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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended July 31, 1996
Commission File Number 1-11570
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Transworld Home HealthCare, Inc.
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(Exact name of Registrant as specified in its charter)
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New York 13-3098275
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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11 Skyline Drive, Hawthorne, New York 10532
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 345-8880
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
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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 September 9, 1996
- --------------------- --------------------------------
Common Stock 9,931,752 Shares
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Transworld Home HealthCare, Inc.
Third Quarter Report On Form 10-Q
Table of Contents
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Part I. Page
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Item 1. Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets
July 31, 1996 and October 31, 1995 . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended
July 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended July 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 14
Part II.
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 24
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Page 2
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PART I
Item 1. Financial Statements
The financial statements of Transworld Home HealthCare, Inc. (the
"Company") begin on page 4.
Page 3
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TRANSWORLD HOME HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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JULY 31, OCTOBER 31,
1996 1995
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ASSETS
Current assets:
Cash and temporary investments $ 2,231 $ 915
Accounts receivable, less allowance for doubtful
accounts of $5,989 and $5,137 23,499 18,906
Inventories 1,328 1,556
Prepaid income taxes 1,172
Prepaid expenses and other current assets 4,646 4,116
-------- --------
Total current assets 32,876 25,493
Property & equipment, net 3,889 4,062
Intangible assets, net 40,871 42,037
Other assets 5,691 3,320
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$ 83,327 $ 74,912
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 1,000
Current portion of long-term debt, including
obligations under capital leases $ 47 3,908
Accounts payable and accrued expenses 7,356 9,533
Acquisitions payable 180 15,062
Income taxes payable 696
-------- --------
Total current liabilities 7,583 30,199
Long-term debt, including obligations under capital leases 9,041 20,264
Deferred income taxes and other 367 363
-------- --------
Total liabilities 16,991 50,826
-------- --------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; authorized
2,000 shares, issued and outstanding - none
Common stock, $.01 par value; authorized
30,000 shares, issued and outstanding
9,932 and 5,060 shares 99 51
Additional paid-in capital 62,025 19,713
Retained earnings 4,212 4,322
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Total stockholders' equity 66,336 24,086
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$ 83,327 $ 74,912
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</TABLE>
See notes to condensed consolidated financial statements.
Page 4
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TRANSWORLD HOME HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
----------------------------- ------------------------------
1996 1995 1996 1995
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Revenues:
Net patient services $ 4,754 $ 4,663 $ 14,222 $ 14,226
Net infusion services 2,543 2,404 7,434 7,624
Net respiratory, medical equipment and supplies sales 11,939 11,787 34,746 31,757
---------- ----------- ---------- -------------
Total revenues 19,236 18,854 56,402 53,607
---------- ----------- ---------- -------------
Cost of revenues:
Patient services 2,570 2,418 7,517 7,328
Infusion services 1,524 1,609 4,423 4,338
Respiratory, medical equipment and supplies sales 4,721 4,546 13,719 12,501
---------- ----------- ---------- -------------
Total cost of revenues 8,815 8,573 25,659 24,167
---------- ----------- ---------- -------------
Gross profit 10,421 10,281 30,743 29,440
Selling, general and administrative expenses 8,627 7,455 24,770 21,091
---------- ----------- ---------- -------------
Operating income 1,794 2,826 5,973 8,349
Interest expense, net 1,291 977 3,849 2,630
---------- ----------- ---------- -------------
Income before income taxes and extraordinary item 503 1,849 2,124 5,719
Provision for income taxes 211 765 892 2,326
---------- ----------- ---------- -------------
Income before extraordinary loss 292 1,084 1,232 3,393
Extraordinary loss - early extinguishment of debt
(net of income tax benefit of $971) 1,342 1,342
---------- ----------- ---------- -------------
Net income (loss) $ (1,050) $ 1,084 $ (110) $ 3,393
========== =========== ========== =============
Income (loss) per share of common stock from:
Income before extraordinary loss $ .04 $ .16 $ .18 $ .49
Extraordinary loss - early extinguishment of debt (.19) (.20)
---------- ----------- ---------- -------------
Net income (loss) $ (.15) $ .16 $ (.02) $ .49
========== =========== ========== =============
Weighted average number of common shares outstanding 6,983 7,202 6,724 7,114
========== =========== ========== =============
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See notes to condensed consolidated financial statements.
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TRANSWORLD HOME HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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NINE MONTHS ENDED
JULY 31,
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1996 1995
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Cash flows from operating activities:
Net income (loss) $ (110) $ 3,393
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 2,770 2,576
Provision for doubtful accounts 4,602 3,787
Extraordinary item - early extinguishment of debt 2,313
Changes in assets and liabilities, excluding the effect of businesses acquired:
Increase in accounts receivable (9,195) (9,406)
Decrease in inventories 228 108
Increase in prepaid expenses and other assets (642) (1,487)
Decrease in accounts payable and other liabilities (4,065) (401)
---------- ----------
Net cash used in operating activities: (4,099) (1,430)
---------- ----------
Cash flows (used in) provided by investing activities:
Capital expenditures (698) (923)
Acquisitions - net of cash acquired (442)
Notes receivable - related parties 161
Payment on acquisition payable (11,051) (5,927)
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Net cash used in investing activities (11,749) (7,131)
---------- ----------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock, net 38,351
Payments on notes payable (10,000)
Proceeds from notes payable 10,000
Payments on short-term debt (2,000) (5,000)
Proceeds from short-term debt 1,000
Payments on revolving loan (10,990) (3,086)
Borrowing under revolving loan 14,982 8,850
Proceeds from long-term debt 18 7,416
Payments on long-term debt (21,030) (3,462)
Payments on notes payable - related parties (3,000)
Payments for financing fees and issuance costs (3,373) (513)
Stock options and warrants exercised, including tax benefit 206 2,233
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Net cash provided by financing activities 17,164 3,438
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Increase (decrease) in cash 1,316 (5,123)
Cash and temporary investments, beginning of period 915 6,310
---------- ----------
Cash and temporary investments, end of period $ 2,231 $ 1,187
========== ==========
Supplemental cash flow information:
Cash paid for interest $ 3,427 $ 2,007
========== ==========
Cash paid for income taxes $ 1,788 $ 2,115
========== ==========
Supplemental disclosure of non-cash investing and financing activities:
Details of business acquired in purchase transactions:
Fair value of assets acquired $ 6,025
==========
Liabilities assumed or incurred $ 5,446
==========
Cash paid for acquisitions (including related expenses) $ 579
Cash acquired 137
----------
Net cash paid for acquisition $ 442
==========
Common stock issued for payment on acquisition payable $ 3,832
==========
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See notes to condensed consolidated financial statements.
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TRANSWORLD HOME HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
Note 1: Basis of Presentation
Transworld Home HealthCare, Inc. (the "Company") is a regional
provider of a broad range of alternate site health care services and products.
The Company provides the following services and products to patients in their
homes or in an outpatient setting: (i) patient services, including nursing and
para-professional services and radiation therapy; (ii) infusion therapy; and
(iii) respiratory therapy, home medical equipment and specialized mail-order
pharmaceuticals and medical supplies, including respiratory and diabetic
medications and supplies, wound care dressings and ostomy and orthotic products.
The Condensed Consolidated Financial Statements included herein are
unaudited and include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations of the interim
period pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed financial
statements should be read in conjunction with the Company's Form 10-K for the
year ended October 31, 1995. Although the Company's operations are not highly
seasonal, the results of operations for the three and nine months ended July
31, 1996 and 1995 are not necessarily indicative of the operating results for
the full year. Prior year's financial statements have been reclassified to
conform with the current year's presentation.
Note 2: Net Income per Common Share
Net income per common share is computed based on the weighted average
number of shares of common stock outstanding during the periods. The effect of
dilutive stock options and warrants (common stock equivalents) has been
included in the computation of net income per share using the treasury stock
method. Fully diluted earnings per share has not been presented as the
dilutive effect is not material.
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TRANSWORLD HOME HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 2: Net Income per Common Share (cont.)
The earnings per share calculations for the three and nine months
ended July 31, 1996 and 1995 were computed as follows:
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Three months ended July 31, Nine months ended July 31,
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1996 1995 1996 1995
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Income before extraordinary loss $ 292 $1,084 $1,232 $3,393
Extraordinary loss - early extinguishment
of debt 1,342 - 1,342 -
---------------- ------------ ------------- --------------
Net income (loss) $(1,050) $1,084 $ (110) $3,393
================ ============ ============= ==============
Weighted average number of shares
outstanding during applicable periods 5,982 4,999 5,510 4,901
Weighted average number of shares
contingently issuable per acquisition
agreements 298 869 422 869
Incremental shares, after application of
treasury stock method, of stock options and
warrants 703 1,334 792 1,344
---------------- ------------ ------------- --------------
Shares used in calculation of net income per
common share 6,983 7,202 6,724 7,114
================ ============ ============= ==============
Income (loss) per share of common stock
from:
Income before extraordinary loss $ .04 $ .16 $ .18 $ .49
Extraordinary loss - early
extinguishment of debt, net (.19) (.20)
---------------- ------------ ------------- --------------
Net income (loss) per common share $ (.15) $ .16 $ (.02) $ .49
================ ============ ============= ==============
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Note 3: Business Combinations
RADAMERICA
On August 5, 1994, the Company acquired all of the issued and
outstanding capital stock of Radamerica, Inc., for $8,000 in cash and 250
shares of the Company's common stock valued at $5,000 based on a $20 per share
market price guarantee. The measurement date for such guarantee will be August
5, 1997, at which point any deficiency between the market value of the
Company's common stock, as defined in the purchase agreement, and the $20 per
share guarantee may be paid to the selling shareholders either in common stock
of the Company, in cash or a combination of stock and cash at the Company's
option. Such payment, if any, is due within 30 days following a selling
shareholder's demand, which must be exercised by February 5, 1998. To the
extent amounts owed are not paid when due, interest will accrue on the unpaid
portion at a rate of 12% per annum.
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TRANSWORLD HOME HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
The total cost of the acquisition recorded in the financial statements
will not change as a result of any payments which may be required as a result
of the market price guarantee, however, an adjustment will be made to the
amount previously recorded for the issuance of the 250 shares. For purposes of
earnings per share calculations, contingently issuable shares of the Company's
common stock which arise as a result of the difference between the market price
at each balance sheet date and the $20 guaranteed price are included in both
primary and fully diluted earnings per share calculations.
DERMAQUEST
Effective November 1, 1994, the Company acquired all of the issued and
outstanding capital stock of DermaQuest, Inc. ("DermaQuest"), for $3,000 in
promissory notes which were repaid during fiscal 1995. Additional
consideration is provided for in the purchase agreement, as amended, whereby
the Company may be required to make additional payments based on the 1995 and
1996 earnings levels of DermaQuest. On October 31, 1995, the Company recorded
$8,832 in both acquisitions payable and goodwill, based on the applicable
formula applied to DermaQuest's 1995 pretax earnings. If an additional amount
is payable pursuant to DermaQuest 1996 earnings levels, the cost of the
acquisition and related goodwill will be increased by such amount in the period
that the contingency is resolved.
The Company paid the $8,832 acquisition payable as follows: (i) on
January 16, 1996 a $4,000 letter of credit, which was issued as collateral for
DermaQuest contingent payments, was drawn and paid to the sellers in cash; (ii)
on February 1, 1996 $3,832 was paid through the issuance of 370 shares of
common stock valued (per the acquisition agreement) at $10.35 per share; and
(iii) on May 30, 1996 the remaining $1,000 plus accrued interest of $27 from
February 1, 1996 was paid in cash with proceeds from the Initial Closing (see
Note 5).
An additional payment will be made on February 1, 1997 to the extent
that DermaQuest pretax earnings for the year ending October 31, 1996 multiplied
by four exceeds the total of all amounts previously paid to the shareholders
pursuant to the purchase agreement ($11,832 to date). The total amounts of the
DermaQuest acquisition cannot exceed $14,000. Any additional payments due can
be paid in either cash or common stock at the Company's option at a valuation
price, as defined in the purchase agreement.
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TRANSWORLD HOME HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
PENDING ACQUISITION
VIP COMPANIES
On June 30, 1994, the Company entered into stock purchase agreements,
as amended, to acquire all of the issued and outstanding capital stock of VIP
Health Services, Inc. and Kwik Care, Ltd. (collectively, the "VIP Companies")
for $11,000, consisting of $7,150 in cash, $3,100 in promissory notes (or cash
if certain events occur) and 146 shares of the Company's common stock (valued
at $750 after taking into account restrictions on transfer). The promissory
notes bear interest at 7% per annum and are payable on the second anniversary
of the Company's acquisition of the VIP Companies (provided, however, that if
the Company consummates financings of at least $45 million between June 30,
1994 and the VIP closing, then the Company will pay such amounts in cash rather
than pursuant to the notes or if such financings are consummated following the
VIP closing, then a portion of the proceeds of such financings will be applied
to prepay the notes). The Company placed in escrow $1,500 ($750 in cash (which
sum was subsequently loaned to the VIP Companies for working capital purposes)
and 146 shares of Company common stock) during July 1994 as a down payment on
the VIP acquisition, which amounts are included in "Other Assets."
The VIP Companies provide temporary nursing and related home health
care services in the City of New York and surrounding areas through both a
licensed and a Medicare certified agency. The consummation of the VIP
acquisition is subject to, among other things, various closing conditions,
including receipt of necessary governmental approvals and the approval of the
required lenders under the Credit Facility. In addition, consummation of the
acquisition of the VIP Companies is subject to the accuracy at closing of the
various representations and warranties and the compliance by the sellers with
certain covenants and agreements contained in the acquisition agreements. The
Company believes that the sellers are not in compliance with certain provisions
contained in the acquisition agreements concerning the VIP Companies and has
had discussions with the VIP sellers regarding such. The Company can not
predict when or whether all of the requisite consents and approvals will be
obtained and the other closing conditions will be satisfied, and when or
whether the transaction will ultimately be consummated.
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TRANSWORLD HOME HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
For the years ended December 31, 1994 and 1995, the VIP Companies
generated approximately $33,000 and $35,000, respectively, in revenues and, for
the same periods, pro forma net income (loss) (net income after consideration
of pro forma provision for income taxes) of $850 and $(978), respectively. The
1995 amounts include a special one-time bonus of $3,000 (pretax) to one of the
VIP Companies' officers.
Note 4: Debt
On January 10, 1996, an institutional investor purchased from the
Company $10,000 of 20% subordinated notes (the "Subordinated Notes") due
October 10, 1996. On May 30, 1996 the interest rate on the Subordinated Notes
was reduced to 12%. On July 31, 1996 the Subordinated Notes were repaid with
proceeds from the Second Closing (as defined in Note 5).
On January 10, 1996, the Company's Credit Agreement was amended to
permit the issuance of equity units under the unit purchase agreement (see Note
5), to permit the issuance of the 20% Subordinated Notes described above, to
allow the payment in cash of the remaining $5,973 RespiFlow/ MK acquisition
payable (plus interest from its due date of August 15, 1995), which was paid on
January 10, 1996, and to amend and modify certain definitions and covenants in
the Credit Agreement which would allow the Company to be in compliance with its
covenants as of October 31, 1995.
On May 28, 1996, the required lenders under the Credit Agreement
consented to the use of the $5,400 proceeds from the Initial Closing (as
defined in Note 5) to: (i) pay $1,000 plus accrued interest for the remainder
of the DermaQuest acquisition payable (see Note 3); (ii) pay interest accrued
through the Initial Closing on the Subordinated Notes; and (iii) to use the
remainder for general corporate and working capital purposes.
On July 31, 1996, the Company completed a new $100,000 senior secured
revolving credit facility, underwritten by a commercial bank who is also acting
as Agent Bank (the "Credit Facility"). This new facility replaced the
Company's existing $35,000 Credit Agreement. On July 31, 1996 the Credit
Agreement was repaid out of proceeds from the Second Closing (see Note 5) and
borrowings under the Credit Facility. In connection with the repayment of the
Credit Agreement, the Company recorded a non-cash, after-tax, extraordinary
charge of $1,342 in the Company's fiscal third quarter, relating to the
write-off of the deferred financing costs associated with the Credit Agreement.
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TRANSWORLD HOME HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 4: Debt (cont.)
Pursuant to the Credit Facility and subject to the terms thereof, up
to $85,000 of the total facility may be used by the Company for the acquisition
of other alternate site health care providers with the balance not used for
acquisitions to be used for working capital. The loans under the Credit
Facility are collateralized by, among other things, a lien on substantially all
of the Company's and its subsidiaries' assets, a pledge of the Company's
ownership interest in its subsidiaries and guaranties by the Company's
subsidiaries. The loans mature on July 31, 2001 with reductions in
availability commencing July 31, 1998 through final maturity. The Credit
Facility provides that subject to the terms thereof, the Company may make
borrowings either at the Base Rate (as defined in the Credit Facility), plus
1% or the Eurodollar Rate (adjusted for reserves), plus 2%. As of July 31,
1996, Base Rate borrowings were at the rate of 9.25% per annum and Eurodollar
Rate borrowings were at rates of 7.44% to 7.88% per annum, depending on
maturities. The Company's initial borrowings on July 31, 1996 were Base Rate
borrowings, and commencing October 30, 1996, the Company may make Eurodollar
Rate borrowings.
Subject to certain exceptions, the Credit Facility prohibits or
restricts, among other things, the incurrence of liens, the incurrence of
indebtedness, certain fundamental corporate changes, dividends, the making of
specified investments and certain transactions with affiliates. In addition,
the Credit Facility contains affirmative and negative financial covenants
customarily found in agreements of this kind including the maintenance of
certain financial ratios, such as interest coverage, debt to equity and debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA").
Note 5: Unit Purchase Agreement
On November 20, 1995 the Company entered into a unit purchase
agreement, as amended, with the same institutional investor (see Note 4) under
which the Company will sell an aggregate of 4,400 units at a purchase price of
$9.00 per unit (for an aggregate purchase price of $39,600) to the
institutional investor in two separate closings, subject to receipt of
necessary shareholder and governmental approvals. The unit purchase agreement
contains certain covenants that restrict the Company from entering into
transactions not in the ordinary course of business, including making
acquisitions and issuing capital stock, without the consent of the
institutional investor.
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TRANSWORLD HOME HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 5: Unit Purchase Agreement (cont.)
The initial closing (the "Initial Closing") was completed on May 30,
1996 following the receipt of shareholder approval (which was obtained at the
Company's annual meeting of shareholders on April 16, 1996), at which time the
Company sold (i) 600 equity units or 9.8% of the issued and outstanding shares
of the Company, after giving effect to the sale, at a purchase price of $9.00
per unit, each equity unit comprised of one share of the Company's restricted
common stock and a 0.6818 non-callable, five year stock purchase warrant with
each whole warrant entitling the holder to purchase an additional share of the
Company's common stock at $12.45 per share (the "Warrants"). The second
closing (the "Second Closing"), which was subject to receipt of New York State
Department of Health approval of the transaction, (which was received in June
of 1996) was completed on July 31, 1996 concurrently with the closing of the
Credit Facility (see Note 4). At the Second Closing, the Company sold an
additional 3,800 equity units (described above) for an aggregate purchase price
of $34,200.
Note 6: Commitments and Contingencies
On November 2, 1994, an action was filed in the Supreme Court of the
State of New York, County of Westchester against the Company, alleging that one
of its drivers negligently caused the death of the plaintiff's husband while
operating his motor vehicle during a delivery for the Company. The plaintiffs
are seeking $12,580 in damages for wrongful death, pain and suffering, loss of
consortium and related claims. The Company has tendered defense of this action
to its insurance carrier and management of the Company and counsel to the
insurance carrier intend to vigorously defend this lawsuit. As the case is in
a preliminary stage, the Company is not able to estimate any potential exposure
or range of exposure and has not recorded any amounts in its financial
statements. It is reasonably possible that irrespective of insurance coverage,
the ultimate outcome of this action may be materially unfavorable to the
Company's consolidated results of operations, financial position or cash flows.
However, the Company believes that the ultimate liability, if any, will be
within the policy limits of its insurance policies, and will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
Page 13
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
THREE MONTHS ENDED JULY 31, 1996 VS. THREE MONTHS ENDED JULY 31, 1995
Revenues. Total revenues increased by $382,000 or 2.0% to $19,236,000
for the three months ended July 31, 1996 from $18,854,000 for the three months
ended July 31, 1995. This increase was primarily attributable to an increase
of $152,000 or 1.3% in net respiratory, medical equipment and supply sales.
Cost of Revenues. Cost of revenues increased by $242,000 or 2.8% to
$8,815,000 for the three months ended July 31, 1996 from $8,573,000 for the
three months ended July 31, 1995. As a percentage of total revenues, cost of
revenues remained relatively flat at 45.8% and 45.5% for the three months ended
July 31, 1996 and 1995, respectively. Cost of revenues as a percentage of
sales remained relatively flat for respiratory and medical equipment and
supplies sales (39.5% for the three months ended July 31, 1996 versus 38.6% for
the corresponding 1995 period), but increased for patient services and
decreased for infusion services. The increase in patient services (54.1% for
the three months ended July 31, 1996 versus 51.9% for the corresponding 1995
period) was due primarily to an increase in worker's compensation insurance in
the nursing division.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1,172,000 or 15.7% to $8,627,000 for the
three months ended July 31, 1996 from $7,455,000 for the comparable 1995
period. This increase was primarily due to an increase of $822,000 in
corporate expenses principally as a result of a charge of $456,000 in
connection with the resignation of the Company's former CEO. The remaining
increase was primarily attributable to an increase in selling, general and
administrative expenses at the Company's specialty mail order pharmacy
operations ($263,000) as a result of increases in general and administrative
expenses to support increased patient volumes ($207,000), and to a lesser
extent, from increases in amortization of intangibles due to the increase in
goodwill at October 31, 1995 for DermaQuest ($56,000).
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Results of Operations (cont.)
Interest Expense, Net. Interest expense, net increased by $314,000 to
$1,291,000 for the three months ended July 31, 1996 from $977,000 for the
comparable 1995 period. This increase was primarily attributable to an
increase in interest expense due to borrowings under the Subordinated Loan (as
defined in Liquidity and Capital Resources) ($381,000).
Provision for Income Taxes. Provision for income taxes as a
percentage of income before income taxes was 42.0% for the three months ended
July 31, 1996 and 41.4% for the three months ended July 31, 1995. The increase
in the effective tax rate from the 1995 period to the 1996 period was
attributable to higher levels of non-deductible expenses, primarily goodwill
amortization, as well as to a shift in the percentage mix of the Company's
profits to jurisdictions with higher state tax rates.
Income Before Extraordinary Loss. As a result of the foregoing,
income before extraordinary loss decreased by $792,000 or 73.1% to $292,000 for
the three months ended July 31, 1996 from $1,084,000 for the three months ended
July 31, 1995.
Extraordinary Loss - Early Extinguishment of Debt. An extraordinary
loss (net of taxes) of $1,342,000 was recorded in the third quarter 1996
results of operations, as a result of the write-off of the deferred financing
costs associated with the early extinguishment of borrowings under the Credit
Agreement.
Net Income. As a result of the foregoing, net income decreased by
$2,134,000 or 196.9% to a loss of $1,050,000 for the three months ended July
31, 1996 from net income of $1,084,000 for the three months ended July 31,
1995.
NINE MONTHS ENDED JULY 31, 1996 VS. NINE MONTHS ENDED JULY 31, 1995
Revenues. Total revenues increased by $2,795,000 or 5.2% to
$56,402,000 for the nine months ended July 31, 1996 from $53,607,000 for the
nine months ended July 31, 1995. This increase was primarily attributable to
an increase of $2,989,000 or 9.4% in net respiratory, medical equipment and
supply sales resulting from an increase in the number of patients serviced. Net
infusion service revenues declined by $190,000 or 2.5% due primarily to a
decline in reimbursement rates from third party payors.
Cost of Revenues. Cost of revenues increased by $1,492,000 or 6.2% to
$25,659,000 for the nine months ended July 31, 1996 from $24,167,000 for the
nine months ended July 31, 1995. As a percentage of total revenues, cost of
revenues remained relatively flat at 45.5% and 45.1% for the nine months ended
July 31, 1996 and 1995, respectively. Cost of revenues as a percentage of
sales remained relatively flat for respiratory and medical equipment and
supplies sales (39.5% for the nine months ended July 31, 1996 versus 39.4% for
the corresponding 1995 period), but increased for patient services and infusion
services. The increase in patient services (52.9% for the nine months ended
July 31, 1996 versus 51.6% for the corresponding 1995 period) was due primarily
to an increase in worker's compensation
Page 15
<PAGE> 16
Results of Operations (cont.)
insurance in the nursing division. The increase in infusion services (59.5%
for the nine months ended July 31, 1996 versus 56.9% for the corresponding 1995
period) was due primarily to reductions in reimbursement rates from third party
payors. The effect of the increase in patient services and infusion services
cost of revenues as a percentage of sales was offset by the relative increase
in the mix of net respiratory and medical equipment and supplies sales to total
sales which increased to 61.6% from 59.2% of sales for the nine months ended
July 31, 1996 and 1995, respectively, which sales have a lower cost of revenues
(39.5%) than do patient services revenues (52.9%) and infusion services
revenues (59.5%).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $3,679,000 or 17.4% to $24,770,000 for the
nine months ended July 31, 1996 from $21,091,000 for the comparable 1995 period.
This increase was primarily attributable to an increase in selling, general and
administrative expenses at the Company's specialty mail order pharmacy
operations ($2,625,000) as a result of increased expenses that vary with sales
and profitability (e.g.: bad debt expenses ($726,000) and incentive fees
($111,000) under a management agreement) of $837,000 as well as increases in
general and administrative expenses to support increased patient volumes
($1,614,000), and to a lesser extent, from increases in amortization of
intangibles due to the increase in goodwill at October 31, 1995 for DermaQuest
($174,000). The remaining increase was primarily attributable to an increase
of $1,027,000 in corporate expenses including a charge of $456,000 in
connection with the resignation of the Company's former CEO.
Interest Expense, Net. Interest expense, net increased by $1,219,000
to $3,849,000 for the nine months ended July 31, 1996 from $2,630,000 for the
comparable 1995 period. This increase was primarily attributable to: (i) an
increase in interest expense due to borrowings under the Subordinated Loan
($1,003,000); and (ii) an increase in interest expense due to higher average
borrowings under the Credit Agreement ($124,000).
Provision for Income Taxes. Provision for income taxes as a
percentage of income before income taxes was 42.0% for the nine months ended
July 31, 1996 and 40.7% for the nine months ended July 31, 1995. The increase
in the effective tax rate from the 1995 period to the 1996 period was
attributable to higher levels of non-deductible expenses, primarily goodwill
amortization, as well as to a shift in the percentage mix of the Company's
profits to jurisdictions with higher state tax rates.
Income Before Extraordinary Loss. As a result of the foregoing,
income before extraordinary loss decreased by $2,161,000 or 63.7% to $1,232,000
for the nine months ended July 31, 1996 from $3,393,000 for the nine months
ended July 31, 1995.
Page 16
<PAGE> 17
Results of Operations (cont.)
Extraordinary Loss - Early Extinguishment of Debt. An extraordinary
loss (net of taxes) of $1,342,000 was recorded in the third quarter 1996
results of operations, as a result of the write-off of the deferred financing
costs associated with the early extinguishment of borrowings under the Credit
Agreement.
Net Income. As a result of the foregoing, net income decreased by
$3,503,000 or 103.2% to a net loss of $110,000 for the nine months ended July
31, 1996 from net income of $3,393,000 for the nine months ended July 31, 1995.
Page 17
<PAGE> 18
Liquidity and Capital Resources
During the nine months ended July 31, 1996, the Company generated
negative cash flow from operations of $4,099,000 primarily as a result of an
increase in accounts receivable of $4,593,000 (net of increases in allowance
for doubtful accounts) (see Accounts Receivable below). The Company utilized
$11,749,000 in investing activities, including $11,051,000 for payments on
acquisitions payable, and $698,000 for capital expenditures. Cash requirements
during the nine months ended July 31, 1996 for operating and investing
activities were met through borrowings under the Credit Agreement and the
$10,000,000 Subordinated Loan from Hyperion Partners II L.P. as well as with
proceeds from the issuance of 600,000 Equity Units to HPII at the Initial
Closing, as defined in Hyperion Transaction.
Accounts Receivable. The Company maintains a cash management program
that focuses on the reimbursement function, as growth in accounts receivable
has been the main operating use of cash historically. At July 31, 1996 and
October 31, 1995, $23,499,000 (28.2%) and $18,906,000 (25.2%), respectively, of
the Company's total assets consisted of accounts receivable, substantially from
third-party payors. Such payors generally require comprehensive documentation
in order to process claims. The collection time for accounts receivable is
typically the longest (up to 180 days) for services that relate to new patients
or additional services requiring medical review for existing patients.
Accounts receivable increased by $4,593,000 from October 31, 1995 to
July 31, 1996. This increase is primarily due to an increase in accounts
receivable at the Company's specialized mail order pharmacy and medical
supplies operation ("Mail Order"). Mail Order is experiencing a significant
increase in the length of the medical review process by Medicare intermediaries
(which accounts for approximately 78.3% of Mail Order revenues), resulting in
increased accounts receivable and increased days sales outstanding ("DSO's"),
as discussed below.
Management's goal is to maintain accounts receivable at levels at
which DSO's would be equal to or better than the industry averages. DSO's is a
measure of the average number of days taken by the Company to collect its
accounts receivable, calculated from the date services are performed. At July
31, 1996, and October 31, 1995, the Company's DSO's were 111 and 97,
respectively, with the increase in DSO's attributable to the factors previously
discussed. As the proportion of third-party payors' claims related to
alternate site health care increases, the Company believes that third-party
payors are likely to increase their review of such claims, the effect of which
would be to generally increase DSO's.
Credit Agreement. In March 1995, the Company entered into an amended
and restated credit agreement with Banque Paribas, as agent (the "Credit
Agreement"), which provided the Company with a $35,000,000 senior secured
credit facility. On July 31, 1996, the Company completed a new $100,000,000
senior secured revolving credit facility, underwritten by
Page 18
<PAGE> 19
Liquidity and Capital Resources (cont.)
Bankers Trust who is also acting as Agent Bank (the "Credit Facility"). This
new facility replaced the Company's existing $35,000,000 Credit Agreement. On
July 31, 1996 the Credit Agreement was repaid out of proceeds from the Second
Closing (see Hyperion Transaction) and borrowings under the Credit Facility
(which closed concurrently). In connection with the repayment of the Credit
Agreement, the Company recorded a non- cash, after-tax, extraordinary charge of
$1,342,000 in the Company's fiscal third quarter, relating to the write-off of
the deferred financing costs associated with the Credit Agreement.
Pursuant to the Credit Facility and subject to the terms thereof, up
to $85,000,000 of the total facility may be used by the Company for the
acquisition of other alternate site health care providers with the balance not
used for acquisitions to be used for working capital. The loans under the
Credit Facility are secured by, among other things, a lien on substantially all
of the Company's and its subsidiaries' assets, a pledge of the Company's
ownership interest in its subsidiaries and guaranties by the Company's
subsidiaries. The loans mature on July 31, 2001 with reductions in
availability commencing July 31, 1998 through final maturity. The Credit
Facility provides that subject to the terms thereof, the Company may make
borrowings either at the Base Rate (as defined in the Credit Facility), plus 1%
or the Eurodollar Rate (adjusted for reserves), plus 2%. As of July 31, 1996,
Base Rate borrowings were at the rate of 9.25% per annum and Eurodollar Rate
borrowings were at rates of 7.44% to 7.88% per annum, depending on maturities.
The Company's initial borrowings on July 31, 1996 were Base Rate borrowings, and
commencing October 30, 1996, the Company may make Eurodollar Rate borrowings. As
of July 31, 1996, the Company had outstanding $8,992,000 under the Credit
Facility. Availability under the Credit Facility was $91,008,000 as of July
31, 1996.
Subject to certain exceptions, the Credit Facility prohibits or
restricts, among other things, the incurrence of liens, the incurrence of
indebtedness, certain fundamental corporate changes, dividends, the making of
specified investments and certain transactions with affiliates. In addition,
the Credit Facility contains affirmative and negative financial covenants
customarily found in agreements of this kind including the maintenance of
certain financial ratios, such as interest coverage, debt to equity and debt to
earnings before interest, taxes, depreciation and amortization ("EBITDA").
RespiFlow/MK. The remaining acquisition payable of $5,973,000 as of
October 31, 1995 was paid to the sellers on January 10, 1996 in cash, plus
interest from its due date of August 15, 1995.
Radamerica Price Support Payment. In connection with the Company's
acquisition of Radamerica, the Company agreed that in the event the market
value of its common stock on August 5, 1997 is less than $20 per share, the
Company will pay to each Radamerica seller, for each share of common stock held
by them at such time, an amount equal to the difference between the market
value on such date and $20 (the "Radamerica Price Support Payment"). Based
upon the closing price of the common stock on July 31, 1996, the Company's
obligation
Page 19
<PAGE> 20
Liquidity and Capital Resources (cont.)
under the Radamerica Price Support Payment would have been $2,718,750. The
Company may pay the Radamerica Price Support Payment, at the Company's option,
in whole or in part in shares of common stock or in cash within 30 days
following a seller's demand therefor, which demand must be exercised by February
5, 1998. Any portion of the Radamerica Price Support Payment not paid when due
will bear interest at the rate of 12% per annum.
Pending VIP Acquisition. Pursuant to the acquisition agreements, the
Company is required to pay to the sellers of the VIP Companies at the closing
of the acquisition of the VIP Companies, $10,250,000 in cash (of which $750,000
and 145,455 shares of Common Stock valued at $750,000 has been posted as a
contract deposit). The cash portion of the contract deposit has, with the
Company's consent, been loaned to the VIP Companies to be used for working
capital purposes. In addition, at closing the Company will assume all stated
liabilities of the VIP Companies as of closing (approximately $11,600,000 at
December 31, 1995, which includes approximately $3,000,000 due to
officers/shareholders). The Company expects that some portion of such
liabilities will be repaid with cash flows generated through operating
activities of the VIP Companies. However, to the extent such cash flows are
not sufficient, it may be necessary for the Company to use its own funds or
obtain additional financing to repay such assumed liabilities, principally
amounts due to the former officers/shareholders.
The Company has not received approval from its lenders under the
Credit Facility to consummate the acquisition of the VIP Companies and there
can be no assurance that such approval will be obtained or, if obtained, will
be on terms satisfactory to the Company. In addition, the consummation of the
acquisition of the VIP Companies is subject to, among other things, closing
conditions, including the receipt of necessary governmental approvals
(including the submission and approval of a plan of financing) and the accuracy
at closing of the various representations and warranties and the compliance by
the sellers with certain covenants and agreements contained in the acquisition
agreements. In July 1996, the Company announced that the consummation of the
acquisition of the VIP Companies would not occur concurrently with the second
closing under the Purchase Agreement with Hyperion Partners II, L.P. in that,
among other things, the approvals and consents necessary to consummate the
transactions had not been and could not be obtained at that time. The Company
believes that the sellers are not in compliance with certain provisions
contained in the acquisition agreements concerning the VIP Companies and has
had discussions with the VIP sellers regarding such. The Company cannot predict
when or whether all of the requisite consents and approvals will be obtained
and the other closing conditions will be satisfied, and when or whether the
transaction will ultimately be consummated.
If the Company defaulted under the VIP acquisition agreements, it
could suffer a loss of its contract deposit which has been posted as liquidated
damages. In the event that the transaction is not consummated for reasons
other than a Company default, the deposit is refundable to the Company. In any
event the Company's liquidity will not be adversely impacted as the cash
portion of the deposit was paid by the Company in the 1994 fiscal year.
Page 20
<PAGE> 21
Liquidity and Capital Resources (cont.)
DermaQuest Acquisition. In connection with the Company's acquisition
of DermaQuest, the Company recorded an acquisition payable of $8,832,000 at
October 31, 1995 based on a formula applied to DermaQuest's 1995 pretax
earnings. The Company paid $7,832,000 of the $8,832,000 acquisition payable
during the six months ended July 31, 1996 as follows: (i) $4,000,000 was paid
in cash through drawing of the letter of credit which was issued as collateral
for any DermaQuest contingent payments; and (ii) $3,832,000 was paid through
the issuance of 370,000 shares of common stock valued at $10.35 per share. On
May 30, 1996 the Company paid the remaining $1,000,000 acquisition payable
balance plus accrued interest in cash through proceeds from the Initial Closing
(as discussed below).
Any additional payments to the DermaQuest sellers due based on 1996 earnings
(which payment may not exceed $2,168,000) (the "Second DermaQuest Payment")
will be paid in registered shares of common stock valued at the average of the
closing price as reported on the Nasdaq National Market for the 90 days ending
on the day prior to the date the payments are due or, at the Company's option,
in whole or in part in cash subject to certain restrictions under the Credit
Facility.
If, by the first anniversary of the issuance of shares, the sellers
have sold any such shares and the sale price of such shares is less than 90% of
their initial valuation on the date of issuance, then the amount of such
difference shall be paid to the sellers either in whole or in part at the
option of the Company, in cash or in additional shares of common stock. If the
sale price exceeds the initial valuation by more than 110%, then the difference
shall be deducted, first, from the Second DermaQuest Payment, and then, paid to
the Company by the sellers in cash and/or shares of common stock in the same
proportion of cash and common stock as the Second DermaQuest Payment is paid.
Hyperion Transaction. On November 20, 1995, the Company entered into
a Purchase Agreement with Hyperion Partners II L.P. ("HPII") pursuant to which
HPII agreed, subject to the conditions stated in the Purchase Agreement, to
purchase up to an aggregate of 4,400,000 units (the "Units"), at a purchase
price of $9.00 per Unit for an aggregate purchase price of up to $39,600,000.
The Units consist of (A) equity units (the "Equity Units") which in turn are
comprised of (i) one share of the Company's restricted common stock and (ii)
0.6818 of a stock purchase warrant (each whole warrant entitles the holder
thereof to purchase one share of the Company's common stock at an exercise
price of $12.45 per share (the "Warrants")) and, if approved by the Company's
senior lenders, (B) debt units (the "Debt Units") which in turn are comprised
of (i) $9.00 in principal amount of a subordinated convertible debenture of the
Company which is convertible into one share of the Company's restricted common
stock (the "Convertible Debentures") and (ii) 0.6818 of a Warrant.
Consummation of the HPII transaction was subject to, among other things,
receipt of shareholder approval of the Purchase Agreement (which approval was
obtained at the annual meeting of shareholders of the
Page 21
<PAGE> 22
Liquidity and Capital Resources (cont.)
Company on April 16, 1996), and New York State Department of Health ("DOH")
approval with respect to ownership by HPII of more than 9.9% of the common
stock of the Company (which approval was received in June of 1996). The
Warrants and Convertible Debentures could only be exercised or converted, as
the case may be, following DOH approval.
On May 30, 1996 HPII purchased from the Company at the initial closing
(the "Initial Closing") an aggregate 600,000 Equity Units for $5,400,000. The
use of the proceeds of the issuance was as follows: (i) $1,027,000 to satisfy
the remaining balance plus accrued interest on the DermaQuest acquisition
payable; (ii) $802,000 of accrued interest on the Subordinated Loan; (iii)
$1,350,000 to satisfy accounts payable; (iv) $340,000 for expenses related to
the HPII transaction; and (v) the balance of $1,881,000 to be used for general
corporate and working capital purposes.
On July 31, 1996, the Company sold to HPII at a second closing (the
"Second Closing") an aggregate of 3,800,000 Equity Units (the "Additional
Equity Units") for $34,200,000, in addition to the Equity Units sold at the
Initial Closing described above. The use of the $34,200,000 proceeds of the
issuance plus borrowings of $8,992,000 under the Credit Facility (which closed
concurrently) were as follows: (i) $29,832,000 to satisfy the remaining
balance plus accrued interest and fees under the Credit Agreement; (ii)
$10,201,000 to satisfy the remaining balance plus accrued interest on the
Subordinated Loan; (iii) $3,012,000 for expenses related to the Credit
Facility; (iv) $125,000 to satisfy accounts payable; and (v) $22,000 for
expenses related to the HPII transaction.
The total number of Equity Units sold to HPII was 4,400,000 which
represents 4,400,000 shares of common stock and Warrants to purchase an
additional 3,000,000 shares of common stock. The aggregate number of shares
represented (assuming all the Warrants are exercised), therefore, by all of the
Equity Units sold to HPII in connection with the Purchase Agreement was
7,400,000.
The Warrants contained in the Equity Units grant the holder thereof
the right to purchase a share of common stock upon payment of the Exercise
price of $12.45 per whole share of common stock. The Warrants are exercisable
at any time after issuance thereof until the fifth anniversary of the original
issuance date. The Warrants contain provisions that protect the holders
thereof against dilution by adjustment of the exercise price therefore (and, in
certain instances, a related change in the number of shares of common stock
underlying each Warrant) upon the occurrence of certain events, such as stock
dividends, stock splits, mergers, a sale of substantially all of the Company's
assets and other extraordinary events, as well as the issuance by the Company
of shares of common stock at a purchase price below the then effective exercise
price of the Warrants (which initially is $12.45 per share).
Page 22
<PAGE> 23
Liquidity and Capital Resources (cont.)
Pursuant to a Registration Rights Agreement entered into at the
Initial Closing (the "Registration Agreement"), the Company granted to HPII
registration rights with respect to the shares of common stock included in the
Equity Units and other shares of common stock, if any, acquired by HPII
(collectively, the "Registrable Securities"). The Registration Agreement also
grants to the holders of Registrable Securities certain "piggyback" rights to
have Registrable Securities included in a registration statement to be filed by
the Company for either its own benefit or for the registration of securities
for the account of other shareholders of the Company. The Company will bear all
expenses, other than underwriting discounts and commissions, in connection with
any such registrations.
On January 10, 1996, HPII loaned to the Company the principal amount
of $10,000,000 (the "Subordinated Loan"). The Subordinated Loan bore interest
at the rate of 20% per annum through May 29, 1996 and 12% thereafter and was
repaid on July 31, 1996 with proceeds from the Second Closing.
Litigation. On November 2, 1994, an action was filed in the Supreme
Court of the State of New York, County of Westchester by Celia M. Consiglio,
individually and as administratrix of her husband's estate against the Company,
alleging that one of its drivers negligently caused the death of the
plaintiff's husband while operating his motor vehicle during a delivery for the
Company. The plaintiffs are seeking $12,580,000 in damages for wrongful death,
pain and suffering, loss of consortium and related claims. The Company has
tendered a defense of this action to its insurance carrier and management of
the Company and counsel to the insurance carrier intend to vigorously defend
this lawsuit. As the case is in a preliminary stage, the Company is not able
to estimate any potential exposure or range of exposure and has not recorded
any amounts in its financial statements. It is reasonably possible that
irrespective of insurance coverage, the ultimate outcome of this action may be
materially unfavorable to the Company's consolidated results of operations,
financial position or cash flows. However, the Company believes that the
ultimate liability, if any, will be within the policy limits of its insurance
and will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
Page 23
<PAGE> 24
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statements Re Computation of Per Share
Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Form 8-K dated July 31, 1996
on or about August 12, 1996.
Page 24
<PAGE> 25
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.
Dated: September 9, 1996
TRANSWORLD HOME HEALTHCARE, INC.
By: /s/Wayne A. Palladino
-----------------------
Wayne A. Palladino
Sr. Vice President and Chief Financial
Officer (Principal Financial
Officer and Officer
Duly Authorized to Sign on Behalf of
Registrant)
Page 25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
11 Statements Re Computation of Per Share
Earnings
27 Financial Data Schedule
</TABLE>
Page 26
<PAGE> 1
EXHIBIT 11
TRANSWORLD HOME HEALTHCARE, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
July 31, July 31,
---------------------- ---------------------
1996 1995 1996 1995
------ ------ ----- ------
<S> <C> <C> <C> <C>
Average number of shares used in primary calculation:
Weighted average number of shares outstanding 5,982 4,999 5,510 4,901
Weighted average number of shares
contingently issuable per acquisition agreements 298 869 422 869
Incremental shares, after application of treasury
stock method, of stock options and warrants 703 1,334 792 1,344
------ ------ ------- -------
Shares used in calculation of primary income per common share 6,983 7,202 6,724 7,114
====== ====== ======= =======
Primary income per share of common stock:
Income before extraordinary loss $ .04 $ .16 $ .18 $ .49
Extraordinary loss - early extinguishment of debt, net (.19) (.20)
------ ------ ------- -------
Net income (loss) per share $ (.15) $ .16 $ (.02) $ .49
====== ====== ======= =======
Average number of shares used in fully diluted calculation:
Weighted average number of shares outstanding 5,982 4,999 5,510 4,901
Weighted average number of shares
contingently issuable per acquisition agreements 298 869 422 869
Incremental shares, after application of treasury
stock method, of stock options and warrants 703 1,334 830 1,415
------ ------ ------- -------
Shares used in calculation of fully diluted income per common share 6,983 7,202 6,762 7,185
====== ====== ======= =======
Fully diluted income per share of common stock:
Income before extraordinary loss $ .04 $ .16 $ .18 $ .49
Extraordinary loss - early extinguishment of debt, net (.19) (.20)
====== ====== ======= =======
Net income (loss) per share $ (.15) $ .16 $ (.02) $ .49
====== ====== ======= =======
</TABLE>
Page 27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,231
<SECURITIES> 0
<RECEIVABLES> 23,499
<ALLOWANCES> (5,989)
<INVENTORY> 1,328
<CURRENT-ASSETS> 32,876
<PP&E> 8,211
<DEPRECIATION> (4,322)
<TOTAL-ASSETS> 83,327
<CURRENT-LIABILITIES> 7,583
<BONDS> 0
99
0
<COMMON> 0
<OTHER-SE> 66,237
<TOTAL-LIABILITY-AND-EQUITY> 66,336
<SALES> 19,236
<TOTAL-REVENUES> 19,236
<CGS> 8,815
<TOTAL-COSTS> 8,815
<OTHER-EXPENSES> 8,627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,291
<INCOME-PRETAX> 503
<INCOME-TAX> 211
<INCOME-CONTINUING> 292
<DISCONTINUED> 0
<EXTRAORDINARY> (1,342)
<CHANGES> 0
<NET-INCOME> (1,050)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
