1
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 MARCH 30, 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 May 15, 1997.
Common Stock, $0.001 par value 7,636,200
Class Number of Shares
INTERNATIONAL NURSING SERVICES, INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -- March 30, 1997 (Unaudited) and
December 29, 1996 3
Unaudited Consolidated Statements of Operations -- For the
Three Months Ended March 30, 1997 and March 31, 1996 4
Unaudited Consolidated Statements of Cash Flows -- For the
Three Months Ended March 30, 1997 and March 31, 1996 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. Other Information 11
SIGNATURES 13
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 30, December 29,
1997 1996
<S> <C> <C>
Current assets
Accounts receivable, net $5,884,000 $4,458,000
Other current assets 210,000 19,000
Total current assets 6,094,000 4,477,000
Property and equipment, net 423,000 355,000
Other assets
Intangible assets, net 6,074,000 4,080,000
Total assets $12,591,000 $8,912,000
Current liabilities
Checks written in excess of book
balance $ 253,000 $ 65,000
Accounts payable 1,389,000 617,000
Accrued expenses 1,226,000 1,620,000
Current portion of debt 944,000 145,000
Current portion of capital lease
obligation 52,000 50,000
Advances under financing agreement 3,816,000 3,318,000
Total current liabilities 7,680,000 5,815,000
Long-term debt
Long-term portion of capital lease 37,000 50,000
Stockholders' equity
Preferred stock, 10% cumulative convertible,
$10,000 par value, 488 shares authorized,
155 and 52 issued and outstanding at
December 29, 1996 and March 30, 197,
respectively, liquidation preference
$20,000 per share 199,000 1,234,000
Preferred stock, 0% cumulative convertible,
$10,000 par value, 300 shares authorized,
167.15 issued and outstanding at March 30,
1997, liquidation preference $10,000 per
share 1,671,000 -
Common stock, $.001 par value; 25,000,000
shares authorized, 5,688,292 and 7,382,232
issued and outstanding at December 29, 1996
and March 30, 1997, respectively 7,000 6,000
Dividends payable with common stock 37,000 66,000
Additional paid-in-capital 10,224,000 8,965,000
Accumulated deficit (7,264,000) (7,224,000)
Total stockholders' equity 4,874,000 3,047,000
Total liabilities and stockholders'
equity 12,591,000 8,912,000
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these consolidated
statements
INTERNATIONAL NURSING SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended March 30,
1997 and March 31, 1996
1997 1996
<S> <C> <C>
Net revenues $6,663,000 $3,364,000
Direct costs of services 5,125,000 2,445,000
Gross Margin 1,538,000 919,000
Selling, general and
administrative expenses 1,406,000 726,000
Net income from
operations 132,000 193,000
Interest expense, net 172,000 127,000
Net income (loss) $ (40,000) $ 66,000
Net income (loss) per
common share (Note 7) $ (.09) $ .10
Weighted average shares 7,102,640 4,922,319
outstanding
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
INTERNATIONAL NURSING SERVICES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION
For the Three Months Ended March 30,
1997 and March 31, 1996
1997 1996
<S> <C> <C>
Cash flows from (used in) operating activities
Net income (loss) $(40,000) $ 66,000
Adjustments to reconcile net income (loss) to
net cash flows from (used in) operating
activities
Depreciation and amortization 157,000 77,000
Net changes in current assets and current
liabilities (1,051,000) (81,000)
Net cash flows from (used in) operating
activities (934,000) 62,000
Cash flows used in investing activities
Purchase of property and equipment (103,000) (25,000)
Business acquisition costs (2,116,000) (54,000)
Net cash flows used in investing
activities (2,219,000) (79,000)
Cash flows from (used in) financing activities
Advances, net 498,000 (11,000)
Payments on capital leases and debt (100,000) (90,000)
Proceeds from convertible debt 1,000,000 -
Net proceeds from exercise of unit option 200,000 -
Net proceeds from issuance of preferred stock 1,555,000 -
Net proceeds from issuance of common stock - 99,000
Net cash flows from (used in)
financing activities 3,153,000 (2,000)
Net (decrease) increase in cash and
cash equivalents - (19,000)
Cash and cash equivalents, at beginning
of period - 19,000
Cash and cash equivalents, at end of period - -
</TABLE>
Non-cash investing and financing activities:
Issuance of 1,436,916 shares of common stock upon conversion of
convertible preferred.
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 denture and
as an increase to additional
paid-in capital.
The Company also recorded additional imputed interest expense of
approximately $22,000 related
to the convertible debenture.
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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 three months ended
March 30, 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.
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 $99,540
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.
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 May 3, 1997, 192 units (with accrued dividends) have been
converted to 2,359,715 shares of common stock. Also in 1997, a Unit
Holder who held 20 Units exercised their 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 cancelled 224 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 20 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. If the note is not paid off by May 28, 1997, the unpaid
principal of the note becomes 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 quarter
ended March 30, 1997, the Company recorded additional interest expense
of approximately $22,000 which related to amortization of the imputed
discount. The Company amortizes the imputed discount over the
expected term of the related debt.
5. STOCK OPTIONS
In addition, the Company cancelled 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 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.
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 will pay $166,122 in
installments between February 15, 1997 and July 15, 1997 in
exchange for a release of all claims.
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 as
described above, in particular that the Company pay EHCSI $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.
The Company has retained counsel to represent it in this
proceeding.
7. LOSS PER SHARE
In accordance with the SEC's position on 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 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
merely 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
March 30,1997 March 31, 1996
<S> <C> <C>
Net income (loss) $ (40,000) $ 66,000
Preferred stock dividends - stated rate (19,000) -
Preferred stock dividends - imputed
discount (553,000) -
Preferred stock dividends - recaptured - 441,000
Net income (loss) applicable to
common stockholders $ (612,000) $ 507,000
Net income (loss) per common share $ (.09) $ .10
Weighted average shares outstanding 7,102,640 4,922,319
</TABLE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of three months ended March 30, 1997 and March 31, 1996
The Company generated approximately $6,663,000 in revenues
from operations for the quarter ended March 30, 1997, compared to
approximately $3,364,000 in revenue for the first quarter of 1996.
The increase in sales for the quarter is due to the acquisitions of
Ellis Health Services, Inc., STAT Health Care Services, Inc. and
TherAmerica. These acquisitions provided revenues of approximately
$564,000, $1,205,000 and $2,224,000, respectively. These increased
revenues were offset by losses in Texas and Colorado resulting from
increased competition and administrative personnel departures.
The Company's gross margin percentage decreased from 27% for
the quarter ended March 31, 1996 to 23% for the quarter ended March
30, 1997. The decrease is due to gross margin erosion in Texas due
to increased competition and the fact that the Company reflected
the benefit of approximately $40,000 in workers compensation
adjustments from 1995 in the first quarter of 1996 due to payroll
being less than anticipated.
Selling, general and administrative expenses increased for the
quarter ended March 30, 1997 by approximately $680,000 or 94% as
compared to the quarter ended March 31, 1996. The increase is
approximately proportional to the increase in revenues of
approximately 98%.
Net income (loss) was reduced from $66,000 net income in the
quarter ended March 31, 1996 to a net loss of $40,000 in the
quarter ended March 30, 1997. The loss for the quarter is
attributable to factors discussed above.
The Company has 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 $68,000 in revenues in the first 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 intends to monitor 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.
Liquidity and Capital Resources
The Company's current liabilities at March 30, 1997 aggregated
approximately $7,680,000 and current assets at March 30, 1997
aggregated approximately $6,094,000.
In order for the Company to meet its current obligations,
management anticipates the need to raise additional debt or equity
capital. 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 to meet those obligations.
The Company currently utilizes an accounts receivable
financing arrangement whereby approximately 85% of its billings are
advanced to the Company on a weekly basis. The financing company
then collects the accounts receivable on behalf of the Company and
charges back to the Company any receivables which exceed 120 days
outstanding. The Company is in discussion with the financing
company and several other financial institutions to replace the
current arrangement with an asset-based line of credit. Any new
funds generated by the refinancing will be used to pay a portion of
the $1,000,000 convertible loan due on May 28, 1997 and the
remainder, if any, will be used for working capital purposes.
There can be no assurance given that the Company will be successful
in obtaining a new lending arrangement on improved terms which are
satisfactory to the Company.
The Company's ability to repay the convertible loan which is
due on May 28, 1997, to continue paying on other outstanding
obligations and to pursue further acquisitions is dependent upon
the raising of additional debt or equity capital. There can be no
assurance given that the Company will be successful in raising debt
or equity capital on terms which are satisfactory to the Company.
If the Company is unable to pay off all or part of the $1,000,000
convertible loan, the note holder then has the option of converting
the unpaid principal into common stock of the Company at the rate
of 65% of the common stock's prior five days closing price.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 assets of Ellis by the Company in 1996, in particular
that the Company pay EHCSI $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. The Company has retained counsel to represent it
in this proceeding.
Item 2. Changes in Securities
None.
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
Form 8-K filed February 14, 1997 relating to Item 2, Acquisition
of Assets - Purchase of TherAmerica
Form 8-K filed April 4, 1997 relating to the furnishing of
financial statements of TherAmerica and Exhibits.
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: May 19, 1997
INTERNATIONAL NURSING SERVICES, INC.
(Registrant)
/s/ John P. Yeros
John P. Yeros
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Robin M. Bradbury
Robin M. Bradbury
Chief Financial Officer
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-29-1996 DEC-29-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 5,884,000 5,884,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,094,000 6,094,000
<PP&E> 423,000 423,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 12,591,000 12,591,000
<CURRENT-LIABILITIES> 7,680,000 7,680,000
<BONDS> 0 0
0 0
1,870,000 1,870,000
<COMMON> 7,000 7,000
<OTHER-SE> 2,997,000 2,997,000
<TOTAL-LIABILITY-AND-EQUITY> 12,591,000 12,591,000
<SALES> 0 0
<TOTAL-REVENUES> 6,663,000 3,364,000
<CGS> 5,125,000 2,445,000
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,406,000 726,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 172,000 127,000
<INCOME-PRETAX> (40,000) 66,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (40,000) 66,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (40,000) 66,000
<EPS-PRIMARY> (0.09) .10
<EPS-DILUTED> 0 0
</TABLE>
