UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24768
-------
INTERNATIONAL NURSING SERVICES, INC.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1123311
-------- ----------
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
360 South Garfield St. Suite 400, Denver, CO 80209
(Address of principal executive offices) (Zip Code)
(303) 393-1515
--------------
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 12, 1997.
Common Stock, $0.001 par value 12,256,272
------------------------------ ----------
Class Number of Shares
<PAGE>
INTERNATIONAL NURSING SERVICES, INC.
------------------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets -- September 28,
1997 (Unaudited) and December 29, 1996 3
Unaudited Consolidated Statements of
Operations -- For the Three Months
Ended September 28, 1997 and September 29,
1996 and For the Six Months
Ended September 28, 1997 and September 29, 1996 4
Unaudited Consolidated Statements of Cash
Flows -- For the Six Months Ended September 28,
1997 and September 29, 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION 17
-----------------
SIGNATURES 19
Index to Exhibits 20
<PAGE>
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, December 29,
1997 1996
----- -----
<S> <C> <C>
Current Assets
Accounts receivable, net $5,032,000 $4,458,000
Other current assets 341,000 19,000
--------- ---------
Total current assets 5,373,000 4,477,000
--------- ---------
Property and equipment, net 384,000 355,000
--------- ---------
Other Assets
Intangible assets, net 5,767,000 4,080,000
--------- ---------
Total assets $11,524,000 $8,912,000
========== =========
Current liabilities
Checks written in excess of book balance $ 279,000 65,000
Accounts payable 751,000 617,000
Accrued expenses 1,491,000 1,620,000
Current portion of debt 394,000 145,000
Current portion of capital lease obligation 55,000 50,000
Loans under financing agreement 3,675,000 3,318,000
--------- ---------
Total current liabilities 6,645,000 5,815,000
--------- ---------
Long-term debt
Long-term portion of capital lease 9,000 50,000
-------- ---------
Stockholders' equity
1996 Convertible Preferred stock, $1.00
par value, 488 shares authorized, 155
and 29.5 issued and outstanding at December
29, 1996 and September 28, 1997,
respectively, liquidation preference
$295,000. 0 0
1997 Convertible Preferred stock, $1.00
par value, 300 shares authorized, 108.9
issued and outstanding at September 29,
1997, liquidation preference $1,089,000
per share 0 0
Common stock, $0.001 par value; 25,000,000
shares authorized, 5,688,292 and 12,036,667
issued and outstanding at December 29, 1996 and
September 28, 1997, respectively 12,000 6,000
Dividends payable in common stock 38,000 66,000
Additional paid-in capital 12,090,000 10,199,000
Accumulated deficit (7,270,000) (7,224,000)
---------- ----------
Total stockholders' equity 4,870,000 3,047,000
---------- ----------
Total liabilities and stockholders' equity $11,524,000 $8,912,000
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
<PAGE>
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 28 and September 29
------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $6,138,000 $3,819,000 $19,762,000 $10,399,000
Direct costs of
services 4,648,000 2,906,000 15,093,000 7,751,000
Gross Margin 1,490,000 913,000 4,669,000 2,648,000
Selling, general and
administrative
expenses 1,287,000 901,000 4,207,000 2,374,000
(Gain) on Sale of
Medicare Division
(Note 7) (191,000) 0 (191,000) 0
Net income (loss)
from operations 394,000 12,000 653,000 274,000
Interest expense, net 299,000 134,000 699,000 391,000
Net income (loss) $ 95,000 $(122,000) $(46,000) $(117,000)
====== ======== ======= ========
Net income (loss)
per common share
(Note 8) $ 0.01 $ (0.42) $ (0.07) $(0.34)
==== ======== ======= =======
Weighted average shares
outstanding $11,518,685 $4,567,952 $8,894,554 $4,347,771
========== ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
<PAGE>
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
September 28, 1997
and September 29, 1996
---------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (46,000) $(117,000)
Adjustments to reconcile net income (loss) to
net cash flows from (used in) operating activities-
Depreciation and amortization 453,000 293,000
Imputed Interest on Convertible Debt 78,000 0
Net changes in current assets and current
liabilities (677,000) (1,185,000)
--------- ---------
Net cash flows (used in)
operating activities (192,000) (1,009,000)
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (115,000) (125,000)
Business acquisition costs (2,054,000) (1,990,000)
--------- ---------
Net cash flows used in investing
activities (2,169,000) (2,115,000)
---------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Advances, net 357,000 1,478,000
Payments on capital leases and debt (731,000) (592,000)
Proceeds from convertible debt 1,000,000 0
Net proceeds from exercise of Unit option 200,000 0
Net proceeds from issuance of preferred
and common stock 1,535,000 2,347,000
--------- ---------
Net cash flows from (used in)
financing activities 2,361,000 3,223,000
--------- ---------
Net (decrease) increase in cash
and cash equivalents 0 109,000
CASH AND CASH EQUIVALENTS, at beginning of
period 0 19,000
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period $ 0 $ 128,000
=========== =========
</TABLE>
Non-cash investing and financing activities for the nine months ended
September 28, 1997:
Issuance of 6,348,379 shares of common stock upon conversion of
convertible preferred stock.
The Company recorded imputed dividends on preferred stock of $553,000
associated with the 1997 private placement.
The Company imputed a discount on the convertible debenture of $134,000
using the Black-Scholes option pricing model related to the issuance of the
warrant to purchase 200,000 shares of common stock associated with the
convertible debenture issued. The Company recorded the discount as a
reduction to the carrying value of the convertible debenture and as an
increase to additional paid-in capital.
The Company also recorded additional imputed interest expense of
approximately $78,000 related to the convertible debenture.
During the first quarter of 1997 approximately $20,000 of previously
capitalized expenses were charged to additional paid in capital.
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
<PAGE>
INTERNATIONAL NURSING SERVICES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements as of December 29, 1996 have been derived from audited
financial statements, the report on which included an explanatory paragraph
describing uncertainties concerning the Company's ability to continue as a
going concern. The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's Form 10-KSB for the fiscal year ended December 29, 1996. The
results of operations for the nine months ended September 28, 1997 are not
necessarily indicative of the results for the entire fiscal year ending
December 28, 1997.
2. ACQUISITIONS
In January 1997, the Company acquired certain assets of Colorado Therapists On
Call, Inc. ("CTOC") and Professional Healthcare Providers, Inc. ("PHP"),
together doing business under the name TherAmerica, Inc. ("TherAmerica") The
Company paid $2,000,000 cash and assumed approximately $175,000 of liabilities
for the acquisition which was effective January 1, 1997. The Company
accounted for the transaction as a purchase transaction.
The Company has signed a non-binding letter of intent to acquire a
closely-held medical software company. For a period of up to 130 days pending
implementation of a merger, the Company has agreed to provide bridge financing
to the software company in an amount not to exceed $297,500. As of September
28, 1997 the Company had provided bridge financing in the amount of $112,500.
If the merger does not take place the bridge financing will be converted to a
note receivable.
3. EQUITY TRANSACTIONS
1997 PRIVATE PLACEMENT
In January and February 1997, the Company completed a private placement of
167.15 Units, each unit consisting of one share of convertible preferred
stock, $10,000 par value, ("1997 Preferred Stock"), and a warrant to purchase
10,000 shares of common stock at $1.00 per share ("1997 Warrant"). The
convertible preferred stock carries no dividend. The preferred stock is
convertible to common at the lesser of $1.00 or 75% of the average sales price
for the five trading days prior to conversion. The Company raised gross
proceeds of $1,671,500 from this private placement. Commissions of
approximately $117,000 were paid to individuals who assisted in the private
placement who are also shareholders of the Company. Substantially all of the
proceeds were used to purchase TherAmerica. In May 1997, 10 Shares of 1997
Preferred Stock were converted to 253,968 shares of common stock, and in June
1997, 32.25 Shares of 1997 Preferred Stock were converted to 1,862,508 shares
of common stock. In July 1997, 10 Shares of 1997 Preferred Stock were
converted to 584,475 shares of common stock, and in September 1997, 6 Shares
of 1997 Preferred Stock were converted to 42,667 shares of common stock.
1996 PRIVATE PLACEMENT
In July and September 1996, the Company completed a private placement of 244
Units, each unit consisting of a share of convertible preferred stock ($10,000
par value) ("1996 Preferred Stock"), a warrant to purchase 8,000 shares of the
Company's common stock at $2.50 per share ("1996 Warrant") and a unit purchase
option to purchase an additional unit at $10,000 per unit ("Unit Options").
The convertible preferred stock carries a 10% dividend and is convertible at
the lesser of $1.25 or 75% of the average sales price for the five trading
days prior to conversion. The private placement raised gross proceeds to the
Company of approximately $2,440,000.
Through September 28, 1997, 214.5 Units (with accrued dividends) have been
converted to 3,956,532 shares of common stock. Also in 1997, a Unit Holder
which held 20 Units exercised its Unit purchase option resulting in gross
proceeds to the Company of $200,000. The Unit holder immediately converted
the preferred to common resulting in the issuance of 257,028 shares of common
stock in January 1997.
In May of 1997, the Company canceled 204 Unit Options in exchange for the Unit
Option holders receiving a reduction in their warrant exercise price from
$2.50 per share to $.625 per share. This action resulted in the cancellation
of all but 40 of the Unit Options.
4. CONVERTIBLE DEBENTURE
On January 28, 1997, the Company issued a convertible note receiving
proceeds of $1,000,000 from a shareholder of the Company. Interest accrues on
the note at 12.5% and the note matures on January 27, 1998. Per the
original terms of the note, if it was not paid off by May 28, 1997, the
unpaid principal of the note became convertible to common stock until
January 27, 1998 at the lower of $1.50 or 65% of the prior five trading
days closing price of the common stock. The proceeds of the note were
used to fund the acquisition costs related to TherAmerica. The Company
also issued a warrant to purchase 200,000 shares of common stock at $1.1875
per share until July 31, 1999 to the convertible note holder.
The Company recorded an imputed discount on the convertible debenture of
$134,000 using the Black-Scholes option pricing model related to the issuance
of the warrant to purchase 200,000 shares of common stock at $1.1875 per
share. For the nine months ended September 28, 1997, the Company recorded
additional interest expense of approximately $78,000 which related to
amortization of the imputed discount. The Company amortizes the imputed
discount over the expected term of the related debt.
On May 28, 1997, the Company paid $500,000 of principal plus accrued interest
to the noteholder, the exercise price of the warrant was reduced to $0.27 from
$1.19 and the noteholder extended the payment date to July 28, 1997, which
would eliminate the conversion feature of the note. The Company was unable to
pay the outstanding principal balance by July 28, 1997. On August 15, 1997
the exercise price of the warrants was further reduced to $0.15 and the
noteholder extended the payment date. The Company repriced the imputed
discount due to the reductions in the exercise prices of the warrant, and the
results were not material. On November 14, 1997, the Company paid the
remaining balance on the note plus accrued interest.
5. STOCK OPTIONS
During the first quarter, the Company canceled and reissued 150,000 options to
purchase the Company's common stock to an officer of the Company. The options
were originally exerciseable at $1.88 (100,000 options) and $3.25 (50,000
options). The option exercise price was reset to $1.00 which represented the
fair market value of the options at the time of the grant. During the third
quarter, the Company amended the exercise price on 1,361,952 options
previously issued officers, directors, and employees of the Company. The
options were originally exerciseable between $0.63 and $1.88. The amended
exercise price of $0.25 was in excess of fair market value at the time of the
amendment.
During the first quarter of 1997 the Company granted 443,748 options to
purchase common stock at $1.00 per share under the Company's incentive stock
option plan, 133,609 of which were granted to officers and directors.
Additionally, during the third quarter of 1997 the Company granted 860,000
options to purchase common stock at $0.25 per share under the Company's
incentive stock option plan, 700,000 of which were granted to officers and
directors.
6. LITIGATION
On July 26, 1996, Staff Builders, Inc. filed a civil action against the
Company in the US District Court for the Southern District of New
York demanding payment of an outstanding note payable. The plaintiff
alleged that the Company owed approximately $145,000 in principal and $12,000
in accrued interest. The Company entered into a settlement agreement in
January 1997 whereby the Company agreed to pay $166,122 in installments
between February 15, 1997 and July 15, 1997 in exchange for a release of all
claims. As of July 15, 1997, this amount was paid in full.
In 1997, a former patient filed a complaint in Texas against a subsidiary
of the Company alleging that an employee/therapist of the subsidiary was
negligent. The Company believes that there was no wrong doing and intends to
defend itself vigorously against the charges. The client/hospital where the
employee was working at the time of the alleged incident paid the plaintiff
$100,000 in settlement and release from further claims. The client/hospital
has now demanded that the Company indemnify them for the $100,000 as the
client/hospital alleges this is stipulated in a contract between the Company
and the client/hospital. The Company does not believe that it has a
contractual obligation to indemnify the client/hospital in this situation and
intends to vigorously defend against this demand. The Company believes that
it will not incur any material losses in excess of accrued amounts.
In April 1997, Ellis Home Care Services, Inc. ("EHCSI") filed a complaint in
the United States District Court , Southern District of New York, against the
Company. The complaint alleges that the Company has breached certain
obligations it undertook in connection with the acquisition of the Ellis
assets by the Company. EHCSI sought a judgement of $421,705, which represents
the difference between the asset purchase price of $1,060,063 and the total of
(i) the aggregate sales proceeds EHCSI received from the sale of all of its
shares of the Company's stock and (ii) a cash payment of $60,000 made by the
Company to EHCSI. In addition to the amount of $421,705, the complaint seeks
interest on such amount at nine percent (9%) per annum and attorney's fees.
On August 1, 1997 the Company agreed to a settlment of this matter and agreed
to pay EHCSI $435,397.30 plus interest at the rate of nine percent (9%) per
annum in an intial payment of $60,000 and monthly payments of $19,722 with the
last payment due April 1, 1999. On September 23, 1997 a judgment was entered
against the Company in this matter as a result of the Company's failure to
make the initial payment of $60,000, although all monthly payments had been
made. The judgment was entered in the amount of $391,731.20 plus interest at
the rate of nine percent (9%) until paid. The Company is continuing to
negotiate this matter with EHCSI and to pay its agreed monthly payments. It
has paid a portion of the delinquent $60,000 and EHCSI has made no effort to
date to execute the judgment against the Company.
7. GAIN ON SALE OF MEDICARE DIVISION
On September 1, 1997 the Company sold certain assets of its Medicare and
home care business in Denver for $200,000 in cash. The Company recognized a
gain of approximately $191,000 on the sale. The Company is liable for any
Medicare cost reimbursement adjustment to reimbursements that occured prior to
the sale date. The Company believes that it has adequately accrued for this
contingent liability. The Medicare division represented $650,000 in revenues
for the nine months ended September 28, 1997.
8. LOSS PER SHARE
In accordance with the Securities and Exchange Commission's position on
accounting for preferred stock with convertible features that are in the money
at the time of issuance, the Company has imputed a value associated with such
conversion features and has recorded the value as a discount on the preferred
stock. The Company amortizes the imputed discount on the preferred stock over
the period from issuance of the preferred stock to the earliest period at
which the preferred stock becomes convertible. As the Company's 1997
preferred stock issuances are immediately convertible the Company has
amortized in the first quarter the entire imputed discount as a component of
dividends on preferred stock. The Company recorded additional dividends to
preferred stockholders of approximately $553,000 for the quarter ended March
30, 1997, which represents an imputed increase to the dividend yield and not
a contractual obligation on the part of the Company to pay such imputed
dividends.
Loss per share applicable to common stockholders is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 28, 1997 Sept. 29, 1996 Sept. 28, 1997 Sept. 29, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income
(loss) $ 95,000 $ (122,000) $ (46,000) $ (117,000)
Preferred
stock
dividends -
stated rate (8,000) (44,000) (39,000) (44,000)
Preferred
stock dividends -
imputed
discount 0 (1,737,000) (553,000) (1,737,000)
Preferred
stock dividends -
recapture 0 0 0 441,000
------ --------- -------- ----------
Net income (loss)
applicable to
common
stockholders $ 87,000 $(1,903,000) $(638,000) $(1,457,000)
======= =========== ======== ==========
Net income (loss)
per common
share $ 0.01 $ (0.42) $ (0.07) $ (0.34)
======== =========== ========= ===========
Weighted average
shares
outstanding 11,518,685 4,567,952 8,894,554 4,347,771
========== ========= ==========
</TABLE>
9. SUBSEQUENT EVENTS
On October 19, 1997 the Company sold certain assets of one of its New
York operations for $1,275,000 in cash and an unsecured promissory note for
$200,000, which bears interest at prime plus 2%. The promissory note is
payable in two equal installments of $100,000 plus accrued interest on
February 18, 1998 and October 19, 1998. At the same time the Company entered
into a definitive agreement to sell the other two New York operations for
$2,080,000 in cash subject to approval by New York State licensing
authorities and other closing conditions.
The three New York operations provided approximately $8,246,000 in
revenue for the nine months ended September 28, 1997. The sale of these
operations will substantially reduce the Company's revenues.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This filing contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby.
These forward-looking statements include the plans and objectives of the
management for future operations, including plans and objectives relating to
services offered by and future economic performance of the Company.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based on assumptions that the Company will
continue to be able to provide on a cost effective and competitive basis
quality home health care and interim staffing services, that the regulatory
environment governing the Company's industry will not change in ways that are
materially adverse to the Company and its operations, that the Company will be
able to continue to fund operations, that the Company will be able to raise
additional equity or debt capital if required to fund operations and
acquisitions, that the Company will be able to achieve operating efficiencies
resulting in cost reductions, that a sufficient supply of qualified health
care personnel will be available to the Company for deployment in the health
care industry on a competitive and cost effective basis and that there will be
no material adverse change in the demand for the Company's services or in the
Company's operations or business. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes the assumptions
underlying the forward-looking statements are reasonable, any of the
assumptions could prove inaccurate, and therefore, there can be no assurance
that the results contemplated in the forward-looking statements will realized.
In addition, the business and operations of the Company are subject to
substantial risks which increase the uncertainty inherent in such
forward-looking statements.
Important factors to be considered in connection with forward-looking
statements include, without limitation, (a) the fact that the Company reported
net losses in fiscal 1995 and fiscal 1996 and had an accumulated deficit and a
working capital deficit in fiscal 1996 and at September 28, 1997; (b) the
Company's lack of working capital may require the Company to raise additional
equity or debt financing or sell assets in order to fund operations and the
cash portion of purchase prices payable in connection with acquisitions and
the Company may be unable to raise such debt or equity financing; (c) the
current uncertainty in the health care industry and government health care
reform proposals considered from time to time may adversely affect the
regulatory environment in which the Company operates and specifically affect
the reimbursement rate payable under government programs such as Medicare and
Medicaid, potentially resulting in decreased revenues from home care services;
(d) the Company's dependence on customer relationships makes the Company
vulnerable to consolidation in the health care industry, changes in customer
personnel and other factors that may impact customer relationships; (e) the
Company's ability to obtain needed licenses, permits and governmental
approvals will directly affect the Company's economic performance and
operation; (f) the Company's ability to compete in the highly competitive
interim staffing and home care services market will directly impact the
Company's profitability and operations; (g) the Company depends on
key-management personnel especially John P. Yeros to manage and direct the
business and operations of the Company; (h) hospital budgetary cycles,
increased competition for qualified medical personnel, patient admission
fluctuations and seasonality will also impact the profitability of the Company
and cash flow may fluctuate due to the adoption by hospitals and third party
payors of new or revised reimbursement policies; (j) the Company's operations
would be adversely affected by the expansion of more favorable credit terms in
order to keep existing customers; (k) the Company's ability to manage growth,
particularly through acquisitions, will directly impact the Company's
profitability and operations; (l) uninsured risks associated with providing
home care and interim staffing services will also impact the Company's
profitability and operations; and (m) various other factors may cause actual
results to vary materially from the results contemplated in any
forward-looking statements included in this filing. No assurance can be given
that the foregoing factors will not result in a material adverse effect on the
Company and its operations.
Any of these important factors discussed above or elsewhere in this
filing could cause the Company's revenues or net income (loss), or growth in
revenues or net income (loss), to differ materially from prior results. In
addition, growth in absolute amounts of selling, general and administrative
expenses or the occurrence of extraordinary events could cause actual results
to vary materially from the results contemplated by the forward-looking
statements. Budgeting and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based
on actual experience and business developments, the impact of which may cause
the Company to alter its marketing, capital expenditures or other budgets,
which may, in turn, affect the Company's results of operation.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
Results of Operations
- -----------------------
Comparison of three months ended September 28, 1997 and September 29, 1996
The Company generated approximately $6,138,000 in revenues from
operations for the quarter ended September 28, 1997, compared to approximately
$3,819,000 in revenues for the third quarter of 1996. The increase in sales
for the quarter is due to the acquisition of Ellis Health Services, Inc., STAT
Health Care Services, Inc., and TherAmerica. These acquisitions provided
revenues of approximately $3,859,000 and $1,430,000 in the third quarters of
1997 and 1996 respectively. These increased revenues were offset by losses in
Texas and Colorado resulting from increased competition and administrative
personnel departures. On October 19, 1997 the Company sold a New York
operation and entered into a definitive agreement to sell two other New York
operations. The three New York operations provided approximately $2,566,000
in revenues for the quarter ended September 28, 1997. The sale of these
operations will substantially reduce the Company's revenues.
The Company's gross margin percentage was consistent at 24% the quarters
ended September 28, 1997 and September 28, 1996.
Selling, general and administrative expenses increased for the quarter
ended September 28, 1997 by approximately $386,000 as compared to the quarter
ended September 29, 1996. This increase was proportionaly less than the
increase in revenues. As a percentage of revenues, SG & A decreased from 24%
for the quarter ended September 29, 1996 to 21% for the quarter ended
September 28, 1997.
Net loss decreased from $122,000 in the quarter ended September 29, 1996
to a net loss, before Gain on Sale of Assets, of $96,000 in the quarter ended
September 28, 1997. The loss for the quarter is attributable to factors
discussed above and an increase in interest expense.
During the first quarter, the Company initiated several programs and
service lines which are intended to increase revenues for the remainder of
1997. In particular, a travel nurse division was started in late 1996 and
resulted in approximately $436,000 in revenues in the third quarter of 1997.
Other sales incentive programs have been developed to increase the existing
sales base in Texas, Colorado and New York. In addition, the Company is more
closely monitoring its selling, general and administrative costs to minimize
these costs which were a material reason for the losses the Company has
experienced in the past few years.
Comparison of nine months ended September28, 1997 and September 29, 1996
The Company generated approximately $19,762,000 in revenues from
operations for the nine months ended September 28, 1997, compared to
approximately $10,339,000 in revenue for the same period in 1996. The
increase was attributable to additional revenues from the acquisitions Ellis,
STAT, and TherAmerica. The revenues from these acquisitions were partially
offset by increased competition in Texas and Colorado. The travel nurse
division generated revenues of approximately $786,000 during the nine months
ended September 28, 1997. On October 19, 1997 the Company sold a New York
operation and entered into a definitive agreement to sell two other New York
operations. The three New York operations provided approximately $8,246,000
in revenues for the quarter ended September 28, 1997. The sale of these
operations will substantially reduce the Company's revenues.
The Company has implemented a sales and marketing program in Texas which
is intended to recapture some of the business lost to the competition and
intends to replace the lost low-margin business in Colorado with higher margin
sales from its new rehabilitation consulting division. There can be no
assurance given that these programs and activities will be successful in
increasing its revenue.
The Company's gross margin percentage decreased from 25% for the nine
months ended September29, 1996 to 24% for the nine months ended September 29,
1997. The decrease was due to increased competition in Texas and Colorado,
some lower margin business at the New York offices, and inability to pass
through to customers higher personnel costs.
Selling, general and administrative expenses increased for the nine
months ended September 28, 1997 by approximately $1,833,000 as compared to the
nine months ended September 29, 1996. The increase was directly attributable
to the growth in the Company's revenues, and also due to the expensing of
transaction costs for acquisitions which did not close. Selling, general and
administrative expenses as a percentage of revenue decreased from 23% for the
nine months ended September 29, 1996, to 21% for the nine months ended
September 28, 1997. Management anticipates that selling, general and
administrative expenses as a percentage of sales will decrease throughout the
remainder of 1997 as the Company sees economies of scale result from its
acquisition activity and its integration strategy of centralizing the general
and administrative functions of each branch in Colorado.
Liquidity and Capital Resources
- ----------------------------------
The Company's current liabilities at September 28, 1997 aggregated
approximately $6,645,000 and current assets at September 28, 1997 aggregated
approximately $5,373,000.
In order for the Company to meet its current obligations, management
anticipates the need to raise additional debt or equity capital or sell
assets. Management believes that the Company will generate cash from its
operations, once certain non-recurring operating liabilities incurred in the
past have been paid off. However, the Company will require the raising of
additional debt or equity capital or asset sales to meet all of the current
obligations.
On October 19, 1997 the Company sold certain assets of one of its New
York operations for $1,275,000 in cash and a note for $200,000. At the same
time the Company entered into a definitive agreement to sell the other two New
York operations for $2,080,000 in cash subject to approval by New York State
licensing authorities and other closing conditions. The $1,275,000 will be
used to meet a portion of the Company's current obligations. If the
transactions under definitive agreement close on a timely basis, funds
should be available to meet the remaining portion of the Company's current
obligations. There is no assurance, however, that these transactions will
close on a timely basis or at all, or that the cash consideration will be
adequate to meet the Company's needs. The three New York operations provided
approximately $8,246,000 in revenue for the nine months ended September 28,
1997. The sale of these operations will substantially reduce the Company's
revenues. Separately, the Company has signed a non-binding letter of
intent to acquire a closely-held medical software company. For a period of
up to 130 days pending implementation of a merger, the Company has agreed to
provide bridge financing to the software company in an amount not to exceed
$297,500. As of September 28, 1997 the Company had provided bridge financing
in the amount of $112,500.
The Company previously utilized an accounts receivable financing
arrangement which was replaced with an asset-based line of credit on May 28,
1997. Funds generated by the refinancing were used to pay $500,000 plus
accrued interest of the $1,000,000 convertible loan on May 28, 1997. The
noteholder agreed to extend the due date on the remaining balance to July 28,
1997, which, if the payment was made, would have eliminated the conversion
feature of the note. On August 15, 1997, the exercise price of the warrants
was further reduced to $.15 and the noteholder extended the payment date. The
Company repriced the imputed discount due to the reductions in the exercise
prices of the warrant, and the results were not material. On November 14,
1997, the Company paid the remaining balance on the note plus accrued interest.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 26, 1996, Staff Builders, Inc. filed a civil action against the
Company in the US District Court for the Southern District of New York
demanding payment of an outstanding note payable. The plaintiff alleged that
the Company owed approximately $145,000 in principal and $12,000 in accrued
interest. The Company entered into a settlement agreement in January 1997
whereby the Company agreed to pay $166,122 in installments between February
15, 1997 and July 15, 1997 in exchange for a release of all claims. As of
July 15, 1997, this amount was paid in full.
In 1997, a former patient filed a complaint in Texas against a subsidiary of
the Company alleging that an employee/therapist of the subsidiary was
negligent. The Company believes that there was no wrong doing and intends to
defend itself vigorously against the charges. The client/hospital where the
employee was working at the time of the alleged incident paid the plaintiff
$100,000 in settlement and release from further claims. The client/hospital
has now demanded that the Company indemnify them for the $100,000 as the
client/hospital alleges this is stipulated in a contract between the Company
and the client/hospital. The Company does not believe that it has a
contractual obligation to indemnify the client/hospital in this situation and
intends to vigorously defend itself against this demand. The Company believes
that it will not incur any material losses in excess of accrued amounts.
In April 1997, Ellis Home Care Services, Inc. ("EHCSI") filed a complaint in
the United States District Court , Southern District of New York, against the
Company. The complaint alleges that the Company has breached certain
obligations it undertook in connection with the acquisition of the Ellis
assets by the Company. EHCSI sought a judgement of $421,705, which represents
the difference between the asset purchase price of $1,060,063 and the total of
(i) the aggregate sales proceeds EHCSI received from the sale of all of its
shares of the Company's stock and (ii) a cash payment of $60,000 made by the
Company to EHCSI. In addition to the amount of $421,705, the complaint seeks
interest on such amount at nine percent (9%) per annum and attorney's fees.
On August 1, 1997 the Company agreed to a settlment of this matter and agreed
to pay EHCSI $435,397.30 plus interest at the rate of nine percent (9%) per
annum in an intial payment of $60,000 and monthly payments of $19,722 with the
last payment due April 1, 1999. On September 23, 1997 a judgment was entered
against the Company in this matter as a result of the Company's failure to
make the initial payment of $60,000, although all monthly payments had been
made. The judgment was entered in the amount of $391,731.20 plus interest at
the rate of nine percent (9%) until paid. The Company is continuing to
negotiate this matter with EHCSI and to pay its agreed monthly payments. It
has paid a portion of the delinquent $60,000 and EHCSI has made no effort to
date to execute the judgment against the Company.
<PAGE>
ITEM 2. CHANGES IN SECURITIES
<TABLE>
<CAPTION>
No. of Shares Exemption
Security Sold Date or Units Consideration Purchasers Claimed
- ------------- ---- -------------- ------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Common stock Jan 1,604,353 Conversion of Private
Preferred Investors Section 3(a)(9)
Units of Preferred
Stock and Private
Warrants 960 960,000 Investors Section 4(2)
Common stock Feb 41,398 Conversion of Private
Preferred Investors Section 3(a)(9)
Units of Preferred
Stock and Private
Warrants Feb 711.5 711,500 Investors Section 4(2)
Common stock Mar 48,193 Conversion of Private
Preferred Investors Section 3(a)(9)
Common stock May 253,968 Conversion of Private
Preferred Investors Section 3(a)(9)
Common stock Jun 869,986 Conversion of Private
Preferred Investors Section 3(a)(9)
Common stock Jul 579,206 Conversion of Private
Preferred Investors Section 3(a)(9)
Common stock Aug 77,625 Conversion of Private
Preferred Investors Section 3(a)(9)
Common stock Sep 426,667 Conversion of Private
Preferred Investors Section 3(a)(9)
- ------ --- ------- ------------- ---------- ---------------
</TABLE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Included as exhibits are the items listed on the Exhibit Index. The
Registrant will furnish a copy of any of the exhibits listed below upon
payment of $5.00 per exhibit to cover the costs to the Registrant of
furnishing such exhibit.
b. Reports on Form 8-K
None.
SIGNATURES
In accordance with 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: November 13, 1997
INTERNATIONAL NURSING SERVICES, INC.
(Registrant)
/s/ John P. Yeros
--------------------
John P. Yeros
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ John P. Yeros
--------------------
(Principal Financial and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
2.1 Agreement of Purchase and Sale(Assets) by and between National Care
Resources, Inc. and Life Source Services, Inc.
10.1 Stipulation of Settlement between Ellis Home Care Services, Inc. and
International Care Resources, Inc.
27 Financial Data Schedule
99 Judgement against International Nursing Services, Inc. for Ellis Home
Care Services, Inc.
AGREEMENT OF PURCHASE AND SALE (ASSETS)
---------------------------------------
This Agreement of Purchase and Sale (Assets) is made this 1st day of
September, 1997, by and between National Care Resources, Inc. - Colorado, 360
South Garfield Street, Suite 400, Denver, CO 80209-3136 ("Seller") and Life
Source Services, Inc., 245 South Benton, Lakewood, CO 80202 ("Buyer"),
provides for the Buyer to acquire substantially all of the Medicare/Medicaid
assets of the Seller and no other liabilities.
WHEREAS, the Buyer desires to acquire, on the terms and subject to the
conditions contained herein, the Medicare/Medicaid business of the Seller
insofar as the same is conducted through the use of the Acquired Assets; and
WHEREAS, the Seller believes that it is desirable and in the best
interests of the Seller that it sell the Acquired Assets to the Buyer;
NOW, THEREFORE, the parties to this Agreement do hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Acquired Assets: The assets of the Seller being acquired by the
Buyer pursuant to the terms hereof, as identified on Schedule 1.1 hereto, and
all other assets of the Seller, tangible or intangible, the use or value of
which is inextricably linked to the assets so identified.
1.2 Agreement: This Agreement of Purchase and Sale (Assets),
including all of its schedules and exhibits and all other documents
specifically referred to in this Agreement that have been or are to be
delivered by a party to this Agreement to the other party in connection with
the Transaction or this Agreement, and including all duly adopted amendments,
modifications, and supplements to or of this Agreement and such schedules,
exhibits and other documents.
1.3 Assumed Liabilities: The Buyer assumes no liabilities.
1.4 Closing: The completion of the Transaction, to take place as
described in Article II.
1.5 Closing Date: The Date on which the Closing actually occurs,
which shall be September 1, 1997, unless otherwise agreed by the parties.
1.6 Consideration: The net sum of Two Hundred Thousand Dollars
($200,000), to be
paid by the Buyer to the Seller at the Closing for the Acquired Assets.
1.7 Transaction: The sale of the Acquired Assets for the
Consideration as contemplated by, and subject to the terms and conditions of,
this Agreement.
ARTICLE II
THE TRANSACTION
2.1 The Transaction. On the Closing Date, subject in all instances
to each of the terms, conditions, provisions and limitations contained in this
Agreement, the Seller shall convey, sell, transfer, and assign to the Buyer,
and the Buyer shall acquire from the Seller, the Acquired Assets. The Seller
retains current and outstanding liabilities due Medicare including any final
settlement credits of unsettled cost reports and any reopened cost reports
prepared by Seller prior to Close. The Buyer assumes no responsibility for
any past Medicare over-payments.
2.2 Manner of Payment. Payment of the Consideration by the Buyer
shall be made by wire transfer of federal funds on the Closing Date to such
account of Seller as shall be described by the Seller to the Buyer in writing.
2.3 Closing. The Closing hereunder shall take place at the offices
of Seller on the Closing Date.
2.4 Other. On and subsequent to the Closing Date, Seller shall allow
Buyer to employ Seller's employees who are engaged in the business with
respect to the Acquired Assets and Seller will allow such employees to remain
in Seller's offices for the period commencing with the Closing Date and ending
on September 30, 1997. Seller will invoice Buyer for its proportionate
share of rental expense incurred by Seller during such period, which has been
determined to be
$4,900 monthly. Subsequent to the Closing and at its sole expense, Buyer is
entitled to receive any settlement credits, or payments, from Medicare
resulting from the amendment and/or adjustment to the Medicare Cost Reports
previously prepared and submitted, by the Seller to
Medicare, during the previous five years. Seller hereby agrees any settlement
credits or payment
are to be submitted directly to Buyer. Furthermore, if any settlement credits
or payments are
adjusted prior to the Closing Date pertaining to the above, the Buyer has the
option to apply such
credits or settlement payments against the purchase price at Closing.
Notwithstanding any of the above, the Buyer is not liable for any retroactive
payments that may be due back to Medicare relating to any time period prior to
the Closing Date.
<TABLE>
<CAPTION>
<S> <C>
Purchase Price $128,000
Equipment 30,000
Pre-Paid Consulting (1 Year) 36,000
Office Supplies including
Charts and Records 6,000
Total $200,000
</TABLE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
Buyer hereby represents and warrants to the Seller:
3.1 Organization. The Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado, and
has the requisite corporate power and authority to enter into and to perform
this Agreement.
3.2 Authority. The Buyer has the requisite corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation
of the Transaction contemplated hereby have been duly authorized and approved
by the requisite level of corporate authority of Buyer and no other corporate
proceedings on the part of the Buyer are necessary to approve and adopt this
Agreement or to approve the consummation of the Transaction contemplated
hereby, including delivery of the Consideration. This Agreement has been duly
and validly executed and delivered
by the Buyer and constitutes a valid and binding Agreement of the Buyer,
enforceable in accordance with its terms.
3.3 Absence of Breach. The execution, delivery and performance of
this Agreement, and the performance by Buyer of its obligations hereunder, do
not (i) conflict with, and will not result in a breach of, any of the
provisions of the Articles of Incorporation or Bylaws of Buyer; (ii)
contravene any federal or state law, rule or regulation, or any order, writ,
judgment, injunction, decree, determination, or award affecting or binding
upon the Buyer, in such a manner as to provide a basis for enjoining or
otherwise preventing consummation of the Transaction; (iii)
conflict with or result in a material breach of or a default under any
material indenture or loan or credit agreement or any other material agreement
or instrument to which Buyer is a party; or (iv)
require the authorization, consent, approval or license of any third party.
3.4 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with this
Agreement or any related transactions based upon any agreements, written or
oral, made by or on behalf of Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
4.1 Organization. The Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Colorado, and has the requisite corporate power and authority to carry on its
business as it is now being conducted.
4.2 Authority. This Agreement has been duly and validly executed and
delivered by the Seller and constitutes a valid and binding agreement of the
Seller enforceable in accordance with its terms. The Seller has all requisite
corporate power and authority to enter into this Agreement and to carry out
the Transaction contemplated hereby.
4.3 Absence of Breach. The execution, delivery, and performance of
this Agreement, and the performance by the Seller of its obligations
hereunder, do not (i) conflict with or result in a breach of any of the
provisions of the Articles of Incorporation or Bylaws of the Seller; (ii)
contravene any federal or state law, ordinance, rule or regulation, or
contravene any order, writ, judgment, injunction, decree, determination, or
award of any court or other authority having jurisdiction; (iii) conflict with
or result in a material breach or default under any material indenture or loan
or credit agreement or any other material agreement or instrument to which the
Seller is a party; or (iv) require the authorization, consent, approval or
license of any third party.
4.4 Brokers. No broker, finder, or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with this
Agreement or any related transaction based upon any agreements, written or
oral, made by or on behalf of Seller.
4.5 Title. Seller has good and marketable title to the Acquired
Assets.
ARTICLE V
COVENANTS OF THE BUYER
5.1 Affirmative Covenants. From the date hereof through the Closing
Date, the Buyer will take every action reasonably required of it to ensure the
prompt and expedient consummation of the transaction described herein. The
Buyer shall cooperate with the Seller and its counsel,
accountants and agents in every way in carrying out the Transaction
contemplated herein, and in delivering all documents and instruments deemed
reasonably necessary or useful by Seller or its counsel.
5.2 Expenses. Whether or not the Closing occurs, all costs and
expenses incurred by the Buyer in connection with this Agreement and the
Transaction contemplated hereby shall be paid by the Buyer.
5.3 Publicity. Prior to the Closing any written news releases by the
Buyer pertaining to this Agreement shall be submitted to the Seller for review
and approval prior to release by the Buyer, and shall be released only in a
form approved by the Seller.
ARTICLE VI
COVENANTS OF THE SELLER
6.1 Affirmative Covenants. From the date hereof through the Closing
Date, the Seller will take every action reasonably required of it to ensure
the prompt and expedient consummation of the Transaction described herein.
The Seller shall afford to the Buyer and to the Buyer's representative
reasonable access during normal business hours throughout the period prior to
the Closing and one year after to all its books and records and personnel
relating to the Acquired Assets for the last five years. The Seller will
cooperate with the Buyer and its counsel,
accountant, and agents in delivering all documents and instruments reasonably
necessary or useful to the Buyer.
6.2 Expenses. Whether or not the Closing occurs, all costs and
expenses incurred by the Seller in connection with this Agreement shall be
paid by the Seller.
ARTICLE VII
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated at any time prior
to Closing by mutual consent of the Buyer and the Seller.
7.2 Amendment. This Agreement may be amended at any time by the
Buyer and the Seller only in an instrument in writing signed on behalf of each
party hereto.
7.3 Waiver. At any time prior to the Closing, the Buyer or the
Seller may (i) extend the time for the performance of any of the obligations
or other acts of the other party hereto; (ii) waive any inaccuracies in the
representations and warranties contained herein; or (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
7.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
certified or registered mail to the other party at the address first written
above, or at such other address as shall be specified from time to time.
7.5 Interpretation. The headings contained in the Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.6 Survival of Representation and Warranties. The representations,
warranties, covenants, and agreements of the parties contained herein shall
survive the Closing and any investigation of the other party made prior
thereto.
7.7 DeMinimis Claims. Neither party shall bring any action against
the other with respect to the subject matter hereof unless the aggregate
amount of all claims so brought exceeds $25,000, provided, however, that the
foregoing shall not prevent or preclude actions seeking injunctive or other
equitable forms of relief.
7.8 Entire Agreement. This Agreement (i) constitutes the entire
Agreement and supersedes all other prior agreements and understandings, both
written and oral, between the parties, with respect to the subject matter
hereof; (ii) is not intended to confer upon any other person any rights or
remedies hereunder; (iii) shall not be assigned by operation of law or
otherwise, and (iv) governed in all respects, including validity,
interpretation and effect, by the internal laws of the State of Colorado,
without regard to the principles of conflict of laws thereof. This Agreement
may be executed in two or more counterparts which together shall constitute a
single agreement.
SELLER: National Care Resources, Inc. - Colorado
BY: --------------------------------
John P. Yeros
Title ________________________________
President
BUYER: Life Source Services, Inc.
BY: _______________________________
David Sebbag
TITLE: _______________________________
President
Denver Branch - Home Care
Inventory
4 CPUs and Monitors
1 Printer
1 Typewriter
1 Printer stand
1 Small table
1 6-foot folding table
1 Credenza
4 Desks with returns
8 Swivel chairs
1 4 shelf bookcase
1 3 shelf bookcase
1 2 shelf bookcase
5 4 drawer lateral file cabinets
1 2 drawer lateral file cabinet
1 4 drawer metal file cabinet
3 2 drawer metal file cabinets
1 Medical record storage cabinet
1 Medical supply storage cabinet
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------
ELLIS HOME CARE SERVICES, INC.
Plaintiff,
97 Civ, 2746 (HB)
STIPULATION OF
- -against- SETTLEMENT
----------
INTERNATIONAL NURSING SERVICES, INC.
Defendant.
It is hereby stipulated and agreed by and between Ellis Home Care Services,
Inc, ("Ellis") and International Nursing Services, Inc. ("INS"), and their
respective counsel as follows:
WHEREAS Ellis has asserted certain claims against INS in an action titled Care
----
Services, Inc, v. International Nursing Services, Inc., 97 Civ. 2746 (HB) (the
- ------------- ------------------------------------
"Action"), which is pending in this Court before the Hon, Harold Baer, United
States District Judge and INS has answered the complaint by denying the
allegations in the Action; and
WHEREAS Ellis has alleged claims against INS in the Action arising out of
nonpayment of certain sums due Ellis pursuant to the terms and conditions of a
registration rights and price support agreement dated as of April 17, 1996
(the "Registration Rights Agreement") between Ellis and INS; and
WHEREAS INS and Ellis desire to avoid the expense of further litigation and to
resolve fully and forever all claims and disputes between them, including
without limitation, all of the claims in the Action and under the Registration
Rights Agreement;
IT HEREBY IS STIPULATED AND AGREED THAT:
INS shall pay to Ellis, pursuant to the schedule contained in Paragraph 2 of
this Stipulation (the "Payment Schedule"), the total sum of Four Hundred
Thirty One Thousand Seven Hundred Five Dollars ($431,705) with interest at the
rate of nine (9%) percent per annum from April 7, 1997 until the entire sum is
paid in full (the "Payment") and the additional sum of $3,692.30 without
interest at the time the first Payment is made. The Payment also includes the
remaining $10,000 of the legal fees and expenses of Ellis' counsel referred to
in paragraph 9 below.
2. Each of the Payments made shall be paid by check to the order of "Ellis
Home Care Services, Inc. and received by Ellis c/o AIMS Travel Services, Inc.,
170 Great Neck Road, Suite 130, Great Neck, New York 11021 by Federal Express
using Ellis's account number (1824148-32) so that Ellis receives each Payment
in the amount and by the date set forth in the following schedule:
$19,722 August 1, 1997
$60,000.00 August 21, 1997
$19,722.00 The first day of each calendar month for nineteen (19)
consecutive months beginning September 1, 1997 with the
last payment due on March 1, 1999.
<PAGE>
3. (a) Simultaneously with the execution of this Stipulation, INS shall
execute an affidavit of confession of judgment (the "Judgment Affidavit") in
the form attached hereto as Exhibit A, and deliver the Judgment Affidavit to
Sol V. Slotnik, P.C. who will hold the Judgment Affidavit in escrow and
release it as follows:
(1) to Ellis if INS defaults in the Payment Schedule and the default
is not cured as provided in this paragraph 3;
(2) to Ellis if INS defaults in the obligation described in paragraph
5 of this Stipulation;
(3) to INS upon completion of the Payment.
(b) Ellis shall be entitled to enter a judgment against INS and
have execution therefor (the "Judgment") pursuant to the terms of this
paragraph or paragraph 5, as the case may be, and as provided in the Judgment
Affidavit in the event that INS fails to make the Payment, or any part
thereof, to Ellis in accordance with the Payment Schedule. Ellis agrees that
as a condition precedent to entering a judgment:
(1) INS shall have seven (7) calendar days within which to cure
the failure to make the Payment in accordance with the Payment Schedule; and
(2) in the event Ellis does not receive the Payment by the
eighth day of each calendar month set forth in the Payment Schedule (the "INS
Default"), Ellis shall notify Health Partners, L.P. of the INS Default in
writing by telefax (202-
Attn: Ed Nordberg, Esq. with a copy to INS by telefax (303) 393-1579
Attn: John P. Yeros. If Ellis does not receive the Payment from Health
Partners or INS on or before the fifteenth day of each calendar month as set
forth in the Payment Schedule, then Ellis shall have the right without further
notice to INS to docket the Judgment Affidavit with the Clerk of the United
States District Court for the Southern District of New York or with the Clerk
of the Court in New York Supreme Court, New York County and have execution
therefor. The Clerk of this Court is directed to enter judgment in favor of
Ellis against INS upon presentation to the Clerk of the Judgment Affidavit and
an affidavit from an officer of Ellis or its counsel describing the default by
INS hereunder.
4. Simultaneously with the execution of this Stipulation and upon its
being signed by the Court:
(a) INS and Ellis shall exchange general releases in the forms
annexed hereto as Exhibit B-1 and B-2 provided, however, that there is
specifically excluded therefrom the obligations of the parties under this
Stipulation of Settlement and, in the case of Ellis, its rights and the
obligations of INS and its affiliates under a Security Agreement dated as of
April 17, 1996 by and among INS, Ellis and JJ Care Resources, Inc. and the
Form UCC-1 Financing Statements filed in connection therewith;
(b) counsel for INS and Ellis shall execute a stipulation of
dismissal with prejudice of the Action without costs and attorneys' fees
(except as herein provided) in the form annexed hereto as Exhibit C,
<PAGE>
5. INS has announced its intention to sell certain parts of its New York
business operations to New York Healthcare, Inc. ("NYH") for a purchase price
of approximately $3,000,000 (the "NYE Transaction"). INS agrees that in the
event the NYH Transaction closes while a portion of the Payment remains
outstanding, INS shall pay the balance of the Payment to Ellis from the
proceeds of the NYH Transaction at the time of the closing, If INS does not
make such payment within seven (7) days after the closing of the NYH
Transaction, then Ellis shall have the right without further notice to INS to
docket the Judgment Affidavit in the manner described in paragraph 3(b) of
this Stipulation. INS shall give NYH prior written notice of its obligations
to pay Ellis at the closing of the NYH Transaction at the time the contract of
sale is signed, and INS shall give Ellis three (3) business days prior written
notice of the closing of the NYH Transaction.
6. The parties agree that nothing contained in this Stipulation or any of
the exhibits hereto is or shall be deemed an admission of liability by any
party or an admission of any facts upon which liability could be based.
7. This Agreement may not be clarified, modified, changed or amended
except in a writing signed by each of the parties hereto,
8. INS shall also be responsible for reasonable fees and costs and
expenses of Ellis' counsel which is an amount equal to $13,692,30. INS has
reviewed the statements submitted by Ellis' counsel and has agreed that they
are reasonable in amount and has stipulated that the sum of $10,000 shall be
included in the Payment as described in paragraph 1 here the balance of
$3,692.30 shall be paid as part of the first Payment on August 1, 1997.
9. (a) Ellis represents that it knows and understands and has
discussed all aspects of this Stipulation with its attorneys(s), that it has
carefully read and fully understands all of the provisions of this
Stipulation, and that it is voluntarily entering into this Stipulation. Ellis
agrees that this Stipulation shall be construed as if the parties jointly
prepared this Stipulation.
(b) INS represents that it has discussed all aspects of this
Stipulation with its attorneys, that it has carefully read and fully
understands all of the provisions of this Stipulation, and that it is
voluntarily entering into this Stipulation. INS agrees that this Stipulation
shall be construed as if the parties jointly prepared this Stipulation.
10. The parties represent and warrant that, as of the date of the
execution of this Stipulation, each has the sole right and authority to
execute this Stipulation on its behalf, and that each has not sold, assigned,
transferred, conveyed, or otherwise disposed of any claim or demand relating
to any rights surrendered by virtue of this Stipulation.
11. The provisions of this Stipulation are severable, and if any part of
it is found to be unenforceable, the other paragraphs shall remain fully valid
and enforceable. This Stipulation shall survive the termination of any
arrangements contained herein.
<PAGE>
12. This Stipulation sets forth the entire Stipulation between Ellis and
INS and fully supersedes any and all prior stipulations, promises,
representations or inducements, no matter its or their form, concerning its
subject matter, No promises or stipulations made subsequent to the execution
of this Stipulation by these parties shall be binding unless reduced to
writing and signed by authorized representatives of these parties.
13. All questions with respect to the construction and performance of this
Stipulation and the rights and liabilities of the parties hereto shall be
determined in accordance with the laws of the State of New York without
reference to principles of conflict of laws thereunder. The parties hereto
submit to the exclusive jurisdiction of the United States District Court for
the Southern District of New York or the Supreme Court of the State of New
York, New York County in respect of any matter or things arising out of
relating to or in connection with this Stipulation or the collection of the
Payment. Each party hereto knowingly waives any right to assert objections
based upon lack of personal jurisdiction, forum non conveniens or improper
venue.
14. INS and Ellis hereby intentionally waive trial by jury in any court
with respect to or in connection with any claim arising out of this
Stipulation, the validity or enforcement thereof, or the collection of the
Payment. INS agrees that if Ellis commences any legal proceeding or action to
enforce its right under this Stipulation, then Ellis shall be entitled to
receive its reasonable attorneys fees and costs and disbursements of any such
proceeding or action as part of any judgment or settlement made in its favor.
INS consents to service of the summons and complaint and any other process
which may be served in any such action or proceeding by the mailing of a copy
of such process, certified mail, return receipt requested, to INS at 360 S.
Garfield Street, Denver, Colorado 80202.
IN WITNESS WHEREOF, each of the parties hereto has knowingly and voluntarily
executed this Stipulation or has caused its duly authorized officer to execute
this Stipulation.
Dated: August _, 1997
New York, New York
International Nursing Services, Inc.
By:
John P. Yeros, President
Ellis Home Care Services, Inc.
By:
Jerald Posman, President
Sol V, Slotnik, P.C.
Counsel for Plaintiff
By:
Sol V. Slotnik (0909)
<PAGE>
LeBoeuf Lamb Greene & Macrae, LLP
Counsel for Defendants
By:
SO ORDERED:
U.S. D. J.
<PAGE>
GENERAL RELEASE
---------------
International Nursing Services, Inc., its affiliates, subsidiaries and predece
or and successors in interest including JJ Care Resources, Inc. and National
Nursing Care-New York, Inc. (together the "Releasors"), in consideration of
the covenants and agreements contained in the Stipulation of Settlement dated
as of August 1, 1997 between International Nursing Services, Inc. and Ellis
Home Care Services, Inc. and the receipt of Ten Dollars ($10.00) and other
good and valuable consideration, receipt of which is hereby acknowledged,
hereby releases and discharges Ellis Home Care Services, Inc., its affiliates
and their respective present and former shareholders, directors, affiliates,
agents, employees, officers, consultants, successors, heirs, administrators,
executors and assigns (collectively, the "Releasees") from all actions, causes
of action, suits, debts, dues, sums of money, accounts, reckonings, bonds,
bills, specialties, controversies, variances, trespasses, damages, judgments,
executions, claims and demands whatsoever in law, admiralty or equity, which
the Releasors now have, ever had or hereafter can, shall or may have against
the Releasees for, upon or by reason of any matter, cause or thing from the
beginning of the world to the date of this Release, except that it is
expressly understood that the Releasors do not release the Releasees with
respect to the Releasees' obligations under the Stipulation of Settlement
dated as of August 1, 1997.
IN WITNESS WHEREOF, Releasors have caused this Release to be executed by its
duly authorized officer this day of July 1997,
INTERNATIONAL NURSING SERVICES, INC.
By:
John P. Yeros, President
JJ CARE RESOURCES, INC.
By:
John P. Yeros, President
National Nursing Care-New York, Inc.
By:
John P. Yeros, President
STATE OF COLORADO
ss:
COUNTY OF ________
On July _, 1997 before me personally came John P, Yeros to me known, who, by
me duly sworn did depose and say that deponent is the President of each of
INTERNATIONAL NURSING SERVICES, INC., JJ CARE REsoURCES, INC. and NATIONAL
CARE RF,SOURCES-NEW YORK, INC. the corporations described in, and which
executed the foregoing Release; and that deponent is duly authorized to
execute the foregoing Release on behalf of and for each of the aforesaid
corporations.
Notary Public
<PAGE>
GENERAL RELEASE
---------------
Ellis Home Care Services, Inc., its affiliates and subsidiaries, and its
shareholders, directors, officers, agents, consultants and employees (together
the "Releasors"), in consideration of the covenants and agreements contained
in the Stipulation of Settlement dated as of August 1, 1997 between
International Nursing Services, Inc. ("INS") and Ellis Home Care Services,
Inc. and the exhibits thereto (together the "Stipulation") and other good and
valuable consideration, receipt of which is hereby acknowledged, hereby
releases and discharges each of INS, its affiliates, subsidiaries and
predecessors and successors in interest and their respective shareholders,
directors, officers, agents, consultants and employees (collectively, the
"Releasees") from all actions, causes of action, suits, debts, dues, sums of
money, accounts, reckonings, bonds, bills, specialties, controversies,
variances, trespasses, damages, judgments, executions, claims and demands
whatsoever in law, admiralty or equity, which the Releasors now have, ever had
or hereafter can, shall or may have against the Releasees for, upon or by
reason of any matter, cause or thing from the beginning of the world to the
date of this Release, except (i) that it is expressly understood that the
Releasors do not release the Releasees with respect to the Releasees'
obligations under (i) the Stipulation of Settlement dated as of August 1, 1997
or (ii) the Collateral Security Agreement dated as of April 17, 1997 by and
among INS, Ellis and JJ Care Resources, Inc., the security interests granted
in favor Ellis hereunder and the Form UCC-1 Financing Statements filed in
connection therewith.
IN WITNESS WHEREOF, Releasors have caused this Release to be executed by its
duly authorized officer this day of July 1997.
ELLIS HOME CARE SERVICES, INC.
By:
Jerald Posman, President
STATE OF NEW YORK )
Ss:
COUNTY OF NEW YORK )
On July _, 1997 before me personally came Jerald Posman to me known, who, by
me duly sworn did depose and say that deponent is the President of Ellis Home
Care Services, Inc., the corporation described in, and which executed the
foregoing Release; and that deponent is duly authorized to execute the
foregoing Release on behalf of and for the corporation.
Notary Public
<PAGE>
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------
ELLIS HOME CARE SERVICES, INC.
Plaintiff,
- -against-
INTERNATIONAL NURSING SERVICES, INC. AFFIDAVIT OF
CONFESSION OF JUDGMENT
Defendant.
STATE OF COLORADO
Ss:
COUNTY OF DENVER
John P. Yeros, being duly sworn, deposes and says:
1. I am the President of International Nursing Services, Inc. ("INS"), a
Colorado corporation, and the defendant in the above entitled action. I am
authorized to sign this affidavit of confession of judgment on behalf of INS.
INS does not maintain a place of business in New York State and authorizes the
entry of judgment in the County of New York, State of New York,
2. INS hereby confesses judgment herein and authorizes entry of judgment
against INS in the County of New York in the State of New York for the sum and
upon the terms and conditions set forth in paragraph 3 immediately below.
3. Upon submission to this Court of an affidavit by Mr. Jerald Posman,
President of Ellis Home Care Services, Inc. ("Ellis") or its counsel, Sol V.
Slotnik, P,C, as to the amount outstanding and the existence of a default
under the stipulation of settlement agreement described below, INS hereby
confesses judgment in this Court in favor of Ellis for the sum of Four Hundred
Thirty One Thousand Seven Hundred Five Dollars ($431,705), together with
interest thereon on the unpaid balance at the rate of nine (9%) percent per
annum from April 7, 1997, less the amount (as sworn to by the person whose
affidavit is submitted) of the payments, if any, that have been paid by INS to
Ellis under the terms of a certain stipulation of settlement agreement dated
as of August 1, 1997 between INS and Ellis (a true and correct copy of which
is attached hereto as Exhibit A) and hereby authorizes Ellis or its
successors, administrators or assignees to enter judgment in the United States
District Court for the Southern District of New York or in Supreme Court of
the State of New York in New York County, New York for that sum against INS
together with the reasonable attorneys fees, costs and disbursements of Ellis
in entering this confession of judgment.
<PAGE>
4. INS states that this confession of judgment is for a debt justly due to
Ellis arising out of a registration rights and price support agreement dated
as of April 17, 1997 between INS and Ellis,
5. This confession of judgment is not for the purpose of securing Ellis
against a contingent liability.
International Nursing Services, Inc.
By:
John P. Yeros, President
STATE OF COLORADO
Ss:
COUNTY OF
On July _, 1997 before me personally came John P. Yeros to me known, who, by
me duly sworn did depose and say that deponent is the President Of
INTERNATIONAL NURSING SERVICFS, INC., the corporation described in, and which
executed the foregoing Confession of Judgment; and that deponent is duly
authorized to execute the foregoing Confession of Judgment on behalf of and
for the corporation.
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,032,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,373,000
<PP&E> 384,000
<DEPRECIATION> 11,524,000
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 6,645,000
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> 4,858,000
<TOTAL-LIABILITY-AND-EQUITY> 11,524,000
<SALES> 19,762,000
<TOTAL-REVENUES> 19,762,000
<CGS> 0
<TOTAL-COSTS> 15,093,000
<OTHER-EXPENSES> 4,016,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 699,000
<INCOME-PRETAX> (46,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,000)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ELLIS HOME CARE SERVICES, INC.
Plaintiff,
Against:
INTERNATIONAL NURSING SERVICES, INC.
Defendant JUDGMENT
--------
Plaintiff Ellis Home Care Services, Inc. ("Ellis"), by its attorneys,
having
moved for entry of judgment against defendant International Nursing Services,
Inc. ("INS") in
the amount of $391,731.20 plus interest and costs pursuant to a stipulation of
settlement dated
August 1, 1997 between Ellis and INS and an affidavit of confession of
judgment of INS dated
August 7, 1997.
NOW, upon considering plaintiff's motion for entry of judgment and all
the
papers submitted in support thereof and the Court having signed the
stipulation of settlement
by endorsing it on September 1, 1997 directing the Clerk of the Court to enter
final judgment
as to defendant International Nursing Services, Inc. in the amount of the
confession of
judgment upon an event of default under the Stipulation and the event of
default having
occurred as provided in the affidavit of Sol V. Slotnik sworn to September 25,
1997 it is
hereby
ORDERED, ADJUDGED and DECREED: THAT JUDGMENT BE ENTERED for
plaintiff Ellis Home Care Services, Inc. against defendant International
Nursing Services, Inc.
in the amount of $388,568.70 together with interest thereon at the rate of
nine (9%) percent
per annum from the date this judgment is to be presented to the Clerk of the
Court, and
$3,162.50 for reasonable attorney's fees and costs for a total of $391,731.20
and that plaintiff
Ellis Home Care Services, Inc. have execution therefor.
Dated: New York, New York
September 25, 1997
Clerk of the Court
