FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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 31, 1995
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission file number 0-8547
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AMSERV HEALTHCARE INC.
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(Exact name of registrant as specified in charter)
DELAWARE 94-1627467
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
3252 Holiday Court, #204, La Jolla, CA 92037
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(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (619) 597-1000
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Indicate by check mark whether the registrant (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. Yes X . No _____.
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Common stock, $.01 par value, 3,150,838 shares outstanding as of May 8, 1995.
AMSERV HEALTHCARE INC.
I N D E X
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Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. CONDENSED CONSOLIDATED BALANCE SHEETS,
MARCH 31, 1995 AND JUNE 30, 1994 3
B. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE AND NINE MONTH
PERIODS ENDED MARCH 31, 1995 AND 1994 4
C. CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTH PERIODS
ENDED MARCH 31, 1995 AND 1994 5
D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
2
PART I - FINANCIAL INFORMATION
AMSERV HEALTHCARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, June 30,
1995 1994
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(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 963,049 $ 643,987
Marketable securities, net of unrealized losses of
$44,941 and $40,510............................................ 1,844,445 676,615
Customer accounts receivable, net of allowance for
doubtful accounts of $181,697 and $237,687..................... 1,142,796 1,964,903
Federal income tax receivable................................... - 326,628
Other current assets............................................ 68,127 335,389
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Total current assets......................................... 4,018,417 3,947,522
PROPERTY & EQUIPMENT, NET........................................ 393,662 252,234
INTANGIBLE ASSETS, NET........................................... 1,766,810 2,047,540
OTHER ASSETS..................................................... 382,204 311,090
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$ 6,561,093 $ 6,558,386
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 15,808 $ 70,735
Accrued payroll and related taxes............................... 370,734 580,035
Net liabilities of discontinued operations...................... 370,157 116,718
Other current liabilities....................................... 70,278 277,928
Current maturities of note payable.............................. 333,334 333,334
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Total current liabilities................................... 1,160,311 1,378,750
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LONG-TERM LIABILITIES:
Note payable.................................................... 499,999 666,666
Other........................................................... 159,322 165,000
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Total long-term liabilities................................. 659,321 831,666
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 3,000,000 shares;
none outstanding
Common stock, $.01 par value, authorized 15,000,000 shares;
3,087,794 shares issued....................................... 30,877 30,877
Treasury stock; 143,268 shares; at cost.......................... (296,053) (296,053)
Additional paid-in capital...................................... 6,373,936 6,373,936
Retained earnings (deficit)...................................... (1,367,299) (1,760,790)
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Total shareholders' equity.................................. 4,741,461 4,347,970
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$ 6,561,093 $ 6,558,386
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(See Notes to Condensed Consolidated Financial Statements)
3
AMSERV HEALTHCARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1995 AND 1994
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(unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
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1995 1994 1995 1994
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NET SALES....................................................... $2,899,543 $1,853,074 $8,402,485 $5,270,963
OPERATING EXPENSES:
Selling, general and administrative............................ 2,693,274 1,849,216 7,783,797 5,184,262
Depreciation and amortization.................................. 110,939 92,582 330,806 277,067
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Total Expenses............................................. 2,804,213 1,941,798 8,114,603 5,461,329
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OPERATING INCOME (LOSS)......................................... 95,330 (88,724) 287,882 (190,366)
Interest Expense................................................ (14,422) - (50,726) -
Interest Income................................................. 35,617 26,580 66,599 67,173
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INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES............................................ 116,525 (62,144) 303,755 (123,193)
Income Tax Provision (Benefit).................................. 32,000 (17,672) 79,000 (35,034)
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INCOME (LOSS) FROM CONTINUING OPERATIONS........................ 84,525 (44,472) 224,755 (88,159)
DISCONTINUED OPERATIONS:
Loss from discontinued operations (less applicable
income tax benefit of $34,328 and $266,266).................... - (56,858) - (496,111)
Gain on disposal of discontinued operations (less applicable
income tax provision of $29,777)............................... - - 168,736 -
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NET INCOME (LOSS)............................................... $ 84,525 $ (101,330) $ 393,491 $ (584,270)
========== ========== ========== ==========
INCOME (LOSS) PER SHARE:
Income (Loss) from Continuing Operations....................... $.03 $ (.01) $ .07 $ (.03)
Loss from Discontinued Operations.............................. $. - $ (.02) $ . - $ (.16)
Gain on Disposal of Discontinued Operations.................... $. - $ . - $ .05 $ . -
Net Income (Loss).............................................. $.03 $ (.03) $ .12 $ (.19)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING................................................... 3,132,660 2,944,526 3,132,660 2,944,526
========== ========== ========== ==========
(See Notes to Condensed Consolidated Financial Statements)
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AMSERV HEALTHCARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1994
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(unaudited)
Nine Months Ended
March 31,
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers............................. $ 13,213,288 $ 14,224,953
Cash paid to suppliers and employees..................... (12,346,290) (14,841,163)
Interest received........................................ 76,338 50,750
Interest paid............................................ (37,115) -
Income taxes paid........................................ (145,884) (5,294)
Income taxes refunded.................................... 330,826 513,861
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Net Cash Provided By (Used In) Operating Activities....... 1,091,163 (56,893)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations............ 813,941 -
Proceeds from sale of marketable securities.............. 405,000 -
Cash received on notes receivable........................ 50,411 131,250
Purchase of property and equipment....................... (256,028) (9,044)
Purchase of marketable securities........................ (1,577,260) (497,125)
Proceeds from sale of property & equipment............... 31,851 2,884
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Net Cash Used In Investing Activities..................... (532,085) (372,035)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Note Payable................................. - 130,587
Repayment of Notes Payable............................... (240,016) -
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Net Cash Provided By (Used In) Financing Activities....... (240,016) 130,587
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Net Increase (Decrease) in Cash and Cash Equivalents..... 319,062 (298,341)
Cash and Cash Equivalents, Beginning of Period............ 643,987 1,208,170
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Cash and Cash Equivalents, End of Period.................. $ 963,049 $ 909,829
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(See Notes to Condensed Consolidated Financial Statements)
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AMSERV HEALTHCARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. ADJUSTMENTS
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments necessary
(which are of a normal recurring nature) to present fairly the Company's
financial position as of March 31, 1995, and the results of its operations for
the three and nine months ended March 31, 1995 and 1994 and its cash flows for
the nine months ended March 31, 1995 and 1994. Information included in the
condensed consolidated balance sheet as of June 30, 1994 has been derived from
the Company's Form 10-K for the year ended June 30, 1994 ("1994 Form 10-K").
The unaudited condensed consolidated financial statements contained herein
should be read in conjunction with the consolidated financial statements and
notes contained in the Company's 1994 Form 10-K.
2. EARNINGS PER SHARE
Earnings per share for the three and nine month periods ended March 31, 1995 and
1994 are based on the weighted average number of common and common stock
equivalent shares outstanding. Certain stock options were not included in the
computation of earnings per share because their effect would be antidilutive.
Earnings per share assuming full dilution are the same as primary earnings per
share.
3. SUPPLEMENTAL SCHEDULE TO CONSOLIDATED STATEMENTS OF CASH FLOWS
The reconciliation of net income (loss) to net cash provided by (used in)
operating activities is summarized below:
Nine Months Ended
March 31,
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1995 1994
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Net Income (Loss)............................................... $ 393,491 $(584,270)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided
By (Used In) Operating Activities:
Depreciation and amortization.................................... 330,806 413,025
Write-off of intangibles......................................... - 137,616
Unrealized loss on marketable securities......................... 4,431 22,125
Other non-cash expenses.......................................... 32,680 5,130
Changes in Assets and Liabilities:
Accounts receivable............................................... 822,107 (419,201)
Other assets...................................................... 143,174 (15,459)
Accounts payable.................................................. (54,927) (25,195)
Income taxes..................................................... 105,942 207,267
Accruals on disposal of discontinued operations................... (560,502) -
Other liabilities................................................. (126,039) 202,069
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Net Cash Provided By (Used In) Operating Activities............. $1,091,163 $ (56,893)
=========== =========
There were no material non-cash financing or investing activities for the nine
months ended March 31, 1995 and 1994.
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AMSERV HEALTHCARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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4. INTANGIBLE ASSETS
Intangible assets acquired in acquisitions consist of the following:
March 31, June 30,
1995 1994
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Excess of cost over acquired net assets... $1,588,063 $1,588,063
Assembled work force...................... 497,154 497,154
Accreditation and training programs....... 502,846 502,846
Covenant not to compete................... 525,000 525,000
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3,113,063 3,113,063
Less: Accumulated Amortization 1,346,253 1,065,523
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$1,766,810 $2,047,540
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5. DISCONTINUED OPERATIONS
On November 9, 1994, the Company sold substantially all of the fixed and
intangible assets of its temporary nursing services business for $814,000 in an
all cash transaction, resulting in a gain of $169,000, net of income taxes. The
consolidated statement of operations for the three and nine month periods ended
March 31, 1995 and 1994 excludes sales and expenses for its temporary nursing
services business from captions applicable to continuing operations. Revenues
from the discontinued operation were $3,988,696 and $9,373,191 for the nine
months ended March 31, 1995 and 1994, respectively.
6. SUBSEQUENT EVENTS
On April 6, 1995, the Company signed an amendment to the Asset Purchase
Agreement dated June 10, 1994 with North Central Personnel, Inc. The amendment
exchanged the Company's promissory note to North Central Personnel, Inc. with a
principal balance of $833,333, as of March 31, 1995, and the related accrued
interest for 426,794 shares of the Company's voting Class A Redeemable Preferred
Stock, $.01 par value. The preferred shares pay no dividends, and may be
redeemed at the option of the holder, in specified installments, for cash at a
redemption price equal to $2.00 per share on May 29, 1995, November 29, 1995,
May 29, 1996, November 29, 1996 and May 29, 1997. All of the remaining shares
become redeemable in the event of default or change of control. The amendment
also provides for a maximum earnout of $2,000,000 in consideration for a minimum
earnout of $1,600,000 and an earnout advance in the amount of $500,000, which
was paid in cash on April 6, 1995. The earnout advance and all future earnout
payments will be accounted for as additional purchase price of North Central
Personnel, Inc.
On April 18, 1995, the Company's Chief Executive Officer exercised options for
67,562 shares of common stock for $154,997 in cash, according to the Company's
Employee Stock Option Plan. On April 20, 1995, the Company accepted a non-
recourse promissory note in the amount of $198,440, bearing interest at a rate
of 10% per annum, and $1,100 in cash for the exercise of options for 110,000
shares of common stock by the Chief Executive Officer in accordance with a stock
option agreement dated February 27, 1987 and amended on January 15, 1988. The
promissory note is secured by all 177,562 shares purchased by the Company's
Chief Executive Officer, including those purchased for cash.
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AMSERV HEALTHCARE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and marketable securities increased $1,486,892 during the
first nine months of fiscal year 1995. This increase is the result of the sale
of the temporary nursing services business, the collection of related accounts
receivable and a federal income tax refund. The Company's balance sheet remains
strong with a current ratio of 3.5 to 1. In April 1995, the Company amended its
original Asset Purchase Agreement with North Central Personnel, Inc., by
exchanging an interest bearing (7%) promissory note for voting Class A
Redeemable Preferred Stock, and making an earnout advance in the amount of
$500,000 in cash. The Company believes that its present working capital
position will be sufficient to meet its anticipated cash requirements for
operations, and to move forward with its expansion program.
OPERATING RESULTS
Net sales from continuing operations for the three and nine month periods ended
March 31, 1995 increased $1,046,469, or 56%, and $3,131,522, or 59%,
respectively, over the same periods of the prior fiscal year. Higher sales are
due to the June 10, 1994, acquisition of North Central Personnel and the opening
of the Union City office in New Jersey, which has continued to grow steadily
since its start-up in October 1994.
Selling, general and administrative expenses for the three and nine months ended
March 31, 1995 increased $844,058 and $2,599,535, respectively, compared to the
same periods of the prior year. These increases were primarily the result of
the direct variable costs associated with an increase in net sales and the
acquisition of North Central Personnel.
Depreciation and amortization for the three and nine months ended March 31,
1995, increased $18,357, or 20%, and $53,739, or 19%, respectively, over the
same period of fiscal 1994. This increase is the result of depreciation on
property and amortization of goodwill and intangible assets acquired in the
acquisition of North Central Personnel.
Interest expense of $14,422 and $50,726, respectively, for the three and nine
month periods during fiscal 1995 are due to interest on the note issued in the
acquisition of North Central Personnel. There was no interest expense during
the three and nine month periods of fiscal 1994.
The net income for the nine months ended March 31, 1995 includes an after-tax
gain of $168,736 as a result of the sale of the Company's temporary nursing
services business. An after-tax loss from discontinued operations of $56,858
and $496,111 for the three and nine months ended March 31, 1994 is included in
the net loss for fiscal 1994.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 27, 1995, Stockbridge Investment Partners, Inc., filed a complaint
against AMSERV HEALTHCARE INC. and its Board of Directors, Melvin L. Katten,
Eugene J. Mora, Michael A. Robinton, George A. Rogers and Ben L. Spinelli in the
Delaware Court of Chancery. The complaint alleges a breach of fiduciary duty
was committed by the directors of AMSERV HEALTHCARE INC. by (a) delaying
initiation of the consent solicitation by holding out the possibility of a
negotiated transaction with plaintiff; (b) adopting a bylaw that purports to
give the directors the power to postpone the setting of a record date for a
stockholder consent solicitation; (c) exchanging 426,794 shares of voting
preferred stock for a promissory note issued in connection with a June 1994
acquisition; (d) signing a letter of intent to acquire a healthcare services
company; and (e) accepting a non-recourse note of $198,440 from Eugene J. Mora,
AMSERV's CEO, to exercise his stock option for 110,000 shares of the Company's
common stock. The complaint seeks relief by (a) rescinding the transaction
which exchanges 426,794 shares of Class A Preferred Stock for a promissory note;
(b) rescinding the transaction which exercises 110,000 stock options by Mr.
Mora; and (c) receiving an award for plaintiff's costs and disbursements of this
action, including reasonable attorneys' and experts' fees in connection with
this complaint. The Company is engaged in settlement discussions with respect
to this action.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1. Amendment No. 2 to Asset Purchase Agreement, dated April 7, 1995, by and
between North Central Personnel, Inc., Diane Gurik and AMSERV HEALTHCARE
OF OHIO INC.
2. Stock Purchase Agreement dated April 7, 1995 by and between AMSERV
HEALTHCARE INC. and North Central Personnel, Inc.
3. Certificate of Designations, Preferences and Rights of Class A
Redeemable Preferred Stock of AMSERV HEALTHCARE INC. dated April 7,
1995.
4. Voting Agreement and Irrevocable Proxy to Vote dated April 7, 1995 by
and between North Central Personnel, Inc. and AMSERV HEALTHCARE INC.
(b) Reports on Form 8-K:
1. A Form 8-K dated March 6, 1995, was filed with the Securities and
Exchange Commission adopting an amendment to the Company's By-laws. The
amendment ensures (i) orderly procedures for determining which
stockholders will be able to take part in a written consent action; (ii)
compliance with Rule 14a-13 of the Securities and Exchange Act of 1934;
and (iii) that any written consent action be efficiently and effectively
undertaken without disenfranchising any of the stockholders of the
Company. The amendment was filed as an exhibit to Form 8-K.
2. A Form 8-K dated March 21, 1995, was filed with the Securities and
Exchange Commission reporting a change in the Registrant's independent
auditors. The Company's decision to dismiss Deloitte & Touche LLP and
retain Ernst & Young LLP was approved by its Board of Directors at a
meeting held on March 21, 1995. A letter dated March 27, 1995, from
Deloitte & Touche LLP concerning dismissal as Registrant's principal
accountant was filed as an exhibit to Form 8-K. A Form 8-K/A was
subsequently filed on April 27, 1995 which amended the letter dated
March 27, 1995 from Deloitte & Touche LLP. The amended letter dated
April 25, 1995 from Deloitte & Touche LLP was filed as an exhibit to
Form 8-K/A.
9
SIGNATURES
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Pursuant to 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.
AMSERV HEALTHCARE INC.
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Registrant
/s/ EUGENE MORA
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Eugene J. Mora May 10, 1995
Chairman and President
/s/ LORI ANDERSON
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Lori Anderson May 10, 1995
Treasurer
10