SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Period Ended December 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 1-10966
HEALTH PROFESSIONALS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 11-3076108
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2601 East Oakland Park Boulevard, Suite 300, Fort Lauderdale, Fl 33306
- --------------------------------------------------------------------------------
(Address of principal executive offices)
954-766-2552
- --------------------------------------------------------------------------------
(Registrant's telephone number, 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 ____.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31,1998
Common Stock, $.02 par value 7,479,000
1
<PAGE>
HEALTH PROFESSIONALS, INC.
AND SUBSIDIARIES
I N D E X
Page No.
--------
PART I - Financial Information
Condensed Consolidated Balance Sheets
December 31, 1997 and September 30, 1997 3 - 4
Condensed Consolidated Statements of Operations
Three Months Ended December 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows,
Three Months Ended December 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Management' Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
PART II - Other Information 12
2
<PAGE>
<TABLE>
<CAPTION>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 September 30
Assets 1997 1997
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash $ - $ -
Accounts receivable, net 2,739,000 2,782,000
Inventory 63,000 63,000
Prepaid consulting fees,
Current portion 161,000 171,000
Prepaid expenses and other 29,000 31,000
----------------- -------------------
Total current assets 2,992,000 3,047,000
Equipment, furniture & Fixtures
And leasehold improvements, net 756,000 845,000
Prepaid consulting fees, less
Current portion 75,000 102,000
Covenants not to compete, net 86,000 158,000
Costs in excess of net assets
Of businesses acquired, net 2,261,000 2,287,000
Other assets 183,000 181,000
----------------- -------------------
Total $ 6,353,000 $ 6,620,000
================= ===================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31 September 30
Liabilities and Stockholders' 1997 1997
- ------------------------------ ---- ----
Equity
- ------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
Expenses $ 3,276,000 $ 4,149,000
Accrued salaries and payroll taxes 297,000 278,000
Factoring line of credit 1,547,000 1,312,000
Current portion of long term debt 658,000 749,000
----------------- -------------------
Total current liabilities 5,778,000 6,488,000
----------------- -------------------
Long term debt, less current portion 2,642,000 1,658,000
----------------- -------------------
Stockholders' equity:
Serial preferred stock, $1 par value;
Authorized 100,000 shares; issued none
Common Stock - $.02 par value; authorized
25,000,000 shares; issued and
outstanding 7,479,000 149,000 145,000
Additional paid-in capital 44,896,000 44,774,000
Less: 40,000 shares of
Treasure stock at cost (42,000) (42,000)
Deficit (47,070,000) (46,403,000)
----------------- -------------------
Total stockholders' equity (2,067,000) (1,526,000)
----------------- -------------------
Total $ 6,353,000 $ 6,620,000
================= ===================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31
1997 1996
---- ----
<S> <C> <C>
Operating revenue $ 1,969,000 $ 1,920,000
Interest and other income 9,000
--------------- ---------------
1,969,000 1,929,000
--------------- ---------------
Costs and expenses:
Direct service expense 927,000 1,019,000
Selling, general and
Administrative expense 1,451,000 1,578,000
Interest 152,000 91,000
Research and development 107,000 148,000
Provision (recovery) for loss
and other professional
association revenues 29,000
--------------- ---------------
2,637,000 2,865,000
--------------- ---------------
Net Income (Loss) $ (668,000) $ (936,000)
=============== ===============
Net earnings(loss) per share (.09) (.20)
==== ====
Weighted average number of
Common and Common
equivalent shares outstanding 6,042,200 4,666,000
=============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (668,000) $ (936,000)
Adjustments to reconcile net earnings
(loss) to net cash used in operating activities:
Depreciation and amortization 89,000 286,000
Amortization - Consulting - -
Provision (recovery) for bad debts 298,000 (272,000)
Lease obligations 72,000 (28,000)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (255,000) 122,000
(Increase) in inventory - -
(Increase) decrease in prepaid expenses and other 12,000 46,000
(Increase) decrease in other assets - 6,000
Increase (decrease)in accounts payable and accrued expenses (873,000) 152,000
Increase (decrease) in accrued salaries and payroll taxes 19,000 200,000
--------------- --------------
NET CASH PROVIDED BY(USED IN)
OPERATING ACTIVITIES (1,306,000) (424,0000
-------------- --------------
INVESTING ACTIVITIES:
Purchase of Physician Association - -
Capital expenditures, net - -
Collection of Notes Receivable - -
--------------- --------------
NET CASH PROVIDED BY INVESTING
ACTIVITIES - -
--------------- --------------
FINANCING ACTIVITIES:
Proceeds from sale of common stock - -
Conversion of Debt to Equity - -
Additions to long term debt -
Discounts for Notes Payable -
Repayments of long term debt and
current maturities, net 178,000 (94,000)
Proceeds from long-term borrowing 893,000 615,000
Cash Received from (paid to)
Factor, net 235,000 (98,000)
-------------- --------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,306,000 423,000
-------------- --------------
NET INCREASE (DECREASE) IN CASH - (1,000)
CASH AT BEGINNING OF PERIOD - 49,000
-------------- --------------
CASH AT END OF PERIOD - $ 48,000
============== ==============
</TABLE>
6
<PAGE>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. General
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the nine months ended December 31, 1997 are
not necessarily indicative of the results that may be expected for the year
ending September 30, 1998 . These statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997.
2. Litigation and other Contingencies
In 1993, the SEC advised the Company that it had commenced a formal
investigation of potential securities law violations in connection with certain
trading activity in the Company's securities and has requested certain
information from the Company and certain of its officers in connection with that
investigation. The Company and its officers have complied with these requests.
In September 1996, the SEC settled its administrative proceedings with HPI's
former Chairman (who left the Company effective August, 1992) and others who
were alleged to have unlawfully traded in HPI's common stock. Neither the
Company itself, nor any of its current officers or directors were implicated in
the SEC investigation.
3. Conversion of Debt to Equity
The Company's Board of directors approved an agreement to convert $125,000
of convertible debentures into 232,973 shares of the Company's common stock.
71,109 shares were valued at .5625 per share, 145,454 shares were valued at
.515625 per share and 16,410 shares were valued at .609375 per share. These
prices represented a 75% discount from market at the time the transaction was
concluded. These shares are subject to Rule 144 restrictions.
7
<PAGE>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
BACKGROUND AND BUSINESS PLAN DEVELOPMENT
CSI currently operates five medical clinic and research sites located
in Florida (Fort Lauderdale, Miami Beach), California (Irvine, Los Angeles, )
and Illinois (Chicago). The Company had Independent Practice Affiliation (IPA)
agreements with physician's professional corporations to utilize these
facilities prior to January 1, 1996. On January 1, 1996, the Company purchased
the medical practices in Fort Lauderdale and Miami. On April 1, 1996, the
Company purchased the medical practice in Chicago. On September 30, 1996, the
Company created a Management Service Organization in California, which purchased
the medical practice operations in Irvine and on October 28, 1996 the Company
purchased medical practice operations in Los Angeles, which had not previously
been affiliated with the Company.
Management believes that owning the Company's affiliated medical
practices or medical practice operations, where permitted by law, will increase
its ability to deliver comprehensive integrated medical and clinical trials
services, will result in more cost-efficient management of the practices and
will allow better utilization of its standards-of care algorithms to improve
health care outcomes.
In addition, physician practices located in Florida, California,
Virginia, Texas, Pennsylvania, Maine, Washington, DC and New York are affiliated
with the CSI network and utilize CSI services to varying degrees.The Company's
principal business objective is to extend the full capabilities of its
Information Technologies system (ITS) to all its currently affiliated sites and
to expand the number of owned and affiliated sites. Management believes that
this will increase its revenue base to meet its central operating and
development expenses and will then generate substantial operating profits. The
extension of the ITS to all affiliated sites will allow the Company to provide
more comprehensive services to these sites, thereby increasing the revenue
earned from each. The expansion of owned and affiliated sites will create
further market outlets for the Company's services and allow greater market
capture of the underlying populations requiring those services. The expanded
network will be positioned to capture health services contracts as a national
managed care disease-specific provider, will provide larger economies of scale,
will provide more clinical data for medical and financial analysis and will
allow CSI to conduct larger clinical trials. The new Los Angeles site and the
new clinical trials which commenced during the second quarter of fiscal 1997
represent the accomplishment in part of this objective.
8
<PAGE>
RESULTS OF OPERATIONS
The Company's total facilities revenues are derived from provision of
physician medical services (where allowed by law) practice management services,
diagnostic laboratory services and other ancillary medical services to the
patients of medical practices owned by CSI and to the medical practices
affiliated with CSI.
Three Months Three Months
Ended Ended
December 31, 97 December 31, 1996
--------------- -----------------
Total Facilities Revenues $ 1,661,000 $ 1,682,000
Clinical Trials and Other 308,000 238,000
------------- ---------------
$ 1,969,000 $1,920,000
============= ===============
Total facilities revenues decreased by $21,000 for the three months ended
December 31, 1997, as compared to the same period in 1996. The decrease was
primarily due to the decrease in home health revenue caused by the shifting of
service locations to the physician's office.
The increase in clinical trials and other revenue of $70,000 for the three
months ended December 31, 1997 is due to the continuing enrollment into prior
trials and the initiation of new contracts which accounted for an increase of
$129,000 offset with a decrease in interest and other income of $59,000.
Interest and other income decreased by $59,000 for the three months
ended December 31, 1997 as compared to the three months ended December 301 1996.
The decrease is due to a decrease in the note receivable from the sale of the
discontinued operations.
9
<PAGE>
Direct service expense as a percentage of operating revenues was 47%
for the three months ended December 31 1997, as compared to 53% for the three
months ended December 31, 1996. The decrease was primarily due to the reduction
in payroll expenses.
Selling, general and administrative expenses decreased by $127,000 (8%)
for the three months ended December 31 1997 as compared to the three and months
ended December 31, 1996. The decrease relates primarily to a decrease in
amortization related to the writing down of goodwill and a decrease in rent due
to the relocation of the corporate offices.
Interest and factoring fees increased by $61,000 for the three months
ended December 31, 1997, as compared to the three months ended December 31,
1996. The increase was primarily related to the increase in interest related to
the increase in convertible loans.
The Company incurred research and development expenses of $107,000 for
the three months ended December 31, 1997, as compared to $148,000 for the three
months ended December 31, 1996.
The Company sustained a loss from continuing operations of $668,000 for
the three months ended December 31, 1997, as compared to a loss of $936,000 for
the three months ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had stockholders' deficit of
$2,067,000 and a working capital deficit of $2,887,000 as compared to
stockholders' equity of $4,630,000 and working capital deficit of $1,699,000 at
December 31, 1996.
The Company used cash in its operating activities of $1,306,000 and
$424,000 for the three months ended December 31, 1997 and December 31,1996. The
cash used was primarily as a result of the net loss. Financing activities
consist of cash from the proceeds of convertible debentures and cash received
from the Factors. The Company anticipates that cash will continue to be used in
its operating activities during the remainder of fiscal 1998.
CSI and certain medical professional associations under contract with
subsidiaries of CSI are a party to a $2,500,000 factoring agreement. The
agreement provides for factoring of eligible receivables of which funds are
advanced by the factor at 2% over prime. Management believes that available
cash, including available borrowings from the factoring agreement will be
sufficient to satisfy the Company's working capital requirements for fiscal
1998.
10
<PAGE>
The Company is continuing its efforts to expand its network of
company-owned facilities and is acquiring established physician practices
despite its deficit in working capital. Certain start-up and acquisition costs
increase the Company deficit in working capital, which deficits should
ultimately be offset by increased clinical services revenues and revenues from
clinical research trial contracts.
The Company has restructured and consolidated its personnel
responsibilities and reduced the salary and other related expenses to improve
the efficiency of its operations.
During October 1997, the company received proceeds of $300,000 in
convertible loans in a series of convertible debentures issued under Regulation
D. The unconverted balance of one loan for $250,000 bears interest at 5% per
annum and will become due in October 1999, and the unconverted balance of the
other loans for $50,000 bear interest at 8% per annum and will become due in
November 2000. Proceeds of the loans have been used for general working capital.
In order to continue as a going concern in 1998, the Company must
generate cash flow from operations, continue its arrangement with the Company's
factor (in connection therewith the Company's Chairman has provided the Factor
with his personal guarantee), produce additional revenues from its previously
established and new medical facilities, its new clinical trials or raise
additional cash from the sale of stock or debt. No assurances can be made that
the Company can obtain additional sources of capital or that operations can
produce positive cash flow in the immediate term. The Company is continually
evaluating all options available to it, including but not limited to continued
staff reductions, working with vendors to obtain extended credit terms,
curtailment of certain operations, increasing revenues at existing facilities
and protection under creditor's rights laws.
Impact of Inflation
The cost of the Company's operations are not significantly affected by
inflation. The Company believes that the shift from commercial insurance to
managed care contracts will have the impact of increasing direct costs in
relation to revenues as certain of the rates charged for the Company's services
are expected to decline.
Other
The Company does not anticipate making any material expenditures in
connection with environmental or occupational safety regulation compliance.
Although the Company anticipates opening additional facilities in the future, it
has not made any material capital expenditure commitments as of this date in
connection with those potential facilities.
11
<PAGE>
HEALTH PROFESSIONALS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4.
Item 5. Exhibits and Reports on Form 8-K
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.
Registrant HEALTH PROFESSIONALS, INC.
February 18, 1998 /s/ Paul F. Merrigan
--------------------
President and Chief Executive Officer
February 18, 1998 /s/ Gary M. Cedeno
------------------
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of HPI for the 3 months ended December 1997, 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> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,498
<ALLOWANCES> 2,759
<INVENTORY> 63
<CURRENT-ASSETS> 2,992
<PP&E> 2,872
<DEPRECIATION> 2,116
<TOTAL-ASSETS> 6,353
<CURRENT-LIABILITIES> 5,778
<BONDS> 0
0
0
<COMMON> 149
<OTHER-SE> (2,216)
<TOTAL-LIABILITY-AND-EQUITY> 6,353
<SALES> 1,969
<TOTAL-REVENUES> 1,969
<CGS> 0
<TOTAL-COSTS> 2,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152
<INCOME-PRETAX> (668)
<INCOME-TAX> 0
<INCOME-CONTINUING> (668)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (668)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
