<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM ______________ TO _______________
COMMISSION FILE NUMBER 0-19499
HEALTHSTAR CORP.
(Exact name of small business issuer as specified in its charter)
DELAWARE 91-1934592
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2875 N.E. 191ST STREET, SUITE 601
AVENTURA, FLORIDA 33180
(Address of principal executive offices)
(305) 933-8779
(Issuer's Telephone Number)
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
/ /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: Common Stock, $0.001 par value,
4,345,872 outstanding as of August 10, 2000.
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HEALTHSTAR CORP. AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheet as of June 30, 2000......................................................1
Consolidated Statements of Operations and Retained Earnings
(Deficit) for the Three Months Ended June 30, 2000 and 1999.....................................2
Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 2000 and 1999.............................................................3
Notes to Unaudited Consolidated Financial Statements................................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................13
Item 2. Changes in Securities and Use of Proceeds...........................................................13
Item 3. Defaults Upon Senior Securities.....................................................................13
Item 4. Submission of Matters to a Vote of Security Holders.................................................13
Item 5. Other Information...................................................................................13
Item 6. Exhibits and Reports on Form 8-K....................................................................14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHSTAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 2000
(Unaudited)
------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,962,558
Other current assets 62,660
--------------
Total current assets 7,025,218
Property and equipment, net 2,441
Other assets, at cost 20,000
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Total assets $ 7,047,659
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 328,731
Accrued expenses 311,545
Current portion of long-term debt 200,000
--------------
Total current liabilities 840,276
--------------
SHAREHOLDERS' EQUITY
Common stock, $.001 par value 15,000,000 shares
authorized, 4,345,872 shares issued and outstanding 4,346
Additional paid -in- capital 9,196,428
Retained earnings (deficit) (2,993,391)
--------------
Total shareholders' equity 6,207,383
--------------
Total liabilities and shareholders' equity $ 7,047,659
==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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HEALTHSTAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (DEFICIT)
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
------------
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
REVENUE
Capitated fees $ 667,773 $ 2,094,986
Repricing fees 248,579 1,586,819
Other fees 27,298 125,220
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Total revenue 943,650 3,807,025
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OPERATING EXPENSES
Cost of services 74,813 533,627
Salaries and wages 896,377 1,957,559
General and administrative 555,920 1,078,298
Depreciation and amortization 56,875 318,158
-------------- -------------
Total operating expenses 1,583,985 3,887,642
-------------- -------------
(Loss) from operations (640,335) (80,617)
Non-operating income (expense)
Interest income 55,057 0
Interest expense (10,305) (61,499)
Net gain (loss) on dispositions of assets (93,105) 114,538
-------------- -------------
(Loss) before income taxes (688,688) (27,578)
Income tax expense (benefit) 0 (9,279)
-------------- -------------
Net (loss) (688,688) (18,299)
Retained earnings (deficit) at beginning of quarter (2,304,703) 216,703
-------------- -------------
Retained earnings (deficit) at end of quarter $ (2,993,391) $ 198,404
============== =============
(Loss) per share - Basic and Diluted $ (0.16) $ -
============== =============
Weighted average shares outstanding - Basic and Diluted 4,345,872 3,819,872
============== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
HEALTHSTAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
------------
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (688,688) $ (18,299)
Adjustments to reconcile net (loss)
to net cash (used in) operating activities:
Depreciation and amortization 56,875 318,158
Bad debt expense 0 107,654
(Gain) loss on dispositions of assets 93,105 (114,538)
Increase (decrease) in cash resulting from changes in operating assets and
liabilities:
Trade accounts receivable 133,281 (148,951)
Other current assets (33,171) 446
Accounts payable 600,120 18,380
Accrued expenses (380,859) (419,552)
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Net cash (used in) operating activities (219,337) (256,702)
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INVESTING ACTIVITIES
Net proceeds from dispositions of assets 8,201,861 114,538
Purchases of equipment 0 (27,175)
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Net cash provided by investing activities 8,201,861 87,363
------------ --------------
FINANCING ACTIVITIES
(Increase) in other assets 0 (1,777)
Net proceeds from line of credit 0 250,000
Payments on long-term debt (1,325,000) (150,000)
------------- -------------
Net cash (used in) provided by financing activities (1,325,000) 98,223
------------- -------------
Net increase (decrease) in cash and cash equivalents 6,657,524 (71,116)
Cash and cash equivalents at beginning of quarter 305,034 71,936
------------- -------------
Cash and cash equivalents at end of quarter $ 6,962,558 $ 820
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
HEALTHSTAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Description of the Business
Prior to April 28, 2000, HealthStar Corp. (the "Company") was
a healthcare management company dedicated to controlling the
cost, improving the quality and enhancing the delivery of
healthcare services. The Company provided related products and
services designed to reduce healthcare costs. The Company
marketed and provided programs and services to insurance
companies, self-insured businesses for their medical plans,
and third parties that administer employee medical plans.
These programs and services assisted clients in reducing
healthcare costs for group health plans and for workers'
compensation coverage and automobile accident injury claims.
The Company operated its business in one segment through its
two wholly-owned subsidiaries, HealthStar, Inc. ("HealthStar")
and National Health Benefits & Casualty Corporation ("NHBC").
The Company is a registrant with the Securities and Exchange
Commission and its shares are publicly traded on the
Over-The-Counter Bulletin Board.
On December 30, 1999, the Company sold all of the assets of
NHBC to Carlmont Capital Group, Inc. and received as
consideration $1,500,000 in cash at closing and an earn-out
agreement that may provide up to an additional $300,000 in
cash, based on cash flows of NHBC, over the 18 months
following the closing of the transaction.
On April 28, 2000, the Company sold all of the capital stock
of HealthStar to Beyond Benefits, Inc. and received
consideration of $8,880,000 in cash at closing. The capital
stock of HealthStar constituted substantially all of the
assets of the Company. As a result of this sale, the Company
no longer operates in the managed healthcare industry and
currently does not have any ongoing revenue generating
operations. See Note 3, "Gains and Losses on Dispositions of
Assets," for further details of the sale of HealthStar and its
impact on future operations.
B. Basis of Presentation
The accompanying unaudited consolidated financial statements
of HealthStar Corp. and Subsidiaries have been prepared in
accordance with generally accepted accounting principles for
interim financial information and pursuant to rules and
regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for
a complete financial statement presentation. In the opinion of
management, such unaudited interim financial information
reflects all adjustments, consisting only of normal recurring
adjustments, necessary to present the Company's financial
position and results of operations for the periods presented.
The results of operations for interim periods are not
necessarily indicative of the results to be expected for a
full fiscal year. It is suggested that these consolidated
financial statements be read in conjunction with the Company's
audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended
March 31, 2000.
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HEALTHSTAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
D. Principles of Consolidation
The consolidated financial statements include the financial
statements of the Company and its two wholly-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
E. Cash Equivalents
The Company considers all highly liquid instruments with
original maturities of three months or less to be cash
equivalents.
F. Earnings (Loss) per Share
In accordance with Statement of Financial Accounting Standards
No. 128, "Earnings per Share," basic earnings (loss) per share
is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding.
Diluted earnings (loss) per share reflects the maximum
dilution that would result after giving effect to dilutive
stock options and warrants and to the assumed conversion of
all dilutive convertible securities and stock. Outstanding
options to purchase common shares were not included in the
computation of diluted earnings (loss) per share because they
were considered anti-dilutive.
G. Fair Value of Financial Instruments
The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current
transaction between willing parties. Management believes that
the recorded amounts of current assets and current liabilities
approximate fair value because of the short maturity of these
instruments.
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<PAGE>
HEALTHSTAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. Revenue Recognition
The Company provided its customers with access to a network of
healthcare providers which included physicians, acute care
hospitals and ancillary providers such as outpatient surgery
centers and home healthcare agencies. These providers
contractually agreed with the Company to provide healthcare
services to the Company's customers at a discount from billed
charges. The Company generated revenue from its customer base
by charging network access fees. The Company entered into
contracts with its customers and charged network access fees
using either of two methods. Customers could choose to pay a
capitated fee, which is a fixed, monthly fee per eligible
subscriber. Initial enrollment figures were based on estimates
provided by the customer. Actual enrollment figures were
subsequently provided by the customer and updated periodically
at intervals ranging from monthly to semi-annually. Capitated
revenue was recognized on a monthly basis when customers were
billed using the most current enrollment figures available.
Adjustments were made when new enrollment figures were
submitted by the customer. The other method under which
customers could have elected to pay the Company for network
access was called a repricing fee. Under this method, the
Company received a percentage of the dollar amount of the
discount granted by the healthcare provider for services
rendered to an enrolled subscriber. The Company's percentage
of the dollar amount of the discount was determined by
contract and varied from customer to customer. Repricing fees
were recognized as revenue when the Company processed the
medical claim, calculated the discount and notified the
customer of the amount due.
I. Cost of Services
The major components of cost of services consists of
utilization review, case management, external marketing
commissions, and costs associated with electronic transmission
of customers' healthcare claims.
J. Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the
assets, which approximates three years for equipment to seven
years for furniture and fixtures. Computer software is
amortized over three to five years.
K. Income Taxes
The Company accounts for income taxes under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
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HEALTHSTAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K. Income Taxes (Continued)
A valuation allowance must be established to reduce deferred
income tax benefits if it is more likely than not that a
portion of the deferred income tax benefits will not be
realized. It is management's opinion that the entire deferred
tax benefit may not be recognized in future years. Therefore,
a valuation allowance equal to the deferred tax benefit has
been established for the portion of the net operating loss
carryforward and other deferred tax assets which may not be
recognized in future years.
L. Impairment of Long-Lived Assets
Management reviews the possible impairment of long-lived
assets and certain identifiable intangible assets whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets measured using
quoted market prices when available or the present value of
estimated expected future cash flows using a discount rate
commensurate with the risks involved. In measuring impairment,
assets are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the
cash flows of other groups of assets.
M. Stock Based Compensation
The Company applies Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
(SFAS No. 123), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure required by SFAS No. 123. In accordance with APB
Opinion No. 25, compensation expense is recorded on the date
an option is granted only if the current market price of the
underlying stock exceeds the exercise price.
N. Comprehensive Income
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), established
standards for reporting and displaying comprehensive income
and its components in a full set of general-purpose financial
statements. Comprehensive income (loss) was the same as net
income (loss) for all periods presented.
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HEALTHSTAR CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
------------
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
O. Segment Reporting
Until April 28, 2000, the Company had one operating business
segment, healthcare cost containment, which involved the
marketing and provision of programs and services to insurance
companies, self-insurance businesses for their medical plans
and third parties who administer employee medical plans.
Note 2. DEBT
Debt consists of an unsecured note payable to the previous owner of
HealthStar in the amount of $200,000. Interest is payable monthly at
8%.
Note 3. GAINS AND LOSSES ON DISPOSITIONS OF ASSETS
On April 28, 2000, the Company completed the sale of the stock of its
wholly owned subsidiary, HealthStar, Inc. to Beyond Benefits, Inc.
The Company received $8,880,000 in cash at closing and used
$1,325,000 to repay the outstanding principal balance of the Harris
Bank term loan. This sale, which constituted the sale of
substantially all the assets of the Company, was approved by the
shareholders of the Company on April 25, 2000. The sale resulted in a
pre-tax loss of $93,105 primarily as a result of additional
transaction costs incurred during April 2000. HealthStar, Inc.
incurred a pre-tax loss from operations of $173,748 during April
2000. Following this sale, the Company no longer operates in the
managed healthcare industry and currently does not have any ongoing
revenue generating operations. The Company intends to utilize the
remaining net proceeds from the sale to acquire an Internet business
or other business or businesses.
On June 7, 1999, the Company sold its First American Vision Services
program for cash consideration of $125,000 to an immediate family
member of a former officer of the Company, which resulted in a
pre-tax gain of $114,538. The vision program accounted for
approximately $14,000 in revenue during the quarter ended June 30,
1999.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:
This document includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this document, including, without
limitation, the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Liquidity and Sources of
Capital" regarding the Company's strategies, plans, objectives, expectations,
and future operating results are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable at this time, it can give no assurance that such
expectations will prove to have been correct. Actual results could differ
materially based upon a number of factors including, but not limited to, history
of losses, leverage and debt service, competition, no dividends, limited public
market and liquidity, shares eligible for future sale, delays in or failure to
identify and consummate a suitable acquisition, realization of the earn-out
provision related to cash flows of NHBC for the 18 months following the December
1999 sale of NHBC's assets to Carlmont Capital Group, Inc. and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings.
Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the unaudited
financial statements and footnotes for the three months ended June 30, 2000
contained herein and the audited financial statements and footnotes for the
year ended March 31, 2000 contained in the Company's Form 10-KSB filed with
the Securities and Exchange Commission on June 29, 2000.
RECENT DEVELOPMENTS
On April 28, 2000, the Company sold all of the issued and outstanding
stock of its wholly owned subsidiary HealthStar, Inc. ("HSI") to Beyond
Benefits, Inc., a Long Beach, California based managed healthcare company. The
sale was made pursuant to a Stock Purchase Agreement dated September 23, 1999,
as amended, by and among the Company, HealthStar, Inc., and Beyond Benefits,
Inc. The Company received $8,880,000 in cash at closing, of which, $1,325,000
was used to repay the entire amount outstanding under the Company's Term Loan
and Credit Facility with Harris Trust and Savings Bank ("Harris Bank"). As a
result of the completion of this transaction, the Company is no longer engaged
in the managed healthcare business and currently has no revenue generating
operations. The Company intends to utilize the remaining proceeds from this sale
to acquire an internet-related business or businesses or other business or
businesses.
On December 30, 1999, the Company sold the assets of its wholly owned
subsidiary National Health Benefits & Casualty Corporation ("NHBC") to Carlmont
Capital Group, Inc. ("Carlmont"), a privately held company based in Chula Vista,
California. This sale was made pursuant to the terms of an Asset Purchase
Agreement dated December 28, 1999, by and among the Company, NHBC and Carlmont.
The Company received $1,500,000 in cash at closing and an earnout agreement that
may provide up to an additional $300,000 in cash, based on the actual cash flows
of NHBC during the 18 month period after closing.
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<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
As a result of the completion of the sale of HSI to Beyond Benefits
on April 28, 2000 and the completion of the sale of the assets of NHBC to
Carlmont on December 30, 1999, the Company is no longer engaged in the managed
healthcare business and has no revenue generating operations. It should be noted
that the operating results for the three months ended June 30, 2000 only include
the operating results of HSI for the first 28 days of the month of April 2000,
and do not include any operating results for NHBC. Conversely, the Company's
operating results for the three months ended June 30, 1999 include the operating
results for both HSI and NHBC for the entire period.
REVENUE
Prior to the sale of its two wholly-owned subsidiaries HSI and NHBC,
the Company derived the majority of its revenue from fees paid by its customers
for access to the Company's PPO network of contracted healthcare providers.
These providers contractually agreed with the Company to provide healthcare
services to the Company's customers at a discount from billed charges. The
Company's customer base consisted of a variety of payors of medical claims such
as insurance companies, third-party administrators and self-insured employers.
The Company entered into contracts with its customers and charged network access
fees using either of two methods. Customers could choose to pay a capitated fee,
which is a fixed, monthly fee per eligible subscriber. The other method that
customers could elect to choose to pay the Company for network access is called
a repricing fee. Under this method, the Company received a percentage of the
dollar amount of the discount granted by the healthcare provider for services
rendered to an enrolled subscriber. The Company's percentage of the dollar
amount of the discount was determined by contract and varied from customer to
customer.
Total revenue for the three months ended June 30, 2000 was $943,650
versus $3,807,025 for the three months ended June 30, 1999. Total revenue in the
current quarter is equal to the total revenue for HSI for the 28-day period in
April 2000, prior to the Company's sale of HSI, which was consummated on April
28, 2000. Total revenue for the three months ended June 30, 1999 was $3,150,373
for HSI and $656,652 for NHBC. In addition to the effects of the sales of NHBC
and HSI, revenue decreased during the current quarter, when compared to the same
period of the previous year, due to the loss of significant customers of HSI
which occurred late in fiscal 2000. After April 28, 2000, the Company no longer
has any revenue generating operations.
OPERATING EXPENSES
Cost of services includes the cost of outsourcing the medical case
management and utilization review functions, commissions paid to outside
brokers, fees paid to other PPO networks for access to healthcare providers
which are not directly contracted with the Company, the cost of electronic
claims processing and the cost of printing provider directories. Cost of
services was $74,813 in the current quarter versus $533,627 for the comparable
period last year. Cost of services in the current quarter is equal to the cost
of services for HSI for the 28-day period in April 2000. Cost of services for
the three months ended June 30, 1999 was $348,439 for HSI and $185,188 for NHBC.
For HSI, cost of services as a percentage of revenue decreased to 7.9% from
11.0%. The primary reason for this decrease was lower costs related to the
outsourcing of the medical case management and utilization review functions.
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<PAGE>
Salaries and wages includes all employee compensation, payroll taxes,
health insurance, other employee benefits, and temporary labor. Also included in
this category are the commissions paid to in-house sales and marketing
personnel. Salaries and wages were $896,377 for the three months ended June 30,
2000 compared to $1,957,559 in the comparable period last year. In the current
quarter, salaries and wages were $688,345 at HSI for the 28-day period versus
$1,754,638 for the three months ended June 30, 1999. As a percentage of HSI's
revenue, salaries and wages for HSI increased to 72.9% in the current quarter
from 55.7% in the comparable period last year. The increase in the level of
salaries and wages during the 28-day period was attributable to the hiring of
temporary labor to process a backlog of claims. The remaining salaries and wages
expense for the quarter ended June 30, 2000 of $208,032 was related to the
compensation of the Company's two executive officers. Of this amount, $150,000
represents a bonus for the Company's Vice President and Chief Financial Officer,
which was earned in connection with the closing of the sale of HSI.
General and administrative expenses include all other operating
expenses, such as telecommunications, office supplies, postage, travel and
entertainment, professional fees, bad debt expense, insurance, rent and
utilities. General and administrative expenses were $555,920 for the three
months ended June 30, 2000 versus $1,078,298 for the comparable period last
year. In the current quarter, general and administrative expenses were
$298,604 for HSI for the 28-day period versus $894,288 for the three months
ended June 30, 1999. As a percentage of HSI's revenue, general and
administrative expenses for HSI increased to 31.6% in the current quarter
from 28.4% in the comparable period last year. The remaining general and
administrative expenses of $257,316 are primarily related to professional
fees, including legal and accounting fees, consulting fees related to the
Company's investigation of possible acquisition candidates and other general
overhead items such as travel and insurance.
Depreciation and amortization was $56,875 for the three months ended
June 30, 2000 versus $318,158 for the three months ended June 30, 1999. The
overall decrease in depreciation and amortization expense was primarily due to a
decrease in fixed assets and goodwill as a result of the sales of HSI and NHBC.
NON-OPERATING INCOME (EXPENSE)
Interest income for the three months ended June 30, 2000 was $55,057.
Interest income was generated from the investment of the net proceeds from the
sale of HSI into a money market account that currently yields 5.5%. The Company
did not have any interest income in the comparable period last year.
Interest expense for the three months ended June 30, 2000 was
$10,305 versus $61,499 in the comparable period last year. The decrease is the
result of the payoff of the remaining $1,325,000 owed to Harris Bank from the
proceeds of the sale of HSI on April 28, 2000.
The Company recorded a pretax loss of $93,105 on the sale of HSI
during the current quarter. The Company recorded a pretax gain of $114,538 on
the sale of the assets of its vision program, which occurred in the quarter
ended June 30, 1999.
INCOME TAX EXPENSE
The Company recorded no income tax expense in the current quarter
due to the level of operating losses incurred. A tax benefit of $9,279 was
recorded in the comparable period last year.
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<PAGE>
NET LOSS
The Company incurred a net loss of $688,688 for the three months
ended June 30, 2000 compared to a net loss of $18,299 for the three months ended
June 30, 1999. Components of the net loss in the current quarter are net
interest income of $44,752, a net loss from the operations of HSI of $173,748,
the loss on the sale of HSI of $93,105 and corporate overhead expenses of
$466,587.
LIQUIDITY AND CAPITAL RESOURCES
On April 28, 2000, in connection with the sale of HSI to Beyond
Benefits, the Company received $8,880,000 in cash at the closing of the sale.
The Company incurred $595,491 in transaction costs related to the sale. The
Company used $1,325,000 of the cash proceeds to repay the entire principal
balance on its term loan owed to Harris Bank. The remaining proceeds were
invested in a money market account which currently yields 5.5%.
At June 30, 2000, the Company had cash and cash equivalents of
$6,962,558 and total liabilities of $840,276. Included in total liabilities is a
$200,000 note payable to the former owner of HSI. The remaining liabilities
include costs related to the sale of HSI and general corporate overhead items.
As of April 28, 2000, the Company no longer has any revenue
generating operations. The Company's only source of cash is interest income
generated from the investment of the remaining proceeds from the sale of HSI in
a money market account. The Company will continue to invest substantially all of
its cash in a money market account until such time that it is needed in
connection with the Company's plan to acquire a business or businesses. There
can be no assurance that the Company will be able to consummate an acquisition
of a business or businesses in accordance with the Company's current business
plan or in a timely manner.
The Company's principal use of cash will be the payment of general
corporate overhead items including the payment of salaries to its two employees,
both of whom are executive officers of the Company. The Company will also use
cash to execute its plan to acquire a business or businesses. These costs may
include the compensation of consultants, attorneys and other professionals whose
services are required in connection with effecting an acquisition.
To the extent the Company continues to hold its cash in a money
market account, the net effect of reductions in interest rates, the advent of
inflation, an increase in corporate overhead and the passage of time--or a
combination of two or more of these factors--could result in a reduction of the
Company's cash or its purchasing power, which, in turn, could adversely affect
the Company's prospects and financial condition.
-12-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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
The annual meeting of shareholders of the Company was held on April
25, 2000 for the purpose of (i) electing directors of the Company,
and (ii) approving the adoption of a resolution authorizing the Stock
Purchase Agreement dated September 23, 1999, as amended, between the
Company, HealthStar, Inc. and Beyond Benefits, Inc. pursuant to which
the Company proposed to sell all of the outstanding stock of
HealthStar, Inc. to Beyond Benefits, Inc. Proxies for the meeting
were solicited pursuant to Regulation 14A of the Securities Exchange
Act of 1934 and there was no solicitation in opposition.
(A) The following directors were elected by the following vote:
<TABLE>
<CAPTION>
FOR AGAINST
--- -------
<S> <C> <C>
Edward M. Chism 4,052,242 842
Isidor Buholzer, Jr. 4,052,242 842
Michael D. Flax 4,052,242 842
David J. Lewis 4,052,242 842
Luis A. Queral 4,052,242 842
</TABLE>
(B) The proposal to approve the adoption of the resolution
authorizing the Stock Purchase Agreement dated September 23,
1999, as amended, between the Company, HealthStar, Inc. and
Beyond Benefits, Inc.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
2,271,459 13,587 3,233
</TABLE>
ITEM 5. OTHER INFORMATION
None.
-13-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K
A report on Form 8-K (Item 5) was filed with the Securities
and Exchange Commission on May 3, 2000 announcing that at the
Annual Meeting the holders of a majority of the outstanding
shares of Common Stock of the Company approved and adopted a
resolution authorizing the Stock Purchase Agreement dated as
of September 23, 1999, as amended, between the Company,
HealthStar Inc. ("HSI") and Beyond Benefits, Inc. ("BBI"),
pursuant to which the Company agreed to sell all of the
outstanding stock of HSI, the only operating subsidiary of the
Company, to BBI for $8,880,000. The sale of the HSI stock by
the Company to BBI was consummated on April 28, 2000. As a
result of the sale of the HSI stock to BBI, the Company is no
longer engaged in the health care management industry.
A report on Form 8-K (Item 4) was filed with the Securities
and Exchange Commission on May 17, 2000 relating to the
engagement of Arthur F. Bell, Jr. & Associates, L.L.C. as the
successor accounting firm to KPMG.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 10-QSB to be signed on
its behalf by the undersigned thereunto duly authorized, this 10th day of
August, 2000.
HEALTHSTAR CORP.
By: /s/ Steven A. Marcus
---------------------------------------------
Steven A. Marcus
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-15-
