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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-19350
ViroGroup, Inc.
Exact name of Registrant as specified in its charter
FLORIDA 59-1671036
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5217 Linbar Drive, Suite 309
Nashville, TN 37211
(Address of principal executive offices)
Registrant's telephone number: (615) 832-0081
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of November 17, 1997 the aggregate market value of the voting stock
of the Registrant held by non-affiliates of the Registrant was $225,060.
As of November 17, 1997, the number of outstanding shares of Common
Stock, par value $.01 per share, of the Registrant was 795,214.
Information required by Part III is incorporated by reference to
portions of the Registrant's 1998 Proxy Statement for the Annual Meeting of
Shareholders which will be filed with the Securities and Exchange Commission
within 120 days after the close of the 1997 fiscal year.
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operational in the Fall of 1997, to finance the unpaid backlog. This non-profit
corporation is charged with financing the estimated backlog of 9,500 claims
totaling over $556 million. Payment of claims will be on a first-come,
first-served methodology based on application filing date and an assumed annual
allocation rate of $100 million. Claims paid will be subject to a 3.5% annual
discount in consideration of the anticipated accelerated payment as compared to
the previously expected period of 4 to 5 years. Based upon information received
from the State of Florida, it is currently anticipated that payment of the
initial portion of the claims (approximately $213 million) should begin in the
first quarter of calendar 1998; however, no assurance of that timetable can be
given.
The Company in prior fiscal years recorded valuation allowances on the
amounts due to reflect the State mandated discount and potential denied costs.
At August 31, 1996 allowances totaled $931,665 with $889,937 applied as a
valuation allowance to the amounts due, resulting in a net amount of $2,812,737
shown as the Amounts Due from State Agency, net, in the accompanying
consolidated balance sheet.
At August 31, 1997 allowances totaled $913,918 with $166,623 applied as
a valuation allowance to the amounts due, resulting in a net of $512,927 shown
as the Amounts Due From State Agency, net, in the accompanying consolidated
balance sheet. The balance sheet also includes $747,295 which is included in
Accrued liabilities to reflect the Company's liability to pay discounts and
denied costs on receivables sold to third-parties.
All of the approximately $3.1 million in reimbursement applications
which were unfiled at August 31, 1996, have been sold to third party financing
entities at August 31, 1997. The Company used third-party funding to obtain the
cash from the financing entities to avoid the long payout period by the State.
In addition to selling the previously mentioned claims, the Company filed
approximately $703,000 directly with the State.
Specifically, the Company entered into several arrangements to sell
substantially all the claims filed with the State for reimbursement. These
arrangements required prepayment of a 3 - 4% prepaid fee to cover administrative
and other costs for up to the first nine months at the time the financing entity
paid the Company.
Because the State did not pay the funding entities by September 30,
1997, the Company will begin to pay indemnification costs at a monthly rate of
0.6875% in October 1997. Under the agreement with the funders, the monthly rate
increases such that if the applications are not paid by the State prior to the
20th month after funding, the Company will have paid indemnification costs at
the rate of 0.6875% for 18 months. If the applications are not paid within 20
months, the Company must indemnify the funders at the rate which would have
otherwise been received by the funders from the State program if interest were
being paid by the State. These indemnification costs are being charged against
the reserve account at the present time. In the event the State does not meet
the projected payment schedule beginning in the first quarter of calendar year
1998, the reserves will not be adequate to absorb all of the indemnification
costs.
6
<PAGE> 3
VIROGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Number of Number of Paid-In (Accumulated
Shares Amount Shares Amount Capital Deficit)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, August 31, 1994.......................... 800,000 $ 8,000 397,607 $ 3,976 18,178,560 $(10,860,644)
Conversion of preferred stock into common stock... (800,000) (8,000) 397,607 3,976 154,973 --
Net loss for the year............................. -- -- -- -- -- (2,586,737)
Dividends on preferred stock...................... -- -- -- -- -- (460,445)
------- ------- ------- ------- ----------- ------------
BALANCE, August 31, 1995.......................... -- 795,214 7,952 18,333,533 (13,907,826)
Net loss for the year............................. -- -- -- -- -- (1,375,645)
------- ------- ------- ----------- ------------
BALANCE, August 31, 1996.......................... -- -- 795,214 7,952 18,333,533 (15,283,471)
Net loss for the year............................. -- -- -- -- -- (2,892,716)
BALANCE, August 31, 1997.......................... -- 795,214 $ 7,952 $18,333,533 $(18,176,187)
======= ======= ======= ======= =========== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sell of receivables to third party
funders ............................................... -- -- 3,020,989
Proceeds from current notes payable........................... 14,847,778 9,448,098 5,814,599
Repayment of notes payable.................................... (14,821,775) (8,046,374) (7,145,083)
Repayment of long-term debt................................... (15,243) (109,228) --
Repayment of capitalized lease obligations.................... (57,142) (25,936) (9,447)
Cash paid to issue common stock............................... (29,497) -- --
Proceeds from long-term notes payable......................... 99,437 -- --
Payment of preferred stock dividends.......................... (280,000) -- --
---------- ---------- ----------
Net cash provided by (used in)
financing activities.................................... (256,442) 1,266,560 1,681,058
---------- ---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (21,872) 86,208 (191,001)
CASH AND CASH EQUIVALENTS,
Beginning of year............................................. 126,665 104,793 191,001
--------- ---------- -----------
CASH AND CASH EQUIVALENTS,
End of year ............................................... $ 104,793 $ 191,001 $ 0
========= ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for-
Income taxes................................................ $ 12,586 $ 15,840 $ 8
========= ========== ===========
Interest ............................................... $ 88,667 $ 164,345 $ 92,040
========= ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE> 5
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
(b) Options and Warrants-
In May 1991, the Company's Board of Directors adopted the 1991
Long-Term Incentive Plan (the "Incentive Plan") which permits the granting of
stock options, stock appreciation rights and other awards. The Board has
reserved 37,500 shares of unissued common stock under the Incentive Plan. The
Incentive Plan is administered by the Compensation Committee of the Board of
Directors which is authorized to determine, from time to time, the term,
exercise price, settlement terms, forfeiture provisions and other terms and
conditions of each of the types of awards. The following tables set forth the
status of the Incentive Plan at August 31, 1997, after giving effect to the one
for eight reverse stock split.
<TABLE>
<CAPTION>
Number of Number of
Number of Shares of Shares of
Exercise Shares of Common Common Shares
Price Common Stock Stock Out-
Per Share Stock Exercised Forfeited standing
Date of Grant --------- Granted --------- --------- --------
- ------------- -------
<S> <C> <C> <C> <C> <C>
December 1991 $56.00 19,281 (106) (18,350) 825
June 1992 72.00 6,125 (6,125) 0
March 1993 70.00 10,063 (6,000) 4,063
August 1993 32.00 250 250
December 1993 20.00 6,000 (6,000) 0
October 1994 14.00 1,250 (1,250) 0
November 1994 12.00 4,375 (4,375) 0
July 1995 8.00 313 (313) 0
July 1995 7.52 313 (313) 0
January 1996 4.48 6,750 6,750
November 1996 2.56 15,000 (3,125) 11,875
January 1997 2.00 6,250 6,250
March 1997 1.12 3,500 3,500
------- ------- -------
Balance
August 31, 1997 79,470 (106) (45,851) 33,513
======= ==== ======= =======
</TABLE>
F-18
<PAGE> 6
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
1996. Also, the 1996 Act created a non-profit public benefit corporation, which
became operational in the Fall of 1997, to finance the unpaid backlog. This
non-profit corporation is charged with financing the estimated backlog of 9,500
claims totaling over $556 million. Payment of claims will be on a first-come,
first-served methodology based on application filing date and an assumed annual
allocation rate of $100 million. Claims paid will be subject to a 3.5% annual
discount in consideration of the anticipated accelerated payment as compared to
the previously expected period of 4 to 5 years. Based upon information obtained
from the State of Florida, it is currently anticipated that payment of the
initial portion of the claims (approximately $213 million) should begin in the
first quarter of calendar 1998; however, no assurance of that timetable can be
given.
The Company in prior fiscal years recorded valuation allowances on
the amounts due to reflect the State mandated discount and potential denied
costs. At August 31, 1996 these allowances totaled $931,665 with $889,937
applied as a valuation allowance to the amounts due, resulting in a net amount
of $2,812,737 shown as the Amounts Due from State Agency, net, in the
accompanying consolidated balance sheet.
At August 31, 1997 these allowances totaled $913,918 with $166,623
applied as a valuation allowance to the amounts due, resulting in a net of
$512,927 shown as the Amounts Due From State Agency, net, in the accompanying
consolidated balance sheet. The balance sheet also includes $747,295 which is
included as an accrued liability to reflect the Company's liability to pay
discounts and denied costs on receivables sold to third-parties.
All of the approximately $3.1 million in reimbursement applications
at August 31, 1996, have been sold to third party entities at August 31, 1997.
The Company used third-party funding to obtain the cash from the buyers to avoid
the long payout period by the State. In addition to selling the previously
mentioned claims, the Company filed approximately $703,000 directly with the
State.
Specifically, the Company entered into several arrangements to sell
substantially all the claims filed with the State for reimbursement. These
arrangements required the Company to pay a 3 - 4% prepaid fee at the time the
buyers paid the Company.
Because the State did not pay the funding entities by September 30,
1997, the Company will begin to pay indemnification costs at a monthly rate of
0.6875% in October 1997. Under the agreement with the funders, the monthly rate
increases such that if the applications are not paid by the State prior to the
20th month after funding, the Company will have paid indemnification costs at
the rate of 0.6875% for 18 months. If the applications are not paid within 20
months, the Company must indemnify the funders at the rate which would have
otherwise been received by the funders from the State program if interest were
F-25
<PAGE> 7
VIROGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
AUGUST 31, 1995, 1996 AND 1997
being paid by the State. These indemnification costs are being charged against
the reserve account at the present time. In the event the State does not meet
the projected payment schedule beginning in the first quarter of calendar year
1998, the reserves will not be adequate to absorb all of the indemnification
costs.
In addition, the Company has placed 13% of the amounts sold in an
interest bearing escrow account to provide for potential state denied costs and
state mandated interest discount. The interest earned on the escrowed amounts
accrues to the Company's benefit and is recorded as interest income in the
period earned. The escrow balance at August 31, 1997, is $596,408 and is
included in restricted cash on the accompanying Consolidated Balance Sheet.
The Company filed all amounts due from the State prior to the state
mandated filing deadline of December 31, 1996.
(f) Segment Information
The Company operates in one industry segment, as contemplated by
Financial Accounting Standards Board Statement No. 14. Laidlaw and its
affiliates accounted for approximately 21%, 20% and 8% of consolidated gross
revenues for the years ended August 31, 1995, 1996, and 1997, respectively.
Included in accounts receivable, net in the accompanying consolidated balance
sheets as of August 31, 1996 and 1997 are amounts due from Laidlaw and its
affiliates of $432,700 and $128,373, respectively. A Laidlaw affiliate owns 50%
of the Company's outstanding common stock and three officers of Laidlaw
affiliates are Directors of the Company.
F-26
<PAGE> 8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
VIROGROUP, INC.
/s/ CHARLES S. HIGGINS, JR., PRESIDENT
-------------------------------------------
Charles S. Higgins, Jr., Chairman,
President and Chief Executive Officer
Dated: December 5, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND CAPACITY DATE
- ---------------------- ----
<S> <C>
/s/ DEWAYNE BASKETTE December 5, 1997
- -------------------------------
DeWayne Baskette
Chief Financial Officer
/s/ A. DENNY ELLERMAN December 5, 1997
- -------------------------------
A. Denny Ellerman, Director
/s/JAMES J. HATTLER December 5, 1997
- -------------------------------
James J. Hattler, Director
/s/ RICK L. MCEWEN December 5, 1997
- -------------------------------
Rick L. McEwen, Director
/s/ SYLVESTER O. OGDEN December 5, 1997
- -------------------------------
Sylvester O. Ogden, Director
/s/ KENNETH W. WINGER December 5, 1997
- -------------------------------
Kenneth W. Winger, Director
</TABLE>
