FORM 10-QSB.-QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 September 30, 1995 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to Commissions file number 94-2669749 OCCUPATIONAL MEDICAL CORPORATION OF AMERICA, INC. CALIFORNIA IRS EIN 94-2669749 (State of incorporation) 9811 Bigge Avenue, Oakland, CA 94603 (Address of principal executive office) (510) 639-2100 (Issuer's telephone number) 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 (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such 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 equity, as of the latest practicable date: 2,519,550 shares. Item 1. Financial Statements OCCUPATIONAL MEDICAL CORPORATION OF AMERICA, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET SEPTEMBER 30, ASSETS 1995 Current Assets: Cash $ 222,406 Management fee receivable, less allowance for doubtful accounts of $429,323 967,238 Operating supplies 148,855 Prepaid and other assets 90,689 Advances to Medical Corporations 77,098 Advanes to Shareholders 6,741 Short-term notes receivable from shareholder 51,898 Total current assets 1,564,925 Property and equipment: Equipment and furnishings 1,058,213 Leasehold improvements 488,835 Medical equipment 841,229 2,388,277 Less accumulated depreciation and amortization 2,121,226 267,051 Other: Deposits and other 44,035 Goodwill, less accumulated amortization of $241,618 327,305 Other intangibles, less accumulated amortization of $196,139 60,958 432,298 $2,264,274 See accompanying notes to consolidated financial statements. OCCUPATIONAL MEDICAL CORPORATION OF AMERICA, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET SEPTEMBER 30, LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIT 1995 Liabilities: Accounts payable $ 200,244 Short-term financing 4,897,709 Current portion of long-term debt 350,000 Accrued payroll 119,827 Other accruals 59,633 Total current liabilities 5,627,413 Long-term debt 0 Total Liabilities 5,627,413 Shareholders' Capital Deficit: Common stock, no par value, authorized 10,000,000 shares, issued and outstanding 2,519,550 shares 3,571,805 Additional paid-in capital 62,704 Deficit (6,947,840) (3,313,331) Notes receivable, Medical Corporations (49,808) (3,363,139) $2,264,274 See accompanying notes to consolidated financial statements. OCCUPATIONAL MEDICAL CORPORATION OF AMERICA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF LOSS QUARTER ENDED SEPTEMBER 30, 1994 1995 Revenues $1,098,044 $126,842 Less net fees to Medical Corporations (341,014) 30,097 Net revenues 757,030 156,939 Costs and expenses: Salaries and benefits 432,633 182,504 Medical and office supplies 81,112 4,588 Other operating expenses 293,874 145,950 Depreciation and amortization 53,356 39,232 Interest 95,717 140,128 Total costs and expenses 956,692 512,402 Loss before income taxes (benefits) (199,663) (355,463) Income taxes (benefit) 0 0 Net loss $ (199,663) $(355,463) Net loss per share $(0.08) $(0.14) See accompanying notes to consolidated financial statements. OCCUPATIONAL MEDICAL CORPORATION OF AMERICA, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS QUARTER ENDED SEPTEMBER 30, 1994 1995 Cash flows from operating activities: Net loss $(199,663) $(355,463) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 53,356 39,232 Loss on disposal of equipment - 768 Changes in assets and liabilities: Management fee receivable (232,202) (79,539) Operating supplies and other current assets (16,910) (39,602) Accounts payable and other accrued expenses (187,808) ( 48,541) Net cash used in operating activities (583,228) (483,145) Cash flows from investing activities: Acquisition of property and equipment 0 (4,576) (Increase) decrease in advances to and notes receivable from shareholders, net (5,000) 5,000 Net cash used in investing activities (5,000) 424 Cash flows from financing activities: Proceeds from short-term financing, net 497,101 587,312 Net cash provided by financing activities 497,101 587,312 Net increase (decrease) in cash and cash equivalents (91,126) 104,591 Cash and cash equivalents, beginning of period 98,649 117,815 Cash and cash equivalents, end of period $ 7,523 $222,406 See accompanying notes to consolidated financial statements. OCCUPATIONAL MEDICAL CORPORATION OF AMERICA, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The accompanying consolidated balance sheet as of September 30, 1995, the related consolidated statements of loss for the quarters ended September 30, 1994 and September 30, 1995, and the related consolidated statements of cash flows for the quarters ended September 30, 1994 and September 30, 1995 have not been audited. However, in the opinion of management, the consolidated financial statements include all adjustments necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. For further information, refer to the audited consolidated financial statements and accompanying footnotes included in the Company's Form 10-KSB for the year ended June 30, 1995. Note 2. Going Concern and Management's Plans The accompanying financial statements have been prepared assuming that the Company will continue as a going concern; they do not include adjustments relating to the recoverability of recorded asset amounts and classification of recorded assets and liabilities. The going concern basis may not be appropriate since the Company has an accumulated deficit of $6,948,000 at September 30, 1995, at which date its total liabilities exceeded its total assets by $3,363,000 and its current liabilities exceeded its current assets by $4,062,000. Also, the Company incurred losses of $6,244,000 since fiscal year 1992. In addition, as discussed in Note 3, as of September 30, 1995, the Medical Corporations have extended $4,481,000 to the Company as short-term financing from the cash they received from the Purchaser, and the Purchaser has extended $417,000, net of cash receipts from accounts receivable, to the Company as short-term financing. These conditions raise substantial doubt about the Company's ability to continue as a going concern. In December 1994, the Company's management met with the Purchaser to discuss continuation of a prior additional funding arrangement. The Purchaser agreed to continue the additional funding arrangement on a month-to-month basis. Since then the Company's management has met on numerous occasions with the Purchaser to discuss the current status of the Company's operations and the additional funding arrangement. The Purchaser is reviewing this funding arrangement; in the meantime, the additional funding arrangement has continued, but on a more limited basis. The Medical Corporation contract with the City of Oakland expired on June 30, 1995. That contract provided about 15% of Medical Corporations' revenues in fiscal year 1995. The Company and the Medical Corporations entered into a new Sublease and Facilities Management Agreement, effective July 1, 1995, whereby the Company no longer absorbs all income and losses of the Medical Corporations. In return for providing the facilities and equipment as well as administrative and business development functions, the Company is reimbursed the cost of leased facilities and equipment, charges rent on owned equipment, and earns a management fee equal to fifteen percent (15%) of the Medical Corporations' health care revenues. All non-physician staff at the medical clinics are now employees of the Medical Corporations (as were the physicians). In addition to its management fees, the Company generates revenues through its Work Fitness Institute, rental of equipment, and interest on loans. Management fees of $131,000 were earned during the quarter ended September 30, 1995. To reduce operating losses and improve operating cash flows, the Company is focusing on business development for the Medical Corporations. The areas of concentration have included: reasons for the high attrition rate; improvement of quality of service and care; continued efforts to broaden the patient base; and alliances with provider and/or patient groups. Note 3. Short-term Financing In July 1993, Spectrum Medical Care, A Medical Group, Inc. (fka Interstate Environmental Medical Group, Inc.), a California professional corporation, Interstate Environmental Medical Group, Physicians and Surgeons, Inc., a Washington professional corporation, (together, the "Medical Corporations") and the Company entered into a Sales and Subservicing Agreement ("Agreement") with NPFII, Inc. ("Purchaser"). The Purchaser agreed to purchase from the Medical Corporations and the Company up to 85% of the eligible accounts receivable with recourse, as defined in the Agreement, up to a total commitment of $2 million. As of September 30, 1995, the total funding received by the Medical Corporations and the Company, net of cash receipts from the accounts receivable, was $4,790,000 or $2,790,000 over the total commitment amount. The over-funding, which represents a default under the Agreement, and additional funding subsequent to September 30, 1995 have been discussed with the Purchaser who has continued the additional funding arrangement on a more limited basis. The financing fee for this arrangement is 13.5% per annum of the total funding, net of cash receipts from accounts receivable. As of September 30, 1995, the Medical Corporations extended $4,481,000 to the Company as short-term financing from the cash they received from the Purchaser, and the Purchaser extended $417,000, net of cash receipts from accounts receivable, to the Company as short-term financing. Item 2. Management's Discussion and Analysis On September 30, 1995 the Company had Sublease and Facilities Management Agreements with the Medical Corporations' five medical clinics located in Oakland, Berkeley, and Hayward, California and Seattle, Washington and operated its rehabilitation clinic in conjunction with one of the medical clinics in Oakland, California. As indicated in Note 2, the new Sublease and Facilities Management Agreement between the Company and the Medical Corporations established a management fee to the Company equal to 15% of the Medical Corporations' revenues, but eliminated the pass through of revenues and expenses of the Medical Corporations. Also, all non- physician staff at the medical clinics became employees of the Medical Corporations. Quarter Ended September 30, 1995 compared to Quarter Ended September 30, 1994 Net loss for the quarter ended September 30, 1995 was $355,463 or $0.14 per share, compared to a net loss of $199,663 or $0.08 for the quarter ended September 30, 1994. Gross revenues for the quarter ended September 30, 1995 were $126,842, a decrease of $971,202 or 88% compared to the quarter ended September 30, 1994. This decrease was primarily accounted for by the elimination of the Medical Corporations' revenues ($1,043,000 last year) and insurance adjustments to prior year's revenues ($52,000) as offset by management fees ($131,000). As a comparision, the Medical Corporations' comparable revenues for the current quarter were $830,000, a decrease of $213,000 or 20%, primarily due to the expiration of the City of Oakland contract. The $355,000 net loss consisted of a $116,000 loss relating to the management of the Medical Corporations' clinics; a $52,000 loss relating to insurance adjustments of prior year's revenues; a $47,000 operating loss at its rehabilitation clinic; and $140,000 of interest charges. Liquidity and Capital Resources Note 2 of the Notes to Consolidated Financial Statements discusses the going concern issue. The Company's cash balance at September 30, 1995 was $222,406, while the Company's working capital deficit was $4,023,862, a decline of $281,000 since June 30, 1995. As indicated in Footnote 3 to the consolidated financial statements, funding of cash requirements is provided through the sale of the Medical Corporations' and the Company's accounts receivable to the Purchaser and the subsequent transfer of such funds from the Medical Corporations to the Company. Pursuant to an earlier agreement, the Purchaser has provided additional funding in excess of the amount provided by the sale of receivables. However, the Purchaser is evaluating this funding arrangement, and there is no assurance that the amount of such funding will continue or that alternative or supplemental sources of funding will be available. PART II - OTHER INFORMATION Item 1. Legal Proceedings Previously reported. Items 2 through 6 - Not applicable. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OCCUPATIONAL MEDICAL CORPORATION OF AMERICA, INC. June 28, 1996 /s/ George Fujikawa George Fujikawa Vice President and Chief Financial Officer