<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Second Quarter Ended June 30, 1999 Commission File #0-19240
U.S. HOMECARE CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2853680
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Two Hartford Square West
Suite 300
Hartford, Connecticut 06106
(Address of principal executive office) (Zip Code)
Registrant's telephone number, (860) 278-7242
including area code
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
Number of Shares of Registrant's Common Stock Outstanding
June 30, 1999: 39,443,515
<PAGE> 2
U.S. HOMECARE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
Part I - Financial Information
Item 1 Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations
for the three months ended June 30, 1999
and 1998. 4
Consolidated Statements of Cash Flows
for the six months ended June 30, 1999
and 1998. 5
Notes to Unaudited Consolidated
Financial Statements. 6-8
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations. 9-11
Item 3 Market Risk Disclosure 12
Part II - Other Information
Item 1 Legal Proceedings 12
Item 2 Changes in Securities and Use of Proceeds 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of Security Holders 12-13
Item 5 Other Information 14
Item 6 Exhibits & Reports on Form 8-K 14
Signatures 15
</TABLE>
<PAGE> 3
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ----------
ASSETS (unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 350 $ 267
Accounts receivable, net of allowance
For doubtful accounts of $616 and $546 5,878 5,525
Other current assets 1,348 673
-------- --------
TOTAL CURRENT ASSETS 7,576 6,465
-------- --------
PROPERTY AND EQUIPMENT, net 554 629
-------- --------
OTHER ASSETS
Excess cost over net assets acquired, net
of accumulated amortization of $861 and $820 1,373 1,414
Intangible assets, net of accumulated
Amortization of $5,897 and $5,784 90 203
Other 462 661
-------- --------
TOTAL OTHER ASSETS 1,925 2,278
-------- --------
TOTAL ASSETS $ 10,055 $ 9,372
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt $ 10,011 $ 8,277
Accounts payable and unpresented checks 3,110 2,850
Accrued expenses 5,051 6,248
Accrued payroll and related costs 897 991
-------- --------
TOTAL CURRENT LIABILITIES 19,069 18,366
-------- --------
OTHER LIABILITIES
Other long-term liabilities 1,770 1,477
-------- --------
TOTAL OTHER LIABILITIES 1,770 1,477
-------- --------
TOTAL LIABILITIES 20,839 19,843
-------- --------
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 40,000,000 shares authorized, 394 137
39,443,515 and 13,752,937 shares outstanding
Preferred stock, $1 par value, 5,000,000 authorized, 328,569 328 328
Shares outstanding
Additional paid-in capital 46,896 47,153
Accumulated deficit (58,402) (58,089)
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (10,784) (10,471)
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 10,055 $ 9,372
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-3-
<PAGE> 4
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Net revenues $ 11,601 $ 11,737
Cost of revenues, primarily
payroll and related costs 7,398 8,114
-------- --------
Gross profit 4,203 3,623
Operating expenses:
Selling, general and administrative expenses 3,494 4,074
Amortization and depreciation 157 218
-------- --------
Total operating expenses 3,651 4,292
Income (loss) before interest expense and income taxes 552 (669)
Interest and other financing expense 522 569
-------- --------
Income (loss) before income taxes 30 (1,238)
Provision for state income taxes 35 38
-------- --------
Net loss (5) (1,276)
Dividends on preferred stock, paid in common stock (172) (172)
-------- --------
Net (loss) applicable to common shareholders $ (177) $ (1,448)
======== ========
Net (loss) per share:
Basic $ (0.01) $ (0.11)
======== ========
Diluted $ (0.01) $ (0.11)
======== ========
Weighted average common shares outstanding:
Basic 32,854 12,596
Dilutive effect of stock options -- --
Conversion of preferred shares -- --
-------- --------
Diluted 32,854 12,596
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE> 5
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1999 1998
-------- --------
(unaudited)
<S> <C> <C>
Net revenues $ 23,285 $ 24,699
Cost of revenues, primarily
Payroll and related costs 15,039 16,307
-------- --------
Gross profit 8,246 8,392
Operating expenses:
Selling, general and administrative expenses 7,032 7,616
Amortization and depreciation 331 507
-------- --------
Total operating expenses 7,363 8,123
Income before interest expense and income taxes 883 269
Interest and other financing expense 1,123 1,120
-------- --------
Income (loss) before income taxes (240) (851)
Provision for state income taxes 73 75
-------- --------
Net (loss) (313) (926)
Dividends on preferred stock, paid in common stock (345) (345)
-------- --------
Net (loss) applicable to common shareholders $ (658) $ (1,271)
======== ========
Net (loss) per share:
Basic $ (0.03) $ (0.10)
======== ========
Diluted $ (0.03) $ (0.10)
======== ========
Weighted average common shares outstanding:
Basic 25,215 12,430
Dilutive effect of stock options -- --
Conversion of preferred shares -- --
-------- --------
Diluted 25,215 12,430
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-5-
<PAGE> 6
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1999 1998
------- -------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (313) $ (926)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 331 507
Provision for bad debts 291 158
Non-cash charges -- 349
Changes in operating assets and liabilities:
(Increase) in accounts receivable (644) (457)
Decrease/(increase) in other current assets (691) 535
Decrease/(increase) in other assets 199 (488)
(Decrease)/increase in accrued payroll and related costs (94) 178
(Decrease)/increase in accounts payable and accrued expenses (937) 131
(Decrease)/increase in other liabilities 293 (450)
------- -------
Net cash provided by (used in) operating activities (1,565) (463)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from disposition of property and equipment 6
Purchase of property and equipment (86) (103)
------- -------
Net cash used in investing activities (86) (97)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank financing 1,734 275
------- -------
Net cash used in financing activities 1,734 275
------- -------
(Decrease)/increase in cash and cash equivalents 83 (285)
Cash and cash equivalents, beginning of period 267 313
------- -------
Cash and cash equivalents, end of period $ 350 $ 28
======= =======
CASH PAID DURING THE PERIOD FOR:
Income taxes $ 88 $ 193
======= =======
Interest $ 894 $ 438
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-6-
<PAGE> 7
U.S. HOMECARE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Market Risk Disclosures
In the opinion of the management of U.S. HomeCare Corporation (the
"Company"), the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the Company's financial position as of June
30, 1999 and the results of its operations and its cash flows for the six
months ended June 30, 1999 and 1998. These consolidated financial
statements should be read in conjunction with the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998.
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.
Note 2 - Revenue Recognition
The Company recognizes revenues as the services are performed. The
Company receives retroactive increases and decreases to certain rates.
The Company records such amounts as changes in revenue when it is
notified by the payors or when the amounts are estimable. Certain of the
Company's revenues and related disbursements are subject to audit by
third party payors; these revenues are accrued on an estimated basis in
the period the related services are rendered. Net revenues are adjusted,
as required in subsequent periods, based on final settlement.
Note 3 - Stockholders' Deficit
During the quarter ended June 30, 1999 and 1998, the Company issued
19,988,190 and 376,739 shares, respectively, of Common Stock as dividends
on the Company's $35.00, 6% Convertible Preferred Stock (the "Preferred
Stock"), and no shares of Common Stock to directors in lieu of cash fees
under the Director Stock Fee Program of the Company's 1995 Stock
Option/Stock Issuance Plan as a result of the Directors having waived
these fees for 1999.
-7-
<PAGE> 8
Note 4 - Commitments and Contingencies
Medicare revenues are based in part on cost reimbursement principles and
per beneficiary limits as specified by the Interim Payment System ("IPS")
and are subject to audit and retroactive adjustment by the respective
third-party fiscal intermediaries. Included in accounts payable at June
30, 1999 and at December 31, 1998 was approximately $1.4 million and $2.1
million, respectively, which are estimates of the net liability to be
paid upon finalization of certain cost reports. In the opinion of
management, additional retroactive adjustments, if any, are not expected
to be material to the consolidated financial statements of the Company.
Note 5 - Debt and Accounts Receivable Securitization
The Company's Receivables Purchase and Servicing Agreement (the
"Securitization Program"), allows the Company to sell for cash an
undivided percentage ownership interest in a designated pool of eligible
receivables, as defined. The Company relies, in part, on this accounts
receivable financing to fund working capital for current operations. The
maximum amount of cash advances (based on eligible accounts receivable)
allowed under the program is $9.3 million as of June 30, 1999. The net
proceeds from the sale of accounts receivable through the Securitization
Program at June 30, 1999 and December 31, 1998 were $6.7 million. The
Securitization Program expired during January 1999 and has been renewed
monthly since that time.
The Company's Revolving Line of Credit ("RLOC") and the Company's $3
million subordinated credit facility also expired during January 1999.
The RLOC and the subordinated credit facility have been renewed monthly
through July 1999. On July 23, 1999, the lenders under the RLOC notified
the Company that defaults currently exist under the RLOC and that,
pursuant to the Intercreditor Agreement among the RLOC lenders, the
subordinated lender, the guarantor and the Company, the Company is not
permitted to make any further payments on its subordinated debt.
Subsequently, the subordinated lender notified the Company that it had
decided to terminate ongoing discussions for further extension of the
subordinated loan and was reserving all of its rights and remedies. The
Company has been informed that the subordinated lender has made a demand
for payment of the amount of the subordinated credit facility, under a
guarantee from the Connecticut Development Authority, and that the
outstanding amount of the loan is to be paid by the guarantor to the
lender in late August 1999. The Company's senior lenders have continued
to renew the RLOC on a month to month basis. In light of the above, all
of the Company's outstanding debt has been classified as current
liabilities at June 30, 1999.
-8-
<PAGE> 9
Summary of the proforma receivables and debt levels including securitized
financing:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(in thousands) (in thousands)
<S> <C> <C>
Total Accounts Receivable $ 13,194 $ 12,771
Provision for Bad Debt (616) (546)
-------- --------
Net Accounts Receivable $ 12,578 $ 12,225
Accounts Receivables Sold to Securitization (6,700) (6,700)
-------- --------
Accounts Receivables, on the Balance Sheet $ 5,878 $ 5,525
======== ========
Total Bank Debt, on the Balance Sheet $10,011 $ 8,277
Securitization Advances 6,700 6,700
------- -------
Total Bank Financing $16,711 $14,977
======= =======
</TABLE>
Note 6 - Presentation of Prior Year Information
The presentation of certain prior year information has been
reclassified to conform with the current year presentation.
-9-
<PAGE> 10
U.S. HOMECARE CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999
Compared With Three Months Ended June 30, 1998
Net revenues reported for the three month period ended June 30, 1999 were
$11,601,000 compared to $11,737,000 for the second quarter of 1998. The decline
is principally the result of actions taken by the Company to change its patient
mix in its Pennsylvania operation as a result of the Interim Payment System,
which became effective in 1998. This revenue loss was partially offset by
Medicare rate increases in 1999 in all of the Company's certified locations.
Cost of revenues as a percentage of net revenues was 63.8% for the second
quarter of 1999, compared with 69.1% in the second quarter of 1998. The decrease
in cost of revenues is partially the result of the above described rate
increases which resulted in a higher gross margin and partially due to the fact
that 1998's margin was affected by negative prior period revenue adjustments.
The resulting gross profits were $4,203,000 and $3,623,000 or 36.2% and 30.9%,
for the quarters ended June 30, 1999 and 1998, respectively.
Selling, general and administrative expenses were $3,494,000 in the second
quarter of 1999 as compared to $4,074,000 in the second quarter of 1998. The
decrease was due to a company wide reduction in branch staffing and other
expenses as well as from the consolidation of two branches, one in Connecticut
and one in New York City.
Interest and other financing expenses were $522,000 for the second quarter
of 1999 compared to $569,000 in the second quarter of 1998. The 1998 quarter
included a higher amount of financing fees. Total bank debt was $16,711,000 at
June 30, 1999 as compared to $14,552,000 at June 30, 1998. Amortization and
depreciation were $157,000 for the second quarter of 1999 as compared to
$218,000 for the second quarter of 1998.
The Company's net operating losses eliminated any Federal income tax
liability. The income tax provision relates to state tax obligations.
-10-
<PAGE> 11
As a result of the foregoing, for the three months ended June 30, the
Company had a net loss of ($5,000) compared to a net loss of ($1,276,000) for
the corresponding quarter in 1998.
Six Months Ended June 30, 1999
Compared With Six Months Ended June 30, 1998
Net revenues for the six month period ended June 30, 1999 were $23,285,000
compared to $24,699,000 for the first six months in 1998. The decline is
principally the result of actions taken by the Company to change its patient mix
in its Pennsylvania operation as a result of the Interim Payment System, which
became effective in 1998. This revenue loss was partially offset by Medicare
rate increases in 1999 in all of the Company's certified locations.
Cost of revenues as a percentage of net revenues was 64.6% for the first
six months in 1999, compared with 66.0% in the first six months in 1998. The
decrease in cost of revenue in 1999 is principally the result of the above
described rate increases, which resulted in a higher gross margin. The resulting
gross profits were $8,246,000 and $8,392,000 or 35.4% and 34.0%, for the six
months ended June 30, 1999 and 1998, respectively.
Selling, general and administrative expenses were $7,032,000 for the first
six months in 1999, as compared to $7,616,000 for the first six months in 1998.
The net decrease was due to a company wide reduction in branch staffing and
other expenses as well as from the consolidation of two branches, one in
Connecticut and one in New York City.
Interest and other financing expenses were $1,123,000 for the first six
months in 1999 as compared to $1,120,000 for the first six months in 1998. Total
bank debt was $16,711,000 at June 30, 1999 as compared to $14,552,000 at June
30, 1998.
The Company's net operating loss carryforwards offset any Federal tax
liability. The income tax provision relates to state tax obligations.
As a result of the foregoing, for the six months ended June 30, 1999, the
Company had a net loss of $313,000 compared to net loss of $926,000 for the
corresponding periods in 1998.
FINANCIAL CONDITION
As of June 30, 1999, the Company's cash and cash equivalents totaled
$350,000 compared to $267,000 at December 31, 1998. There were no funds
available from the Company's Revolving Line of Credit at June 30, 1999.
The Company is not in compliance with the financial covenants of the RLOC
or its subordinated credit facility. Non-compliance with financial covenants
gives the lenders the right to declare the amounts outstanding under the
Company's credit facilities immediately due and payable. See Note 5 Notes to
Unaudited Consolidated Financial Statements.
-11-
<PAGE> 12
The Company's current credit facilities, together with cash generated from
operations, are not sufficient to fund the Company's operations through 1999
even if the credit facilities continue to be renewed. U.S. HomeCare will need to
raise equity capital and/or restructure its existing credit facilities to ensure
sufficient funding of its operations. U.S. HomeCare is currently discussing with
its current creditors and others such expanded and extended financing. There can
be no assurance that U.S. HomeCare will obtain such expanded and extended
financing. Failure to obtain such financing would have a material adverse effect
on U.S. HomeCare's business, financial condition and results of operations.
FACTORS AFFECTING THE COMPANY'S BUSINESS
U.S. HomeCare's future business, financial condition and results of
operations are dependent on the Company's ability to successfully raise equity
capital and/or increase and extend or replace its existing credit facilities to
ensure sufficient funding of its operations.
Additionally, U.S. HomeCare's future business and results of operations are
subject to the following risks: dependence on referral sources; dependence on
reimbursement by third party payors including Medicaid and Medicare; pricing
pressures which the health care industry is currently experiencing as a result
of market-driven reforms; complying with the federal and state regulations which
apply to home health care agencies; fundamental changes in the health care
industry which could be brought about by health care reform; competing
effectively with other home health care providers; attracting and retaining
senior management personnel and branch level management as well as qualified
health care professionals and paraprofessionals; and maintaining adequate
liability insurance. The failure to manage such risks successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations.
-12-
<PAGE> 13
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
U.S. HomeCare has identified all significant applications that will require
modification to ensure Year 2000 Compliance. Internal and external resources are
being used to make the required modifications and test Year 2000 Compliance.
U.S. HomeCare plans on completing the testing process of all significant
applications by October 31, 1999.
U.S. HomeCare is also engaged in ongoing discussions with its significant
suppliers, large customers and financial institutions to determine that those
parties have appropriate plans to remediate Year 2000 issues where their systems
interface with the U.S. HomeCare's system or otherwise impact its operations.
U.S. HomeCare is assessing the extent to which its operations are vulnerable
should those organizations fail to properly remediate their computer systems,
and as of the date hereof is not able to quantify the impact on the Company, if
any, of failures of those organizations to remediate Year 2000 issues properly.
The total cost to U.S. HomeCare of those Year 2000 Compliance
activities has not been and is not anticipated to be material to its financial
position or results of operations in any given year. These costs and the date on
which U.S. HomeCare plans to complete the Year 2000 modification and testing
processes are based on management's best estimates, which were derived utilizing
numerous assumptions of future events including the continued availability of
certain resources, third party modifications plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ from those plans.
-13-
<PAGE> 14
U.S. HOMECARE CORPORATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes since December 31, 1998.
Part II - Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On April 27, 1999, the Company filed a Proxy Statement with
the Securities and Exchange Commission (S.E.C.) relating to the
Company's Annual Meeting and its intention to seek shareholders'
approval to effect a 1-for-1,500 reverse stock split of the
Company's Common Stock. The reverse stock split would reduce the
number of shareholders of record of the Company below 300, which
will enable the Company to deregister its Common Stock under the
Securities Exchange Act of 1934. This proxy statement is under
review with the S.E.C.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits - The following exhibits are filed
herewith or incorporated herein.
27 Three Month Data Schedule
B. Reports on Form 8-K
1. No Reports on Form 8-K were filed during the quarter for
which this report is filed.
-14-
<PAGE> 15
U.S. HOMECARE CORPORATION
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.
U.S. HomeCare Corporation
August 16, 1999 /s/ Sophia V. Bilinsky
- ------------------ ------------------------------
Date President and Chief Executive Officer
(Principal Executive Officer)
August 16, 1999 /s/ Thomas S. Grogan
- ------------------ ------------------------------
Date Chief Financial Officer
(Principal Financial Officer)
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF JUNE 30, 1999 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-31-1999
<PERIOD-START> MAR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 350
<SECURITIES> 0
<RECEIVABLES> 5,878
<ALLOWANCES> 616
<INVENTORY> 0
<CURRENT-ASSETS> 7,576
<PP&E> 554
<DEPRECIATION> 7,389
<TOTAL-ASSETS> 10,055
<CURRENT-LIABILITIES> 19,071
<BONDS> 0
0
328
<COMMON> 394
<OTHER-SE> (10,784)
<TOTAL-LIABILITY-AND-EQUITY> 10,005
<SALES> 11,601
<TOTAL-REVENUES> 11,601
<CGS> 0
<TOTAL-COSTS> 7,398
<OTHER-EXPENSES> 3,651
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 522
<INCOME-PRETAX> 30
<INCOME-TAX> 35
<INCOME-CONTINUING> (5)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
