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 March 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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 March 31, 1998.
THE COMPANY DOCTOR AND SUBSIDIARIES
PART I
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------- -------------
Unaudited
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 518,913 $ 414,422
Short-term investments - 350,000
Accounts receivable
Trade, less allowance for doubtful
accounts of $210,000 2,254,051 1,920,719
Related parties 307,861 215,189
Other 15,213 16,932
Prepaid expenses 125,998 144,034
----------- ----------
Total current assets 3,222,036 3,061,296
----------- -----------
Property and equipment 2,645,539 2,549,493
Less accumulated depreciation
and amortization (1,243,079) (939,935)
----------- ----------
Net property and equipment 1,402,460 1,609,558
----------- ----------
Other assets
Restricted cash 893,582 618,881
Restricted short-term investments 1,148,524 400,768
Intangibles, net 9,193,243 9,528,963
Other assets 333,324 386,300
Investments 956,171 1,900,114
----------- ---------
Total other assets 12,524,844 12,835,026
----------- ---------
Total assets $17,149,340 $17,505,880
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 2,742,387 $ 2,049,744
Current maturities of capital lease
obligations 99,092 121,913
Accounts payable and accrued expenses 1,606,341 1,152,043
Claims payable 125,395 236,796
---------- ----------
Total current liabilities 4,573,215 3,560,496
Long-term liabilities
Claims payable 1,037,554 1,065,962
Capital lease obligations, net of
current maturities 119,649 182,209
Notes payable 1,400,000 1,375,000
---------- ----------
Total liabilities 7,130,418 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 deficit (3,837,300) (2,534,009)
----------- ------------
Total stockholders' equity 10,018,922 11,322,213
----------- -----------
Total liabilities and stockholders equity $17,149,340 $17,505,880
=========== ===========
</TABLE>
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months Ended
March 31,
-------------------------
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
Revenues $ 8,229,513 $ 8,288,724
Cost of services provided 4,250,427 4,098,730
General and administrative expenses 4,662,658 4,260,561
Marketing expenses 238,361 210,307
Development and acquisition costs 58,500 307,265
---------- ---------
9,209,946 8,876,863
---------- ---------
Loss from operations (980,433) (588,139)
Other income (expense)
Interest expense (432,884) (279,878)
Interest income 146,539 245,303
Other loss (36,513) -
--------- ---------
Total other income (expenses) (322,858) (34,575)
--------- ---------
Net loss before income taxes (1,303,291) (622,714)
Income tax benefit - 148,000
---------- ---------
Net loss $(1,303,291) $ (474,714)
========== ==========
Basic net loss per common share $ (27) $ (.09)
=========== ==========
Weighted average common shares outstanding 4,906,949 5,008,221
========== ==========
</TABLE>
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
1998 1997
---------- --------
<S> <C> <C>
(Unaudited)
Revenues $ 2,619,214 $ 2,844,723
Cost of services provided 1,337,630 1,469,040
General and administrative expenses 1,578,162 1,527,921
Marketing expenses 71,560 95,380
Development and acquisition costs - 84,783
---------- ----------
2,987,352 3,177,124
---------- -----------
Loss from operations (368,138) (332,401)
Other income (expense)
Interest expense (138,238) (100,803)
Interest income 47,180 71,106
Other loss (2,212) -
---------- -----------
Total other income (expenses) (93,270) (29,697)
---------- -----------
Net loss before income taxes (461,408) (362,098)
Income tax expense - (9,000)
---------- ----------
Net loss $ (461,408) $ (371,098)
=========== ==========
Basic net loss per common share $ (.09) $ .(07)
=========== ==========
Weighted average common shares outstanding 4,906,949 5,020,341
=========== ==========
</TABLE>
<PAGE>
THE COMPANY DOCTOR AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Nine Months Ended
March 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities
Net loss $(1,303,291) $ (474,714)
---------- ----------
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 774,941 524,979
Deferred tax asset - (175,000)
Compensation for options granted
to unrelated third party - 54,832
Change in assets and liabilities
Accounts receivable (424,285) (157,326)
Prepaid expenses 18,036 (144,669)
Other assets 52,976 (43,849)
Accounts payable and accrued expenses 454,298 617,012
Claims payable (139,809) (341,071)
---------- ----------
736,157 334,908
---------- ----------
Net cash used in operating activities (567,134) (139,806)
---------- ----------
Cash flows from investing activities
Purchases of property and equipment (96,046) (479,270)
Cash acquired from medical practices - 337,484
Change in restricted investments (397,756) (120,108)
Change in restricted cash (274,701) (782,476)
Proceeds from investments 943,943 -
Purchase of intangibles (136,077) -
---------- ----------
Net cash (used in) provided
investing activities 39,363 (1,044,370)
---------- ----------
Cash flows from financing activities
Proceeds from line-of-credit and
note payable 1,234,072 (750,437)
Proceeds from exercised warrants
and stock options - 12,130
Payments on notes payable and
due to sellers (516,429) (2,391,795)
Payments on equipment leases (85,381) (69,140)
----------- -----------
Net cash provided by (used in)
financing activities 632,262 (3,199,242)
----------- -----------
Cash and cash equivalents decrease 104,491 (4,383,418)
Cash and cash equivalents at
beginning of period 414,422 5,636,433
----------- ----------
Cash and cash equivalents at end of period $ 518,913 $ 1,253,015
========== ============
</TABLE>
Supplemental disclosures of interest paid:
Interest paid on borrowings for the nine months ended March 31, 1998 and
March 31, 1997 was $276,961 and $279,878 respectively.
Supplemental disclosure of noncash investing and financing activities:
During the nine months ended March 31, 1997, the Company acquired three
medical practices, and reported each on a Form 8-K. The purchase
prices combined were allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Assets acquired
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>
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"
(FAS128). 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 methodolgy. 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 March 31, 1997 consolidated financial statements have
been reclassified to conform with the March 31, 1998 presentation.
THE COMPANY DOCTOR AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- -----------------------
Forward-Looking Statements
- ---------------------------
The 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 to consummate the merger with Healthsouth or secure other sources of
working capital. 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 March 31, 1998, the Company's principal sources of liquidity included
cash and cash equivalents of $518,913, and other current assets totaling
$2,703,123, resulting in total current assets of $3,222,036. Current
liabilities were $4,573,215 which resulted in negative working capital of
$1,351,179 and a current ratio of .7 to 1.0 The Company's other current
assets of $2,703,123, consisted of accounts receivable of $2,577,125 and
prepaid expenses of $125,998. Regular monthly payments and balloon payments
made on April 15, 1997 to physicians whose practices were acquired in 1996
have reduced the balance due on Notes Payable from $3,139,125 due on March 31,
1997 to $98,994 at March 31, 1998.
On December 17, 1997, the Company made a press release stating that an
agreement had been signed whereby HeathSouth (NYSE) will be acquiring the
Company subject to shareholder approval. Subsequent to execution of the
agreement, the Company received approximately $1,050,000 from HeathSouth 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 upon obtaining other sources of working capital for
operations and to fund its current deficit.
<PAGE>
- ------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------
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 nine months ended March 31, 1998 decreased by $59,211 or
0.7% from $8,288,724 for the nine months ended March 31, 1997 to $8,229,513
for the nine months ended March 31, 1998. Revenues decreased $391,259 at two
locations as a result of physician turnover, leaving the Company without
licensed physicians and therefore, precluding the Company from fulfilling
PPO/MHO contracts until new physicians can be added.
Cost of Services Provided
- ----------------------------
Cost of services provided for the nine months ended March 31, 1998 was
$4,250,427, an increase of $151,697 or 3.7% as compared to $4,098,730 at March
31, 1997. As a percentage of net revenues, cost of services provided was
51.6% an increase of 2.2% from the 49.4% level of the same nine month period
one year ago. This increase is primarily due to increases of $233,785 in
certain areas including, X-rays, pharmacy, and lab fees for drug screens
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 $113,202 over the same period a year ago. These
increases are in conjunction with additional revenues billed for these
services.
General and Administrative
- ----------------------------
General and administrative expenses for the nine months ended March 31, 1998,
were $4,662,658, an increase of $402,097, or 9.4%, over expenses of
$4,260,561 for the same period a year ago. As a percentage of revenues,
general and administrative expenses were 56.7%, an increase of 5.3% from 51.4%
for the same nine month period a year ago. Higher depreciation expense from
additions to fixed assets and higher amortization costs from acquisition
related goodwill and financing costs resulted in the primary increase.
Additionally, increased rent expense from expansion of certain facilities and
relocation of others contributed to the increase in general and administrative
expenses.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------
General and Administrative (continued)
- -----------------------------------------
The Company continues its cost-containment efforts in the management of fixed
and variable costs. Certain fixed expenses were negatively impacted by several
factors, the principal one of which is bank service charges which increased
$49,519 or 221% from $22,367 for the nine months ended March 31, 1997 to
$71,886 for the nine months ended March 31, 1998. This increase is the result
of the Company's relationship with a new lender as of April 15, 1997 and the
lock box banking system this relationship requires. One category of variable
expenses which had a significant impact was repairs & maintenance expense.
These expenses increased $6,017 or 11.0% from $54,696 for the nine months
ended March 31, 1997 to $60,713 for the nine months ended March 31, 1998. The
consolidated financial statements for the nine months ended March 31, 1997 do
not reflect repairs & maintenance expense for a full nine months for all
clinics currently being managed as some of these clinics were acquired during
the nine month period. Expansion of one clinic and relocation of two other
clinics also contributed to the increases.
Marketing Expenses
- -------------------
Marketing expenses increased $28,054 or 13.3% from $210,307 for the nine
months ended March 31, 1997 to $238,361 for the nine months ended March 31,
1998. This amount represents 2.5% compared to 2.9% of revenues during the
respective periods.
Development and Acquisition Costs
- ------------------------------------
The Company had $58,500 of development and acquisition costs in the nine
months ended March 31, 1998, but had $307,265 of such costs in the nine months
ended March 31, 1997. These costs equaled .7% and 3.7% of revenues for
the1998 and 1997 periods, respectively. The fiscal 1998 costs were
attributable to the negotiations with HeathSouth and the fiscal 1997 cost were
attributable to 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 development
costs for the acquired insurance company subsidiary.
Other Income or Expense
- --------------------------
Interest income for the nine months ended March 31, 1998 was $146,539 or 1.8%
of revenue, as compared to $245,303 or 2.9% of revenue for the same nine
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 which were sold over the course of the calendar year 1997 in
order to meet cash flow needs. As of March 31, 1998 all of the initial public
offering proceeds had been spent.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------
Other Income or Expense (continued)
- ---------------------------------------
Interest expense increased $153,005 or 54.7% in the nine months ended March
31, 1998 to $432,884 from $279,878 for the nine months ended March 31, 1997
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 March 31, 1997 incurred
in connection with the acquisition of five clinic practices approximately
mid-way through that nine month period.
Net Income
- -----------
As a result of the factors described above, the Company recorded a net loss of
$1,303,291 ($.27 per share) for the nine months ended March 31, 1998, or 15.8%
of revenues, as compared to a net loss of $474,714 ($.09 per share), or 7.5%
of revenues, for the nine months ended March 31, 1997.
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 $324,000 in
the nine months ended March 31, 1997 due to the addition of medical practices
in that quarter, and the historical profitability of such practices, resulting
in a net $148,000 deferred tax benefit on the income statement. This same
item had no effect on the income statement for the nine months ended March 31,
1998.
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 None
(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: May 15, 1998 By: /s/ Fred G. Parrish
--------------
Fred G. Parrish
V.P., Chief Operating Officer,
Chief Financial Officer
Date: May 15, 1998 By: /s/ Dale W. Willetts
--------------
Dale W. Willetts
Acting Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 518,913
<SECURITIES> 0
<RECEIVABLES> 2,787,127
<ALLOWANCES> 210,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,222,036
<PP&E> 2,645,539
<DEPRECIATION> 1,243,079
<TOTAL-ASSETS> 17,149,340
<CURRENT-LIABILITIES> 4,573,215
<BONDS> 0
0
0
<COMMON> 49,070
<OTHER-SE> 9,969,852
<TOTAL-LIABILITY-AND-EQUITY> 17,149,340
<SALES> 8,229,513
<TOTAL-REVENUES> 8,229,513
<CGS> 4,250,427
<TOTAL-COSTS> 9,209,946
<OTHER-EXPENSES> (110,026)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432,884
<INCOME-PRETAX> (1,303,291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,303,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,303,291)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
