U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
Commission file number 1-11534
THC HOMECARE, INC.
(Exact name of small business issuer as specified in its charter)
Utah 48-1092064
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
215 South State Street, Suite 535
Salt Lake City, Utah 84111
(Address of principal executive offices)
(801) 532-7525
(Issuer's telephone number)
MEDMARCO, INC.
(Former name)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or Section 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 or No
The number of shares outstanding of the Company's common stock, par value
$.001, as of October 29, 1996 was 4,407,401.
Transitional Small Business Disclosure Format
(Check one)
Yes__ No X
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
THC HOMECARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Sept. 30, Dec. 31
1996 1995
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 60,000 $ 966,000
Trade accounts receivable, net 2,589,000 1,555,000
Inventories 1,145,000 1,146,000
Current portion of note receivable 88,000 59,000
Current portion of notes receivable
from related party 17,000 17,000
Prepaid expenses 84,000 51,000
_________ _________
3,983,000 3,794,000
Rental Equipment, net 1,193,000 906,000
Property and Equipment, net 330,000 380,000
Note Receivable, less current portion 99,000 146,000
Notes Receivable from Related Party,
less current portion 22,000 22,000
Goodwill 1,128,000 1,184,000
Deposits 77,000 53,000
_________ _________
$6,832,000 $6,485,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable and convertible debentures $ 170,000 $ 960,000
Current portion of long-term debt 2,558,000 1,807,000
Current portion of long-term debt
to related party 45,000 45,000
Accounts payable 1,474,000 737,000
Accrued liabilities 434,000 584,000
_________ _________
4,681,000 4,133,000
Long-term Debt, less current portion 697,000 777,000
Long-term Debt to Related Party,
less current portion 121,000 121,000
Other Liabilities 49,000 49,000
_________ _________
4,681,000 4,133,000
Commitments and Contingencies (note 4)
Stockholders' Equity:
Preferred stock, $.001 par value;
authorized 20,000,000 shares;
none issued
Common stock, $.001 par value;
authorized 30,000,000 shares;
3,983,909 and 3,827,094 shares
issued, respectively 4,000 4,000
Additional paid-in capital 6,478,000 6,388,000
Common stock warrants and options 668,000 668,000
Accumulated deficit (5,866,000) (5,655,000)
___________ __________
1,284,000 1,405,000
___________ __________
$6,832,000 $6,485,000
=========== ==========
</TABLE>
<PAGE>
<TABLE>
THC HOMECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended
September 30,
1996 1995
________ _______
(unaudited) (unaudited)
<S> <C> <C>
Revenues $2,829,000 $2,885,000
Cost of revenues 1,131,000 1,361,000
_________ _________
Gross margin 1,698,000 1,524,000
Selling, general and administrative expenses 1,599,000 2,425,000
_________ _________
Income (loss) from operations 99,000 ( 901,000)
Other income (expense) (84,000) 76,000
_________ __________
Net income (loss) before income taxes 15,000 ( 825,000)
Provision for income taxes - ( 74,000
-------- ----------
Net income (loss) $ 15,000 $ (899,000)
========= ==========
Net Income (Loss) Per Common Share $ 0 $ ( .23)
========= ==========
Weighted Average Common Shares Outstanding 3,930,576 3,903,859
========= ==========
</TABLE>
<PAGE>
<TABLE>
THC HOMECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Nine months ended
September 30,
1996 1995
________ ________
(unaudited) (unaudited)
<S> <C> <C>
Revenues $8,919,000 $ 9,291,000
Cost of revenues 3,857,000 4,764,000
_________ __________
Gross margin 5,062,000 4,527,000
Selling, general and administrative expenses 5,027,000 6,306,000
_________ __________
Income (loss) from operations 35,000 (1,779,000)
Other income (expense) (246,000) 114,000
_________ __________
Net income (loss) before income taxes (211,000) (1,665,000)
Provision for income taxes - -
---------- ----------
Net income (loss) $(211,000) $(1,665,000)
========== ===========
Net Income (Loss) Per Common Share $( .05) $ ( .38)
========== ===========
Weighted Average Common Shares Outstanding 3,908,603 4,425,665
========== ===========
</TABLE>
<PAGE>
<TABLE>
THC HOMECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
Sept. 30,
1996 1995
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (211,000) $(1,665,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 383,000 482,000
Loss from disposition of assets - 54,000
(Increase) decrease in trade accounts
receivable, net (1,034,000) 341,000
(Increase) decrease in inventories 1,000 ( 91,000)
(Increase) decrease in prepaid expenses ( 33,000) 57,000
Increase in accounts payable 737,000 1,197,000
Increase (decrease) in accrued
liabilities (150,000) 75,000
----------- -----------
Net cash provided by (used in) operating
activities ( 307,000) 450,000
----------- -----------
Cash flows from investing activities:
Issuance of notes and loans receivable ( 30,000) ( 29,000)
Payments received on notes receivable 47,000 44,000
Purchase of property, rental equipment
and other assets ( 588,000) ( 447,000)
----------- -----------
Net cash used in investing activities ( 571,000) (432,000)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of long-term debt 1,023,000 730,000
Redemption of common - ( 975,000)
Proceeds from sale of common stock - 100,000
Repayments of long-term debt and notes
payable (1,051,000) (120,000)
----------- ----------
Net cash used in financing activities ( 28,000) (265,000)
___________ __________
Net decrease in cash ( 906,000) (247,000)
Cash beginning of period 966,000 474,000
----------- ---------
Cash end of period $ 60,000 $ 227,000
=========== ==========
Supplemental disclosure of cash flow
information
Cash paid for interest $ 269,000 $ 116,000
=========== ===========
Supplemental disclosure of noncash
financing activities:
Conversion of debentures into common
stock 90,000 -
=========== ===========
Issuance of note payable in connection
with stock redemption $ - $ 600,000
=========== ===========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying interim (unaudited) consolidated financial statements of
the Company as of September 30, 1996, and for the three and nine month
reporting periods in 1996 and the comparable periods for the preceding year
should be read in conjunction with the following explanatory notes.
1. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they 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 (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30,
1996, are not necessarily indicative of the results to be expected for the
year ending December 31, 1996. For further information, refer to the
consolidated financial statements and related footnotes included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995.
2. Short-Term Debt:
In January 1996, the Company paid off the $700,000 balance of a note
payable to the former stockholders of Oxycare, Inc. ("Oxycare"), a wholly
owned subsidiary of the Company. The payment was in accordance with the terms
of the purchase agreement entered into by the Company and the former
stockholders of Oxycare on December 21, 1995.
On January 12, 1996, certain holders of the Company's Series A
Convertible Debentures converted debentures with a principal balance of
$40,000 into shares of the Company's common stock. The Company issued 42,522
common shares pursuant to this conversion at a price of approximately $.94 per
share. On May 31, 1996, the Company issued 34,188 common shares pursuant to
the conversion of $20,000 of the debentures at a price of approximately $.585
per share. On August 28, 1996, the Company issued 80,000 common shares
pursuant to the conversion of $30,000 debentures at a price of approximately
$.38 per share. Subsequent to the date covered by this report (on October 29,
1996) the debenture holders converted debentures with a principal balance of
$20,000 into 63,492 shares of the Company's common stock at a price of
approximately $.32 per share. These debentures originally matured on May 31,
1996, but were extended by mutual agreement to November 30, 1996. The
debentures are convertible to common stock at the lesser of (a) market price
less 28 percent, or (b) $.875 per share.
3. Long-Term Debt:
On March 31, 1996, the Company was obligated to retire approximately
$220,000 of amounts owing on a note payable to a bank. However, during the
period covered by this report, the bank agreed to extend the note through
November 30, 1996, on terms similar to those previously existing.
The Company has another note payable to a bank in the principal amount of
approximately $140,000 that was due to mature on October 15, 1996. Management
has negotiated an extension of this note under similar terms for an additional
two years, at which time the principal amount of the note will have been paid
in full.
4. Commitments and Contingencies:
Litigation. As reported in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995, on February 26, 1996, the former
president of Health Industries, Inc. ("HII") and his wife filed a lawsuit
against HII, the Company, and certain of its former officers and directors and
a current director, alleging, among other things, breach of purchase
agreement, breach of employment agreement and wrongful termination. The
Company has not yet filed an answer to this complaint. Due to the preliminary
state of the lawsuit, management, after consultation with legal counsel, is
unable to estimate the ultimate liability, if any, that the Company might be
subject to in this matter. Management believes that the lawsuit is without
merit and that the Company will ultimately prevail in this action. However,
the costs of defense and the ultimate resolution of this matter could result
in additional expense and liability to the Company in the near term. Subject
to the resolution of this matter, HII has ceased making payments on a note
payable to the former president of HII (see "Legal Proceedings" under Part II,
Item 1).
Registration Rights. In connection with its acquisition of Oxycare in
December 1995, the Company agreed to file a registration statement within six
months from the date of the acquisition. The Company agreed to register
275,000 shares of common stock and 225,000 common shares subject to the
exercise of certain warrants issued as consideration for the purchase of all
outstanding stock of Oxycare. The Company is obligated to pay all expenses
(except those related to the shares of the former Oxycare stockholders' legal
counsel) related to filing this registration statement and completing the
offering.
During the second quarter of 1996, the Company filed a registration
statement on Form S-3 for the registration of 500,000 shares of common stock
including the shares underlying the warrants related to the Oxycare
acquisition. In addition, the Company registered the underlying shares
related to previously issued bridge warrants. A total of 303,000 common
shares related to the bridge warrants were registered. The bridge warrants
were exercisable at a price of $1.65 per share through October 31, 1996.
Item 2. Management's Discussion and Analysis
Results of Operations - Third Quarter
Revenues for the third quarter of 1996 totaled $2,829,000 compared to
revenues of $2,885,000 during the same quarter in 1995, or a decrease of
approximately two percent. Revenues for the quarter were down due to the
elimination and consolidation of certain unprofitable product lines, primarily
in retail pharmacy. After elimination of retail pharmacy revenue, revenues
from the Company's core DME and infusion businesses increased approximately
35% for the third quarter of 1996 compared to the third quarter of 1995.
The Company's gross margin percentage increased to 60% for the third
quarter of 1996 compared to 53% for the third quarter of 1995. On an absolute
dollar basis, gross margin increased to $1,698,000 for the 1996 third quarter
compared to $1,524,000 for 1995. The increase in gross margin was a result of
a reduction in retail pharmacy sales which carry a lower gross margin, and an
increase in DME and infusion business revenues which have higher gross
margins.
Selling, general and administrative expenses for the quarter ended
September 30, 1996, totaled $1,599,000, compared to $2,425,000 for the third
quarter in 1995, or a reduction of approximately 34%. The reduction in
operating expenses of $826,000 was due in large part to the continuation of
management's restructuring efforts which commenced in the first quarter of
1996.
The Company generated income from operations of $99,000 for the third
quarter of 1996, compared to a loss from operations of $(901,000) for the
third quarter of 1995. The Company generated the positive operating results
due to the factors mentioned above, primarily the Company's cost reduction
efforts, a refocusing on profitable business units, and the consolidation of
the profitable Oxycare operations which commenced in January 1996. The Company
generated net income during the third quarter of 1996 of $15,000, or $.00 per
share, compared to a net loss of $(899,000) or $(.23) per share for the same
period in 1995. The Company's improvement in operating results for the third
quarter of 1996 as compared to the third quarter of 1995 was due to the
factors mentioned above.
Results of Operations - For the Nine Months Ended September 30,1996
Revenues for the nine months ended September 30, 1996, aggregated
$8,919,000 compared to revenues of $9,291,000 during the same period in 1995,
or a decrease of approximately four percent. As mentioned above, revenues are
slightly lower in the current period due to the elimination and consolidation
of certain unprofitable product lines, primarily in retail pharmacy. After
elimination of retail pharmacy revenue, revenues from the Company's core DME
and infusion businesses increased approximately 17% over the comparable
nine-month period of 1995.
The Company's gross margin percentage increased to 57% for the nine
months ended September 30, 1996, compared to 49% for the first nine months of
1995. On an absolute dollar basis, gross margin increased by $535,000 over
1995 despite a reduction in total revenue of $372,000 for the period. The
increase in gross margin was a result of a reduction in retail pharmacy sales
which carry a lower gross margin, and a corresponding increase in DME and
infusion business revenues, which have higher gross margins.
Selling, general and administrative expenses for the first nine months of
1996 totaled $5,027,000, compared to $6,306,000 for the comparable period in
1995, or a reduction of approximately 20%. The reduction in operating
expenses of $1,279,000 was due to restructuring efforts which commenced at the
beginning of 1996.
The Company incurred a net loss for the first nine months of 1996 of
$(211,000) or $(.05) per share, compared to a net loss of $(1,665,000) or
$(.38) per share for the same period in 1995. The reduction in the net loss
for the nine months ended September 30, 1996, as compared to 1995 was due to
the factors mentioned above, primarily the Company's cost reduction efforts, a
refocusing on profitable business units, and the consolidation of the
profitable Oxycare operations.
Management continues its efforts to reduce operating expenses, primarily
through the centralization of certain administrative and accounting related
functions. Management will continue to aggressively pursue additional
managed care provider contracts and service agreements, and is continually
negotiating and bidding for new agreements and for profitable acquisition
opportunities.
Liquidity and Capital Resources
During the first nine months of 1996, the Company used $307,000 of cash
for operating activities, compared to cash provided by operating activities in
the first nine months of 1995 of $450,000. This difference is due primarily
to the large increase in accounts receivable for 1996 as the Company has
commenced the centralization of billing and collection efforts. Management
recognizes the need to improve the management and collection of accounts
receivable. At the end of the second quarter, the Company began efforts to
streamline Company-wide invoicing and collection processes, which has caused a
temporary delay in certain collection efforts. In addition, the Company has
hired experienced, home health care accounts receivable management personnel
who will provide service to all Company operating units. Management expects to
see significant improvement in its billing and collection processes in the
near future.
The Company used cash in both investing and financing activities as it
continued to purchase DME rental equipment for its growing equipment business,
and as it paid down short and long-term debt during the period.
At September 30, 1996, total current assets were $3,983,000 and total
current liabilities were $4,681,000. Included in current liabilities is
approximately $1,900,000 due to a financial institution under a credit
agreement secured by accounts receivable and inventories. Amounts under the
credit agreement are due in November 1997 but have been classified as
short-term as the Company currently is not in compliance with the covenants
of the original agreement (see Part II Item 3). Current liabilities increased
by $548,000 during the first six months of 1996 due primarily to an increase
in accounts payable and additional borrowing under the credit agreement, net
of the pay-off of a $700,000 short-term note payable which represented the
final payment for the Oxycare acquisition.
The large operating losses sustained and reported by the Company in
previous periods have continued to cause the Company to operate in a deficit
working capital position. Consequently, the Company continues to require
additional capital to expand its business and to meet its debt obligations.
Management continues to seek such capital through a number of possible sources
and intends to obtain such capital through additional borrowing, one or more
private placements of equity or debt securities, or through the sale of such
securities to off-shore investors under Regulation S, or a combination of such
transactions. Management may also consider possible public offerings of the
Company's securities. In pursuing its goal of securing financing, management
will make every effort to minimize the dilutive effect of its money raising
efforts. However, such transactions may result in substantial dilution to
existing shareholders as restricted securities sold in private placements and
shares offered in off-shore transactions are typically sold at prices that
represent a discount from the market price of publicly traded securities.
Forward-looking Statements. From time to time, the Company may publish
forward-looking statements relating to such matters as anticipated financial
performance, business prospects, and similar matters. This report contains
statements that are forward-looking. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. In order
to comply with the terms of the safe harbor, the Company notes that a variety
of factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in
the Company's forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the
Company's business include the following: current cash flow and operating
deficits, the Company's need to service short- and long-term debt, the
possible effects of future changes in government regulation of health care
and limitations on health care reimbursement levels, the need for additional
working capital to finance operations and expansion and the availability of
financing. There may be other risks that are outside the control of the
Company that are mentioned elsewhere in this report and in other published
reports of the Company.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
During the period covered by this report, the Company was involved in the
following material legal matter outside the ordinary course of business:
Louis Goldstein and Barbara Goldstein v. Medmarco, Inc., et al., filed in
Superior Court, Maricopa County, Phoenix, Arizona. Mr. and Mrs. Goldstein
brought the above-titled action in February 1996, alleging wrongful
termination, fraud and breach of contract against the Company and its officers
and directors. The Company denies all of the plaintiffs' claims and
allegations and intends to vigorously defend the action and to assert
counterclaims against the Goldsteins for their actions in connection with the
original sale of HII to the Company and management of HII following the
acquisition. The ultimate resolution of this matter could result in additional
expense and liability to the Company.
Item 2. Changes in Securities.
The Company extended the expiration date of its Series A and Series B
Stock Purchase Warrants from April 8, 1996 to January 31, 1997, as permitted
by the terms of the Warrant Agreement governing such securities. As a
consequence of this extension, these Warrants will not terminate as originally
scheduled and the rights of the holders of such Warrants to exercise the same
subject to the remaining terms and conditions of the Warrant Agreement and the
Warrants will be unaffected. Without the extension, the Warrants would have
expired and the holders would not have had any continuing rights to acquire
shares of the Company's common stock under such securities. Management
currently anticipates allowing the warrants to expire as scheduled without any
further extension or modification.
Item 3. Defaults Upon Senior Securities
The Company has a credit agreement with a financial institution which
enables the Company to borrow on a line-of-credit through November 30, 1997.
As of September 30, 1996, the maximum borrowing limit was $2,500,000 and the
Company had a balance outstanding of approximately $1,900,000. Amounts
borrowed by the Company are secured by accounts receivable and inventories and
are limited to the borrowing base formula set forth under the credit
agreement. In addition, the credit agreement requires that the Company
maintain certain working capital, debt to worth and earnings related loan
covenants. The Company has not been in compliance with these covenants since
the beginning of 1996, and the lender has not waived its rights to seek remedy
under the provisions of the credit agreement. The lender has not called the
note at this time. Management does not believe this obligation will be called
in advance of its scheduled maturity due to the adequacy of the related
collateral. This debt has been classified as current in the accompanying
balance sheet as required by accepted accounting principles.
Item 4. Submission of Matters to a Vote of Security Holders.
Following the end of the period covered by this report, the Company's
Annual Meeting of Shareholders was held on October 25, 1996. Proxies for the
meeting were solicited by the Company pursuant to Regulation 14A of the
Exchange Act. A total of 3,983,909 shares were issued and outstanding as of
September 16, 1996, the record date of the meeting. A total of 2,288,327
shares were represented in person or by proxy at the meeting, constituting a
quorum for purposes of convening the meeting. A brief description of the
matters voted upon and a tabulation of the voting is as follows:
<TABLE>
<CAPTION>
Against or
For Withheld Abstentions
<S> <C> <C> <C>
1. Election of Directors:
Charles W. McLaughlin 2,192,337 0 95,990
William D. Carraway 2,191,337 0 96,990
Thomas O. Bushell remains as Director.
2. Change of Company's Name
to THC HomeCare, Inc. 2,260,727 22,500 5,100
3. Ratify Selection of Arthur
Andersen as the Company's
Independent Accountants 2,259,027 23,100 6,200
</TABLE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
Exhibit 27 -- Financial Data Schedule
b. Reports on Form 8-K.
A Form 8-K was filed on September 17, 1996, relating to the proposed change of
the Company's name from Medmarco, Inc. to THC HomeCare, Inc. A final report
on Form 8-K was filed October 30 to report the filing of Articles of Amendment
to effect the change of name of the Company.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THC HOMECARE, INC.
By: /s/ William V. Trowbridge
---------------------------
William V. Trowbridge,
Vice President Finance
Principal Financial Officer
Date: November 12, 1996
-----------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> $60,000
<SECURITIES> 0
<RECEIVABLES> $3,819,000
<ALLOWANCES> $1,230,000
<INVENTORY> $1,145,000
<CURRENT-ASSETS> $3,983,000
<PP&E> $4,628,000
<DEPRECIATION> $3,105,000
<TOTAL-ASSETS> $6,832,000
<CURRENT-LIABILITIES> $4,681,000
<BONDS> $867,000
0
0
<COMMON> $4,000
<OTHER-SE> $1,280,000
<TOTAL-LIABILITY-AND-EQUITY> $6,832,000
<SALES> $8,919,000
<TOTAL-REVENUES> $8,919,000
<CGS> $3,857,000
<TOTAL-COSTS> $3,857,000
<OTHER-EXPENSES> $4,893,000
<LOSS-PROVISION> $134,000
<INTEREST-EXPENSE> $269,000
<INCOME-PRETAX> $(211,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $(211,000)
<EPS-PRIMARY> $(.05)
<EPS-DILUTED> $(.05)
</TABLE>
