FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period fromto
Commission File Number 1-14150
------------------------------
THE COMPANY DOCTOR
- ---------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 72-1234136 (State or
- ------------------------- ----------------------------
other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5215 North O' Connor Blvd., Suite 1800, Irving, Texas 75039
- ----------------------------------------------------- ------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (972) 401-8300
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act, during the past 12 months and (2) has been
subject to the filing requirements for the past 90 days. Yes X No .
--
State the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date:
There were 4,906,949 shares of the Issuer's common stock, at par value of
----------
$.01 per share, outstanding as of December 31, 1997.
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
PART I
ITEM 1. FINANCIAL STATEMENTS
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
----------- -----------
<S> <C> <C>
Unaudited
ASSETS
Current assets
Cash and cash equivalents $ 151,512 $ 414,422
Short-term investments - 350,000
Accounts receivable
Trade, less allowance for
doubtful accounts of $210,000 2,058,119 1,920,719
Related parties 228,665 215,189
Other 17,321 16,932
Prepaid expenses 215,655 144,034
--------- ---------
Total current assets 2,671,272 3,061,296
--------- ---------
Property and equipment 2,642,653 2,549,493
Less accumulated depreciation
and amortization (1,143,368) (99,935)
--------- ---------
Net Property and equipment 1,499,285 1,609,558
--------- ---------
Other assets
Restricted cash 432,383 618,881
Restricted short-term investments 599,396 400,768
Intangibles, net 9,314,182 9,528,963
Other assets 438,687 386,300
Investments 2,053,921 1,900,114
---------- ----------
Total other assets 12,838,569 12,835,026
---------- ----------
Total assets $17,009,126 $17,505,880
========== ==========
LIABILITIES AND STOCKHOLDERS - EQUITY
Current liabilities
Notes payable $ 2,050,197 $ 2,049,744
Current maturities of capital lease
obligations 101,777 121,913
Accounts payable and accrued expenses 1,661,133 1,152,043
Claims payable 157,110 236,796
---------- ----------
Total current liabilities 3,970,217 3,560,496
Long-term liabilities
Claims payable 1,042,673 1,065,962
Capital lease obligations, net of
current maturities 140,906 182,209
Notes payable 1,375,000 1,375,000
---------- ----------
Total liabilities 6,528,796 6,183,667
---------- ----------
Stockholders' equity
Preferred stock, $.01 par value,
5,000,000 shares authorized Series A
convertible, no shares issued - -
Common stock, $.01 par value; 25,000,000
shares authorized; 4,906,949 shares
issued and outstanding 49,070 49,070
Additional paid-in-capital 13,807,152 13,807,152
Accumulated equity (3,375,892) (2,534,009)
---------- ----------
Total stockholders' equity 10,480,330 11,322,213
---------- ----------
Total liabilities and stockholders
equity $17,009,126 $17,505,880
========== ==========
</TABLE>
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
------------------------
1997 1996
---------- ---------
<S> <C> <C>
(Unaudited)
Revenues $5,610,299 $5,444,001
Cost of services provided 2,912,797 2,629,690
General and administrative expenses 3,084,496 2,750,640
Marketing expenses 166,801 114,927
Development and acquisition costs 58,500 222,482
--------- ---------
6,222,594 5,717,739
--------- ---------
Loss from operations (612,295) (273,738)
Other income (expense)
Interest expense (294,646) (179,075)
Interest income 99,359 174,197
Other expenses (34,301) -
--------- --------
Total other income (expenses) (229,588) (4,878)
--------- --------
Net loss before income taxes (841,883) (278,616)
Income tax benefit - 157,000
--------- ---------
Net loss $ (841,883) $ (121,616)
========= =========
Basic net loss per common share $ (.17) $ (.02)
========= =========
Weighted average common shares outstanding 4,906,949 5,031,509
========= =========
</TABLE>
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
December 31,
---------------------------
1997 1996
---------- ---------
<S> <C> <C>
(Unaudited)
Revenues $2,591,730 $2,655,003
Cost of services provided 1,442,380 1,413,042
General and administrative expenses 1,595,573 1,314,361
Marketing expenses 93,869 52,855
Development and acquisition costs 58,500 134,597
--------- ---------
3,190,322 2,914,855
--------- ---------
Loss from operations (598,592) (259,852)
Other income (expense)
Interest expense (149,351) (133,369)
Interest income 49,640 77,945
Other expenses (37,994) -
--------- ---------
Total other income (expenses) (137,705) (55,424)
--------- ---------
Net loss before income taxes (736,297) (315,276)
Income tax expense - (9,000)
--------- ---------
Net loss $ (736,297) $ (324,276)
=========== ===========
Basic net loss per common share $ (.15) $ (.06)
=========== ==========
Weighted average common shares outstanding 4,906,949 5,017,008
=========== ==========
</TABLE>
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities
Net loss $ (841,883) $ (121,616)
---------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 502,382 340,005
Deferred tax asset - (175,000)
Change in assets and liabilities
Accounts receivable (151,265) (242,544)
Prepaid expenses (71,621) (207,331)
Other assets (52,387) (4,971)
Accounts payable and accrued expenses 509,090 635,801
Claims payable (102,975) (281,209)
--------- ---------
633,224 64,751
--------- ---------
Net cash used in operating activities (208,659) (56,865)
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (93,160) (217,609)
Cash acquired from medical practices - 337,484
Change in restricted investments (198,628) -
Change in restricted cash-non-current 186,498 -
Proceeds from investments 196,193 (408,239)
Purchase of intangibles (84,168) (414,004)
-------- ---------
Net cash provided by (used in)
investing activities 6,735 (702,368)
-------- ---------
Cash flows from financing activities
Proceeds from line-of-credit and note payable 349,476 (669,163)
Proceeds from exercised warrants and stock options - 12,130
Payments on notes payable and due to sellers (349,023) (2,372,713)
Payments on equipment leases (61,439) (40,550)
-------- --------
Net cash used in financing activities (60,986) (3,070,296)
-------- ---------
Cash and cash equivalents decrease (262,910) (3,829,529)
Cash and cash equivalents at beginning of period 414,422 5,636,433
-------- ----------
Cash and cash equivalents at end of period $ 151,512 $ 1,806,904
========= ===========
</TABLE>
Supplemental disclosures of interest paid:
Interest paid on borrowings for the six months ended December 31, 1996
and December 31, 1997 was $39,348 and $169,943 respectively.
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued from previous page.
Supplemental disclosure of noncash investing and financing activities:
During the six months ended December 31, 1996, the Company acquired three
medical practices, and reported each on a Form 8-K. The purchase prices
combined were allocated as follows:
<TABLE>
<CAPTION>
Assets acquired
<S> <C>
Cash $ 337,484
Accounts receivable 704,362
Property and equipment 138,731
Prepaid expense and other 6,116
---------
1,186,693
Liabilities assumed
Accounts payable and accrued
expenses 247,716
Net assets acquired 938,977
Fair value of common stock
issued 3,282,066
Due to sellers - accounts
and notes payable - current 4,481,944
Due to sellers - notes payable
- long-term 305,556
---------
$7,130,589
===========
</TABLE>
Additionally, the Company acquired $164,605 of property and equipment under
capital lease.
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
- ---------------------------------------------
The summary of the Registrant's significant accounting policies are
incorporated by reference to the Company's annual report on Form 10-KSB of
June 30, 1997.
During the second quarter of fiscal 1998, the Company adopted the provisions
of Statement of Financial Accounting Standard No. 128, "Earnings Per Share"
(FAS 128). FAS 128 established new definitions for calculating and disclosing
basic and diluted earnings per share. In accordance with FAS 128, all prior
periods have been restated to conform to the new methodology. The restated
amounts did not differ materially from amounts previously reported. No
diluted earnings per share information is presented as all dilutive potential
common shares are antidilutive.
The accompanying unaudited condensed financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations, financial position and cash flows.
The results of the interim period are not necessarily indicative of the
results for the full year.
Reclassifications
- -----------------
Certain amounts in the December 31, 1996 consolidated financial statements
have been reclassified to conform with the December 31, 1997 presentation.
<PAGE>
- ------
THE COMPANY DOCTOR AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- -----------------------
Forward-Looking Statements
- ---------------------------
The foregoing and subsequent discussion 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, which are intended to
be covered by the safe harbors created thereby. These forward-looking
statements include the plans and objectives of management for future
operations, including plans and objectives relating to the possible further
capitalization of the insurance subsidiary, acquisitions of additional
complementary medical practices and establishing and managing new facilities.
The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. 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 that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this Form
10-QSB will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be
achieved.
Liquidity and Capital Resources
- ----------------------------------
As of December 31, 1997, the Company's principal sources of liquidity included
cash and cash equivalents of $151,512, and other current assets totaling
$2,519,760, resulting in total current assets of $2,671,272. Current
liabilities were $3,970,217 which resulting in negative working capital of
$1,298,945 and a current ratio of .67 to 1. The Company's other current
assets referred to above totaling the $2,519,760, consisted of accounts
receivable of $2,304,105 and prepaid expenses of $215,655. The Company also
had investments of $45,000 in "Investments", consisting of U.S. treasury notes
maturing in excess of one year from December 31, 1997 and therefore are
classified as long-term assets. These U.S. treasury notes could be sold and
converted to cash at any time, and would effectively increase current assets
to $2,716,272 and decrease the negative working capital to $1,253,945 and
increase the current ratio to .68 to 1. Regular monthly payments and
balloon payments made on April 15, 1997 have reduced the balance due on
Notes Payable to sellers from $3,536,670 due on December 31, 1996 to $266,401
due on December 31, 1997.
On December 17, 1997, a press release by the Company, stated that an agreement
had been signed whereby HealthSouth (NYSE) will be acquiring the Company.
Subsequent to December 31, 1997, the Company received approximately $250,000
from HealthSouth to meet a portion of current operating requirements.
Should the agreement with HealthSouth not be consummated, for any reason,
the Company's continued existence is dependent on obtaining other sources of
working capital for operations and to fund its current deficit. The Company
would also be required to continue to meet capitalization requirements for
RMAC, its wholly owned subsidiary insurance company.
Results of Operations
- -----------------------
REVENUE
Revenues are derived primarily from the management of physician practices
engaged in the diagnosis, treatment and management of work-related injuries
and illnesses and from other occupational health care services such as
employment-related physical examinations, drug and alcohol testing, functional
capacity testing and other related programs. The Company's business exhibits
some seasonality. From November through January, factors such as plant
closings, vacations and holidays result in fewer occupational injuries and
illnesses. Also, employers generally hire fewer employees in the calendar
year's fourth quarter, thus reducing the number of pre-hiring physical
examinations and drug and alcohol tests during this period. Patient visits
also decline in summer months due to plant closings, vacations and fewer
illnesses related to adverse weather. Accordingly, revenues and net income
during the Company's second and fourth fiscal quarters of each year (quarters
ended December and June), will tend to be somewhat lower than the remaining
quarters of the fiscal year.
Net revenues for the six months ended December 31, 1997 increased by $166,298
or 3.1% to $5,610,299 from the $5,444,001 revenue level achieved for the
same six month period ended December 31, 1996. The growth is attributable to
two factors: 1) the further development of the facilities managed by the
Company; and 2) the Company's ability to capture additional market share.
Cost of Services Provided
- ----------------------------
Cost of services provided for the six months ended December 31, 1997, was
$2,912,797, an increase of $283,107 or 10.8% as compared to $2,629,690 at
December 31, 1996. As a percentage of net revenues, cost of services provided
were 51.9%, an increase of 3.6% from 48.3% of the same six month period one
year ago. This increase is primarily due to increases in certain areas
including medical consumable supplies, pharmacy, and lab fees for drug screens
increasing $141,473 over the same period a year ago primarily resulting
from impaired relationships with lower cost vendors due to the Company's
working capital deficit. Also, salaries for physical therapy personnel
have increased $95,262 over the same period a year ago in an effort to meet
higher future demands for these services.
General and Administrative
- ----------------------------
General and administrative expenses for the six months ended December 31,
1997, were $3,084,496, an increase of $333,856, or 12.1%, over expenses of
$2,750,640 for the same period a year ago. As a percentage of revenues,
general and administrative expenses were 55.0%, an increase of 4.4% from 50.6%
for the same six month period a year ago. A significant portion of the
increase, or $162,376, was due to higher depreciation expense resulting from
additions to fixed assets and higher amortization costs resulting from
acquisition related goodwill and financing costs. Additionally, the Company
incurred $36,488 of salary and travel costs related to temporary management
of the Company while the President was incapacitated.
The Company has continued its cost-containment efforts in the management of
fixed and variable costs. Various expenses are largely fixed and certain of
these were negatively impacted by several factors. One of these contributing
factors is bank service charges which increased $33,447 or 212% from $15,746
for the six months ended December 31, 1996 to $49,193 for the six months
ended December 31, 1997. This increase is the result of the lock box
banking system required by the Company's new lender.
Another of these factors is expense for rent and repairs and maintenance.
These expenses increased $110,954 or 30.9% from $358,840 for the six months
ended December 31, 1996 to $469,794 for the six months ended December 31, 1997.
The financial statements for the six months ended December 31,1996 do
not reflect rent expense and repairs and maintenance expense for a full six
months for all clinics currently being managed as some of the clinics were
acquired during the six month period. One clinic expanded its space and two
clinics moved to new locations in 1997.
Marketing Expenses
- -------------------
Marketing expenses increased $51,874 or 45.2% from $114,927 for the six months
ended December 31, 1996 to $166,801 for the six months ended at December 31,
1997. This amount represents 2.1.% compared to 2.9% of revenues during the
respective periods. This expense is likely to continue to rise in future
periods as the Company expands in both its existing and new markets.
Development and Acquisition Costs
- ------------------------------------
The Company had $58,500 of development and acquisition costs in the six months
ended December 31, 1997, but had $222,482 of such costs in the six months
ended December 31, 1996. These costs equaled 1.0% and 4.1% of revenues for
the 1997 and 1996 periods, respectively, and were a result of the negotiations
with HealthSouth in 1997 and the Company's expansion activities in two major
areas in 1996: (1) pursuing and negotiating affiliations or acquisitions with
physicians who had established occupational medicine practices or patient
bases which could be served in an occupational medical setting; and (2)
development costs for the acquired insurance company subsidiary, RMAC.
Other Income or Expense
- --------------------------
Interest income for the six months ended December 31, 1997 was $99,359 or 1.8%
of revenue, as compared to $174,197 or 3.2% of revenue for the same six months
a year ago. Interest income was earned from funds invested from the proceeds
of the Company's initial public offering, and from the interest bearing
investments in the acquired insurance company subsidiary. The proceeds from
the Company's initial public offering were invested in U.S. Treasury Notes.
These investments were sold over the course of the calendar year 1997 in order
to meet cash flow needs. As of December 31, 1997, all but $45,000 of these
U.S. Treasury Notes had been utilized in meeting operating cash flow needs.
<PAGE>
Interest expense increased $115,571 or 64.54% in the six months ended December
31, 1997 to $294,646 from $179,075 for the six months ended December 31, 1996
primarily due to a term loan and a revolving line of credit which the Company
obtained on April 15, 1997. The major portion of the other interest expense
was related to capital leases and to existing debt at December 31, 1996
incurred in connection with the acquisition of five clinic practices
during that six month period.
Net Income
- -----------
As a result of the factors described above, the Company recorded a net loss of
$841,883 ($.17 per share) before income taxes for the six months ended December
31, 1997, or 15.0% of revenues, as compared to a net loss before income taxes
of $278,616 ($.02 per share), or 5.1% of revenues, for the six months ended
December 31, 1996. At June 30, 1997, the Company had approximately $2.449
million (including $1.3 million for the year ended June 30, 1997) of net
operating loss carryforwards (for income tax reporting purposes) which expire
in the year 2008 through 2012. However, the use of net operating loss
carryforward may be limited or reduced due to the change in ownership as a
result of the February 1996 public offering, and, accordingly, the Company may
be able to utilize only a portion of its net operating loss carryforwards.
The impairment of the tax benefit as a result of the net operating loss
carryforwards was reduced from $333,000 in the six months ended December 31,
1996 due to the addition of medical practices in that quarter, and the
historical profitability of such practices, resulting in a net $157,000
deferred tax benefit on the income statement. This same item had no effect on
the income statement for the six months ended December 31, 1997.
<PAGE>
PART II
Item 1. Legal proceedings - none
Item 2. Changes in securities and Use of Proceeds - 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
27 Financial Data Schedule
(b) Forms 8-K None
<PAGE>
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.
THE COMPANY DOCTOR
(Registrant)
Date: FEBRUARY 16, 1998 By: /s/ Fred G. Parrish
-------------------
Fred G. Parrish
V.P., Chief Operating Officer,
Chief Financial Officer
Date: FEBRUARY 16, 1998 By: /s/ Dale W. Willetts
-------------------
Dale W. Willetts
Acting Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 151,512 151,512
<SECURITIES> 0 0
<RECEIVABLES> 2,514,105 2,514,105
<ALLOWANCES> 210,000 210,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,671,272 2,671,272
<PP&E> 2,642,653 2,642,653
<DEPRECIATION> 1,143,368 1,143,368
<TOTAL-ASSETS> 17,009,126 17,009,126
<CURRENT-LIABILITIES> 3,970,217 3,970,217
<BONDS> 0 0
0 0
0 0
<COMMON> 13,856,222 13,856,222
<OTHER-SE> (3,375,892) (3,375,892)
<TOTAL-LIABILITY-AND-EQUITY> 17,009,126 17,009,126
<SALES> 2,591,730 5,610,299
<TOTAL-REVENUES> 2,591,730 5,610,299
<CGS> 1,442,380 2,912,797
<TOTAL-COSTS> 3,190,322 6,222,594
<OTHER-EXPENSES> (11,646) (65,058)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 149,351 294,646
<INCOME-PRETAX> (736,297) (841,883)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (736,297) (841,883)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (736,297) (841,883)
<EPS-PRIMARY> (.15) (.17)
<EPS-DILUTED> 0 0
</TABLE>
