998
period to 81.7% in the 1999 period.
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<PAGE> 11
Selling, General, Administrative and Development Expenses. Selling,
general, administrative and development expenses increased from $1,734,000 for
the three months ended June 30, 1998 to $2,529,000 for the three months ended
June 30, 1999, an increase of $795,000, or 45.8%. As a percentage of total
revenues, selling, general, administrative and development expenses increased
from 7.1% in the 1998 period to 9.6% in the 1999 period as a result of costs
associated with developing the Company's laser program and enhancing the
Company's information systems infrastructure.
Cost of Sales. Cost of sales decreased from $10,444,000 for the three
months ended June 30, 1998 to $10,429,000 for the three months ended June 30,
1999, a decrease of $15,000, or .1%. As a percentage of total revenues, cost of
sales decreased from 42.6% in the 1998 period to 39.5% in the 1999 period.
Provision for Doubtful Accounts. Provision for doubtful accounts
increased from $387,000 for the three months ended June 30, 1998 to $741,000 for
the three months ended June 30, 1999, an increase of $354,000, or 91.5% based on
management's assessment of required allowances. As a percentage of total
revenues, provision for doubtful accounts increased from 1.6% in the 1998 period
to 2.8% in the 1999 period.
Non-operating Revenue (Expense). Interest expense increased from
$655,000 for the three months ended June 30, 1998 to $847,000 for the three
months ended June 30, 1999, an increase of $192,000, or 29.3%. In June 1999, the
Company sold an equity investment resulting in a gain of $724,000.
Earnings from Continuing Operations Before Income Taxes. Earnings from
continuing operations before income taxes decreased from $982,000 for the three
months ended June 30, 1998 to $947,000 for the three months ended June 30, 1999,
a decrease of $35,000 or 3.6%.
Income Tax Expense. Income tax expense declined from $346,000 for the
three months ended June 30, 1998 to $255,000 for the three months ended June 30,
1999, a decrease of $91,000 or 26.3%. This decrease results partially from a
lower estimated annual effective tax rate for 1999 due to the utilization of net
operating loss carrryforwards.
Net Earnings from Continuing Operations. Net earnings from continuing
operations increased from $636,000 for the three months ended June 30, 1998 to
$692,000 for the three months ended June 30, 1999, an increase of $56,000 or
8.8%.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total Revenues. Total revenues increased from $47,692,000 for the six
months ended June 30, 1998 to $52,332,000 for the six months ended June 30,
1999, an increase of $4,640,000 or 9.7%.
Center net revenues increased from $24,545,000 for the 1998
period to $27,651,000 for the 1999 period, an increase of $3,106,000,
or 12.7%. The increase resulted primarily from the additions of Centers
in Orlando, Florida; New Orleans, Louisiana; and Zanesville, Ohio
during the 1999 period as well as the addition of an ASC in the Orlando
Center.
Optometric practice service revenues decreased from $20,494,000
for the six months ended June 30, 1998 to $20,255,000 for the
corresponding period in 1999, a decrease of $239,000 or 1.2%.
Optometric practice services provides products and services to
independent optometrists, including purchasing, education, training,
management, and publications.
Other revenues increased from $2,652,000 for the 1998 period to
$4,426,000 for the 1999 period, an increase of $1,774,000 or 66.9%. The
increase resulted primarily from mobile surgical revenues and optical
lab sales.
Center Operating Expenses. Center operating expenses increased from
$19,975,000 for the six months ended June 30, 1998 to $22,722,000 for the six
months ended June 30, 1999, an increase of $2,747,000 or 13.8%. The increase
reflects the additions of the practices in Orlando, New Orleans, and Zanesville
as well as increases in same-center operating expenses during the 1999 period.
The Company is engaged in a project to upgrade its information technology
infrastructure at each center location. This project has had the effect of
increasing center operating expense in the short-term. Depreciation and
amortization included in center operating expenses increased approximately
$379,000, partially as a result
11
<PAGE> 12
of the adoption of shorter amortization periods for management service
agreements, effective April 1, 1998. As a percentage of center net revenues,
center operating expenses increased from 81.4% in the 1998 period to 82.2% in
the 1999 period.
Selling, General, Administrative and Development Expenses. Selling,
general, administrative and development expenses increased from $3,512,000 for
the six months ended June 30, 1998 to $4,690,000 for the six months ended June
30, 1999, an increase of $1,178,000, or 33.5%. As a percentage of total
revenues, selling, general, administrative and development expenses increased
from 7.4% in the 1998 period to 9.0% in the 1999 period.
As a result of costs incurred in developing the Company's laser
program and enhancing the Company's information systems infrastructure.
Cost of Sales. Cost of sales increased from $20,153,000 for the six
months ended June 30, 1998 to $20,709,000 for the six months ended June 30,
1999, an increase of $556,000, or 2.8 %. As a percentage of total revenues, cost
of sales decreased from 42.3% in the 1998 period to 39.6% in the 1999 period.
Provision for Doubtful Accounts. Provision for doubtful accounts
increased from $674,000 for the six months ended June 30, 1998 to $1,353,000 for
the six months ended June 30, 1999, an increase of $679,000, or 100.8%. As a
percentage of total revenues, provision for doubtful accounts increased from
1.4% in the 1998 period to 2.6% in the 1999 period.
Non-operating Revenue (Expense). Interest expense increased from
$1,232,000 for the six months ended June 30, 1998 to $1,586,000 for the six
months ended June 30, 1999, an increase of $354,000, or 28.7%. In June 1999, the
Company sold an equity investment resulting in a gain of $724,000.
Earnings from Continuing Operations Before Income Taxes. Earnings from
continuing operations before income taxes decreased from $1,898,000 for the six
months ended June 30, 1998 to $1,736,000 for the six months ended June 30, 1999,
a decrease of $162,000 or 8.5%.
Income Tax Expense. Income tax expense declined from $689,000 for the
six months ended June 30, 1998 to $450,000 for the six months ended June 30,
1999, a decrease of $239,000 or 34.7%. This decrease results partially from a
lower estimated annual effective tax rate for 1999 due to the utilization of net
operating loss carrryforwards.
Net Earnings from Continuing Operations. Net earnings from continuing
operations increased marginally from $1,209,000 for the six months ended June
30, 1998 to $1,286,000 for the six months ended June 30, 1999, an increase of
$77,000 or 6.4%.
ACQUISITIONS
On January 31, 1999, the Company completed the acquisition of the assets of the
ophthalmology practice of George M. Kopf, M.D. of Zanesville, Ohio in exchange
for $430,000 in cash financed under the Company's revolving credit facility with
NationsCredit.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1999, the Company generated $1,264,000 of cash
in continuing operating activities and used $1,095,000 in discontinued operating
activities, which reflects the wind-down of the Company's managed care
activities. The Company used $1,305,000 in investing activities and generated
$1,501,000 in financing activities.
Cash flows from operations included significant adjustments for depreciation and
amortization ($1,803,000) as well as provision for doubtful accounts
($1,353,000). Investing activities during the period included $785,000 in
capital expenditures for equipment as well as acquisitions of the assets of an
ophthalmic practice in Ohio. Financing activities included an increase in debt
and distributions to minority interest.
As of June 30, 1999, the Company has approximately $18 million available on its
$50 million revolving credit facility. The Company expects to fund future
capital needs related to the expansion of its laser program and continued
expansion of its center operations with borrowings under the facility and may
raise additional equity capital, as well.
12
<PAGE> 13
YEAR 2000
The year 2000 computer issue is caused by computer programs being
written using two digits to identify the applicable year rather than four. Since
most application software only contains the two digits, many systems will
identify January 1, 2000 as January 1, 1900, which could result in malfunctions
involving dates. There can be no guarantee that the systems of other companies
on which the Company relies will be in compliance.
To address the year 2000 issue, the Company has established a task
force including representatives of top management, management information
systems representatives, equipment purchasing and maintenance personnel and the
accounting department. The task force has been assigned responsibility for
developing and implementing the Company's year 2000 activities. The Company's
audit and compliance committee monitors the task force's activities.
The Company is continuing its efforts to address operational concerns
raised by the year 2000 issue. The principal areas of concern include ensuring
that the systems used in practice management, managed care administration and
accounting are year 2000 compliant, addressing issues related to "imbedded
systems" in equipment, including medical equipment, and assessing and addressing
the potential impact of year 2000 problems with other entities with which the
Company has business relationships.
The Company is in the process of upgrading all of its internal systems,
including practice management, managed care administration and accounting. This
is a complex project with many aspects, but addressing the year 2000 issue is a
part of the project. The overall cost of this systems project will be in excess
of $1 million, but a relatively small part is exclusively related to the Year
2000 issue. The Company expects its systems to be fully compliant in the third
quarter of 1999.
The Company is continuing to inventory equipment which has imbedded
systems which may be affected by the year 2000 issue and contacting the
appropriate vendors to ascertain risks and solutions. This project is expected
to be completed by September 30, 1999. The cost of this project is not expected
to be material to the Company's financial statements at this time.
The Company is also corresponding with other entities with which it
has business relationships to assess their progress in addressing the year 2000
issue for the purpose of assessing the risks to the Company which may result
from this problem. This project is expected to be completed by September 30,
1999.
Based on the Company's progress to date and the status of its upgrade
activities, the Company believes that its greatest risk related to the year 2000
problem lies in its outside relationships, especially third party payors on
which the Company relies for much of its Center revenues. The Company is
continuing to monitor the progress of these payors, especially the Health Care
Financing Administration and Medicare fiscal intermediaries, in developing year
2000 compliance. A significant failure of these groups in maintaining payments
would have a material adverse impact on the Company.
Although the cost to bring systems and equipment into compliance has
not been and is not expected to be material to the Company's consolidated
financial statements, failure to comply and/or failure of other entities with
which the Company transacts business to comply could have a material adverse
effect on the Company's business and financial results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There were no material changes during the quarter in the information
about market risks included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
13
<PAGE> 14
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.
None.
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 (SEC use only)
(b) Reports on Form 8-K:
None.
14
<PAGE> 15
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 13, 1999 By /s/ Ronald L. Edmonds
---------------------------------------
Ronald L. Edmonds
Executive Vice President and
Chief Financial Officer
15
<PAGE> 1
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
-------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Net earnings from continuing $ 692,381 $ 635,680 $1,285,932 $1,209,068
operations
Shares:
Weighted average number of shares outstanding 8,992,347 8,715,994 8,991,474 8,715,408
---------- ---------- ---------- ----------
Basic earnings per common share: $0. 08 $ 0.07 $ 0.14 $ 0.14
========== ========== ========== ==========
Diluted:
Net earnings from continuing operations $ 692,381 635,680 $1,285,932 1,209,068
Shares:
Weighted average number of shares outstanding 8,992,347 8,715,994 8,991,474 8,715,408
Assuming exercise of warrants and options, net
of number of shares which could have been
purchased with the exercise of such options
(using average market price) 182,107 176,421 109,779 177,007
---------- ---------- ---------- ----------
Weighted average number of shares, adjusted 9,174,454 8,892,415 9,101,253 8,892,415
---------- ---------- ---------- ----------
Diluted earnings per common share
and common equivalent share: $ 0.08 $ 0.07 $ 0.14 $ 0.14
========== ========== ========== ==========
</TABLE>
<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 MONTHS ENDED JUNE
30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,465
<SECURITIES> 0
<RECEIVABLES> 18,126
<ALLOWANCES> 6,787
<INVENTORY> 0
<CURRENT-ASSETS> 27,095
<PP&E> 23,747
<DEPRECIATION> 9,642
<TOTAL-ASSETS> 79,670
<CURRENT-LIABILITIES> 15,122
<BONDS> 0
0
0
<COMMON> 540
<OTHER-SE> 31,571
<TOTAL-LIABILITY-AND-EQUITY> 79,670
<SALES> 52,332
<TOTAL-REVENUES> 52,332
<CGS> 20,709
<TOTAL-COSTS> 49,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,353
<INTEREST-EXPENSE> 827
<INCOME-PRETAX> 1,736
<INCOME-TAX> 450
<INCOME-CONTINUING> 1,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,286
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
