UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended June 24, 1995.
OR
[___] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File Number: 0-08547
AMSERV HEALTHCARE INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1627467
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
3252 Holiday Court Suite #204 La Jolla, CA 92037
(Address of principal executive offices)
(619) 597-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
- --------------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
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. X YES NO
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
---
As of October 2, 1995, there were outstanding 3,163,203 shares of the
Registrant's common stock, par value $.01 per share. As of that date, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was $7,908,007 based upon the closing sales price on October 2, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Registrant's 1995 Annual Meeting
of Shareholders are incorporated by reference into Part III.
PART I
------
ITEM 1. BUSINESS
AMSERV HEALTHCARE INC. (hereinafter the "Company" or "AMSERV") was originally
incorporated under the name of Phone-A-Gram System, Inc. in the State of
California on July 7, 1966, and was subsequently reincorporated under the laws
of the State of Delaware on September 29, 1983. On October 24, 1987, the
Company's name was changed to AMSERV, INC., and on August 24, 1992, the name was
again changed to AMSERV HEALTHCARE INC. to reflect the Company's new strategic
direction.
AMSERV operates in a one-industry segment as a healthcare services company.
During the fiscal year ended June 24, 1995, the Company provided home care
services to individuals from its six branch offices in New Jersey and Ohio.
Fiscal 1995 was the first full year of operations for its Ohio office, which was
acquired on June 10, 1994, by the purchase of substantially all of the assets
and property of North Central Personnel, Inc. ("North Central"). On November 9,
1994, the Company sold substantially all of the fixed and intangible assets of
its eight branch offices that provided primarily temporary nursing services. The
Company plans to invest the proceeds of the sale to expand its home care
business, which is a growing segment of the healthcare industry, and to look for
other opportunities in healthcare.
AMSERV receives payment for its home care services from several sources.
Revenues from Medicaid and other local government programs represented
approximately 75% of net sales from continuing operations in the fiscal year
ended June 24, 1995. The balance is paid to the Company from insurance
companies, private payors and others.
Home care services are marketed through referrals from public agencies,
hospitals, nursing homes and insurance companies. Both non-licensed and licensed
personnel provide services to individuals in their homes. Home care personnel
are recruited by the Company through newspaper advertisements and personal
referrals.
The healthcare industry is highly competitive. The Company competes with many
other companies which offer the same or similar services as those provided by
AMSERV. However, no one or two companies dominate the business. Although some of
the Company's competitors have greater capital resources than AMSERV, the
Company believes it can compete because of its responsiveness to the needs of
both clients and healthcare personnel through its emphasis on service.
At June 24, 1995, the Company and its subsidiaries employed approximately 48
full-time and 875 part-time persons for its continuing operations. The Company
strives to maintain good relations with its employees, considering them to be a
key to the Company's success. No employees are covered by a collective
bargaining agreement.
2
ITEM 2. PROPERTIES
AMSERV leases seven office facilities, which are located in Edison, Elizabeth,
Fairlawn, South Orange and Union City, New Jersey; Mansfield, Ohio; and La
Jolla, California, for the continuing operations of the Company. These leases
expire at various dates through October 1999. AMSERV believes that these
facilities are adequate for its operations.
In connection with the sale of assets of AMSERV MEDICAL PRODUCTS, INC. the
Company has guaranteed that certain lease payments will be made by the
purchasers. These payments are payable through September 1998 (See Note 11 to
Consolidated Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
On April 27, 1995, Stockbridge Investment Partners, Inc. ("Stockbridge")
commenced litigation in the Court of Chancery of the State of Delaware in and
for New Castle County (the "Delaware Litigation") against the Company and its
directors, Melvin L. Katten, Eugene J. Mora, Michael A. Robinton, George A.
Rogers and Ben L. Spinelli, seeking an order rescinding the transactions by
which the Company exchanged a promissory note held by North Central for 426,794
shares of preferred stock of the Company and financed the exercise by Mr. Mora
of stock options to acquire 177,562 shares of the Company's common stock, and
preliminarily and permanently enjoining the Company from recognizing such stock,
as well as any stock issued in connection with a letter of intent referred to in
the Company's April 13, 1995, press release, as validly issued for purposes of
voting or exercising rights to consent.
Following settlement discussions between Stockbridge and the Company, the
parties entered into a Standstill Agreement and a Settlement Agreement and
Release, both dated as of May 12, 1995, pursuant to which Stockbridge agreed,
among other things, to (i) revoke the consent delivered April 7, 1995, (ii)
suspend its solicitation of consents to remove a majority of the Company's Board
of Directors and (iii) dismiss with prejudice the Delaware Litigation. Under the
Standstill Agreement, which had a 30-day term, Stockbridge and the Company
agreed to continue good faith discussions and receive more detailed information
regarding a potential business combination involving the Company and a wholly-
owned subsidiary of Stockbridge, York Hannover Pharmaceuticals, Inc. ("York").
The parties further agreed that solely for purposes of Stockbridge's renewed
consent solicitation, subsequently initiated on June 16, 1995, the shares of
preferred stock will have no voting rights and will not be deemed as outstanding
voting securities. In addition, a voting agreement between the Company and North
Central with respect to the shares of preferred stock and a related irrevocable
proxy were rescinded. There are no voting or other restrictions on the preferred
stock with respect to any other consent solicitation, or with respect to any
annual or special meeting of the Company. The Standstill Agreement was
subsequently extended an additional 60 days and expired on August 10, 1995.
On August 23, 1995, the Delaware Court of Chancery ordered AMSERV to reimburse
Stockbridge for legal fees in the amount of $50,000 incurred in connection with
these legal proceedings, which the Company paid on September 1, 1995.
Discussions with respect to a potential business combination between AMSERV and
York continue.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal year to
a vote of security holders.
3
ITEM 4.1 EXECUTIVE OFFICERS OF THE REGISTRANT
The following information concerns the executive officers of the Company as of
October 2, 1995:
Eugene J. Mora, age 60, joined the Company as Chairman of the Board, President,
and Chief Executive Officer in March 1987. He is also Chief Executive Officer of
the Company's subsidiaries. He has been a director of the Company since October
1986. Mr. Mora also serves as a director of Washington Scientific Industries,
Inc., a publicly held company. From July 1974 through February 1987, he was
President of Kidde Business Services, Inc.
Lori Anderson, age 34, joined AMSERV in November 1993 as Director of Financial
Planning, and in December 1994, was promoted to Controller and Treasurer of the
Company. From 1991 through 1993, Ms. Anderson was employed by TheraTx,
Incorporated, a provider of rehabilitation therapy services, as Accounting
Manager and Controller. Ms. Anderson received her CPA Certificate in 1985, while
with Vekich, Arkema & Co., Chartered, an independent accounting and management
advisory firm where she worked as an auditor and accounting supervisor from 1984
through 1990.
Leslie Hodge, age 42, joined the Company in September 1990 as Director of Human
Resources for AMSERV NURSES, INC., a subsidiary of the Company, and was promoted
to Vice President of Human Resources in July 1991. In June 1992, she was named
Vice President of Administration and Secretary of AMSERV. From 1981 through
1990, she was employed by PS Trading, Inc., a sister subsidiary of Pacific
Southwest Airlines, as Vice President of Administration.
The following information concerns certain significant employees of the Company
as of October 2, 1995:
Kenneth Freeman, age 58, joined the Company in March 1991 when AMSERV HEALTHCARE
OF NEW JERSEY, INC., a wholly-owned subsidiary of the Company, acquired Always
Care of New Jersey, Inc. ("Always Care"), a home care company. Mr. Freeman
founded Always Care in 1976. He continues as Regional Manager of the subsidiary
supervising five home care offices in New Jersey.
Diane Gurik, age 45, joined the Company in June 1994 in connection with the
acquisition of North Central by AMSERV HEALTHCARE OF OHIO INC. ("AHO"), a
wholly-owned subsidiary of the Company. Ms. Gurik founded North Central, a home
care company, in 1983. She continues as President of the North Central Personnel
division of AHO.
4
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) Market Information - The Company's common stock is traded on the NASDAQ
Stock Market under the symbol "AMSR". The table below presents the high and low
bid quotations as reported by NASDAQ:
Fiscal 1995 Fiscal 1994
------------------ ------------------
High Low High Low
---- ----- ---- -----
First Quarter........... $ 1-3/8 $ 11/16 $ 1-1/2 $ 1
Second Quarter.......... $ 1-13/16 $ 7/8 $ 1-5/16 $ 13/16
Third Quarter........... $ 2-7/8 $ 1-9/16 $ 1-1/4 $ 13/16
Fourth Quarter.......... $ 3-1/4 $ 2-1/4 $ 1-1/2 $ 15/16
(b) Approximate Number of Shareholders of Common Stock - The approximate number
of holders of record of Common Stock as of October 2, 1995 was 1,700.
(c) The Company paid no cash dividends during the last five years. The Company
currently anticipates that it will retain all available funds for use in the
operation and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.
5
ITEM 6. SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Years Ended
-----------------------------------------------------
JUNE 24, June 30,
---------------------------------------
1995 1994 1993 1992 1991
------- ---------------------------------------
STATEMENT OF OPERATIONS DATA
Operating Revenue $11,342 $ 7,526 $ 6,049 $5,432 $1,362
Income (Loss) from
Continuing Operations 52 (63) (71) (48) (134)
Income (Loss) from
Discontinued Operations - (711) (359) 290 1,124
Gain (Loss) on Disposal of
Discontinued Operations 30 (1,168) - 1,405 -
Cumulative Effect of Change
in Accounting Principle 24 - - - -
Net Income (Loss) $ 106 $(1,942) $ (430) $1,647 $ 990
INCOME (LOSS) PER SHARE
Income (Loss) from
Continuing Operations $ .02 $ (.02) $ (.03) $ (.01) $ (.04)
Income (Loss) from
Discontinued Operations - (.24) (.12) .09 .35
Gain (Loss) on Disposal of
Discontinued Operations .01 (.40) - .45 -
Cumulative Effect of Change
in Accounting Principle - - - - -
Net Income (Loss) $ .03 $ (.66) $ (.15) $ .53 $ .31
Shares Used in Computing Per
Share Amounts 3,112 2,945 2,961 3,092 3,160
JUNE 24, June 30,
---------------------------------------
1995 1994 1993 1992 1991
------- ---------------------------------------
BALANCE SHEET DATA
Working Capital $ 2,466 $ 2,569 $ 3,471 $ 4,792 $ 3,095
Total Assets 6,684 6,558 7,427 8,858 7,508
Total Long-Term Liabilities 31 832 115 745 1,064
Redeemable Preferred Stock 683 - - - -
Shareholders' Equity $ 4,657 $ 4,348 $ 6,290 $ 6,699 $ 5,016
Current Ratio 2.9 2.9 4.4 4.4 3.2
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash, cash equivalents, and short-term investments increased from $1,321,000 at
June 30, 1994 to $2,619,000 at June 24, 1995. This increase of $1,298,000 during
the fiscal year is the result of the proceeds from the sale of the temporary
nursing services business, the collection of related accounts receivable, the
receipt of a federal income tax refund offset by payments made for the reduction
of long-term debt, redemption of preferred shares, and an advance on an earnout
obligation, paid in connection with the June 1994 acquisition of the assets of
North Central. The Company's balance sheet remains strong with a current ratio
of 2.9 to 1. Working capital requirements consist primarily of the financing of
accounts receivable and payments due for the redemption of preferred stock. The
Company believes that with its strong working capital condition, it is well
positioned to meet its anticipated cash requirements for operations, and
continue its expansion in home care and other health care services.
Comparison of 1995 to 1994
Operating revenues from continuing operations increased 51%, from $7,526,000 in
fiscal 1994 to $11,342,000 in fiscal 1995. This increase resulted from overall
increases in the demand for home care services, as well as the expansion of
operations to Union City, New Jersey. Fiscal 1995 results also include a full
year of operations for North Central, which was acquired in June 1994.
Selling, general and administrative expenses increased $3,593,000, or 48%, in
fiscal 1995 compared to fiscal 1994. The increase is primarily associated with
the increase in direct variable costs due to the increase in operating revenues
for the year, a full year's expenses associated with North Central, and costs of
approximately $487,000 incurred in connection with a shareholder consent
solicitation.
Depreciation and amortization increased $42,000, or 11%, from $373,000 in fiscal
1994 to $415,000 in fiscal 1995 due primarily to the depreciation of equipment,
furniture and fixtures and amortization of intangible assets acquired in the
acquisition of the assets of North Central.
In 1995, interest income increased $5,000, or 6% over fiscal 1994 as a result of
an increase in cash, cash equivalents and short-term investments offset by the
effects of lower interest rates on invested funds.
Interest expense increased from $8,000 in fiscal 1994 to $52,000 in fiscal 1995
due to interest incurred on the promissory note issued in connection with the
acquisition of the assets of North Central.
The effective income tax rate on income from continuing operations in fiscal
1995 was 4% compared to 28% for fiscal 1994. The 1994 benefit was primarily the
result of the tax benefit from measuring cumulative temporary differences in
connection with the disposal of the temporary nursing services business which
have reversed in fiscal 1995.
During fiscal 1994, the Company discontinued operation of its temporary nursing
services business and recorded a loss from discontinued operations of $711,000
and an after-tax loss on the anticipated disposal of discontinued operations of
$1,168,000. During fiscal 1995, the temporary nursing services business was sold
and after recognizing the 1994 writedown, an after-tax gain of $30,302 was
recognized. The 1995 gain resulted from the difference between the actual and
estimated loss on the disposal. See Note 4 of the Notes to Consolidated
Financial Statements for additional details.
7
In fiscal 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". The cumulative effect of the change in accounting principle
resulted in an after-tax adjustment to earnings for unrealized losses of
$24,000.
Comparison of 1994 to 1993
Operating revenues from continuing operations increased from $6,049,000 in
fiscal 1993 to $7,526,000 in fiscal 1994, an increase of 24%. This increase
resulted from increases in the demand for home care services. Fiscal 1994 also
includes $174,000 in operating revenues for the month of June, 1994, resulting
from the acquisition of the assets of North Central in June 1994.
Selling, general and administrative expenses increased $1,414,000, or 24% in
fiscal 1994 compared to fiscal 1993. The increase is primarily associated with
the increase in direct variable costs due to the increase in operating revenue
for the year.
In 1994, depreciation and amortization increased $14,000 or 4% over fiscal 1993
due to the depreciation of equipment, furniture and fixtures and the
amortization of intangible assets acquired in the acquisition of the assets of
North Central.
Interest income decreased to $89,000 in fiscal 1994 from $111,000 in fiscal 1993
as a direct result of lower interest rates on funds invested in various money
market funds, and an overall decrease in the cash balance.
In fiscal 1993, the remaining long-term debt in connection with the acquisition
of the New Jersey home care services subsidiary was retired and this reduction
contributed to the decrease in interest expense of $16,000 during fiscal 1994.
The effective income tax rate on the loss from continuing operations for fiscal
1994 was 28% compared to 45% for fiscal 1993. The 1994 benefit in excess of the
statutory rate is primarily the result of the tax benefit from measuring
cumulative temporary differences that will continue to reverse in future years.
The operating losses from the Company's temporary nursing services business
prompted the decision to dispose of this segment of the business. Net losses
from discontinued operations totalled $711,000 in fiscal 1994 and $359,000 in
fiscal 1993. The after-tax loss on the anticipated disposal of the discontinued
operations for fiscal 1994 of $1,168,000 consists of assets associated with the
temporary nursing services business and transition expenses during the phase out
period in fiscal 1995. See Note 4 of the Notes to Consolidated Financial
Statements for additional details.
8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company
required by this item are set forth at the pages indicated in Item 14 (a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Previously reported in the Company's Form 8-K dated March 21, 1995.
PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Proxy Statement relating to the Company's
1995 Annual Meeting of Shareholders to be filed pursuant to General Instruction
G(3) to Form 10-K, except information concerning the executive officers of the
Company which is set forth in Item 4.1 hereof.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement relating to the Company's
1995 Annual Meeting of Shareholders to be filed pursuant to General Instructions
G(3) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement relating to the Company's
1995 Annual Meeting of Shareholders to be filed pursuant to General Instructions
G(3) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement relating to the Company's
1995 Annual Meeting of Shareholders to be filed pursuant to General Instructions
G(3) to Form 10-K.
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
--------------------
The financial statements required by this item are submitted in a
separate section beginning on Page F-1 of this report.
Report of Ernst & Young LLP, Independent Auditors F-1
Report of Deloitte & Touche LLP, Independent Auditors F-2
Consolidated Balance Sheets, June 24, 1995,
and June 30, 1994 F-3
Consolidated Statements of Operations, Years Ended June
24, 1995, and June 30, 1994 and 1993 F-4
Consolidated Statements of Shareholders' Equity, Years
Ended June 24, 1995, and June 30, 1994, and 1993 F-5
Consolidated Statements of Cash Flows, Years Ended June
24, 1995, and June 30, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7
9
2. Financial Statement Schedule.
----------------------------
Schedule II Consolidated Valuation and Qualifying Accounts,
June 24, 1995, and June 30, 1994 and 1993 F-15
All other schedules are omitted because they are not applicable or not required,
or because the information is included in the financial statements or notes
thereto.
3. Exhibits.
--------
The exhibits listed on the accompanying Exhibit Index are filed as
part of this Annual Report.
(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 Company'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 the Company's principal
accountant was filed as an exhibit to Form 8-K. A Form 8-K/A dated April
26, 1995, was subsequently filed, 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.
3. A Form 8-K dated July 6, 1995, was filed with the Securities and Exchange
Commission disclosing an Exchange Agreement with North Central. Pursuant
to this agreement, 341,435 shares of Class A Preferred Stock held by North
Central were exchanged for 260,141 shares of Class B Preferred Stock. A
copy of the Exchange Agreement and the Certificate of Designation setting
forth the designations, preferences and rights of the Class B Preferred
Stock were filed as exhibits to Form 8-K.
10
SIGNATURES AND POWER OF ATTORNEY
--------------------------------
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/Eugene J. Mora
-----------------------------------
By: Eugene J. Mora
Chairman of the Board and President
Date: October 2, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated. Each person whose signature
appears below hereby authorizes each of Leslie Hodge and Melvin L. Katten, with
full power of substitution, to execute in the name of such person and to file
any amendment to this Annual Report making such changes in this Annual Report as
the Registrant deems appropriate, and appoints each of Leslie Hodge and Melvin
L. Katten, with full power of substitution, attorney-in-fact to sign and to file
any such amendment to this Annual Report.
Name Capacity Date Signed
- ---------------------------- --------------------- -----------------
Principal Executive Officer:
/s/Eugene J.Mora
- ----------------------------
Eugene J. Mora Chairman of the Board October 2, 1995
and President
Principal Financial and
Accounting Officer:
/s/Lori Anderson
- ----------------------------
Lori Anderson Treasurer October 2, 1995
Directors:
/s/Melvin L. Katten
- ----------------------------
Melvin L. Katten Director October 2, 1995
/s/Michael A. Robinton
- ----------------------------
Michael A. Robinton Director October 2, 1995
/s/George A. Rogers
- ----------------------------
George A. Rogers Director October 2, 1995
/s/Ben L. Spinelli
- ----------------------------
Ben L. Spinelli Director October 2, 1995
11
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AMSERV HEALTHCARE INC.
We have audited the accompanying consolidated balance sheet of AMSERV HEALTHCARE
INC. as of June 24, 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule as of June 24, 1995 listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AMSERV
HEALTHCARE INC. at June 24, 1995, and the consolidated results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" in fiscal
1995.
ERNST & YOUNG LLP
San Diego, California
August 11, 1995
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
AMSERV HEALTHCARE INC.:
We have audited the accompanying consolidated balance sheet of AMSERV HEALTHCARE
INC. and subsidiaries (the "Company") as of June 30, 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended June 30, 1994. Our audits also
included the consolidated financial statement schedule for the years ended June
30, 1994, and 1993 listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 1994,
and the results of their operations and their cash flows for each of the two
years in the period ended June 30, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, such 1994 and 1993 consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
October 7, 1994
F-2
AMSERV HEALTHCARE INC.
CONSOLIDATED BALANCE SHEETS
June 24, June 30,
1995 1994
-------- --------
ASSETS
Current Assets
Cash and cash equivalents (Note 1) $ 1,226,448 $ 643,987
Short-term investments, net (Notes 1 and 2) 1,392,021 676,615
Accounts receivable, net of allowance for
doubtful accounts of $103,264 in 1995 and $237,687 in 1994 973,731 1,964,903
Federal income taxes refundable - 326,628
Other current assets 187,463 335,389
----------- -----------
Total current assets 3,779,663 3,947,522
Equipment, Furniture and Fixtures net of
accumulated depreciation of $196,069 in 1995 and $135,906 in 1994 387,821 252,234
Intangible Assets, net (Note 3) 2,203,113 2,047,540
Other Assets 313,888 311,090
----------- -----------
$ 6,684,485 $ 6,558,386
=========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 105,663 $ 70,735
Accrued payroll and related taxes 561,143 580,035
Net liabilities of discontinued operations (Note 4) 391,770 116,718
Other current liabilities 254,778 277,928
Current maturities of long-term debt (Notes 5 and 6) - 333,334
----------- -----------
Total current liabilities 1,313,354 1,378,750
----------- -----------
Long-Term Liabilities
Long-term debt net of current maturities (Notes 5 and 6) - 666,666
Other long-term liabilities 30,859 165,000
----------- -----------
Total long-term liabilities 30,859 831,666
----------- -----------
Redeemable Preferred Stock
Class A Redeemable preferred stock, $.01 par value;
authorized 3,000,000 shares; issued and outstanding
341,435 shares in 1995 and none in 1994 (Note 7) 3,414 -
Additional paid-in capital (Note 7) 679,456 -
----------- -----------
Total redeemable preferred stock 682,870 -
Commitments and Contingencies (Notes 6, 10 and 11)
Common Shareholders' Equity
Common stock, $.01 par value; authorized 15,000,000 shares;
3,295,356 shares outstanding in 1995 and 3,087,794 shares
outstanding in 1994 (Note 8) 32,953 30,877
Treasury stock, at cost, 143,268 shares (Note 8) (296,053) (296,053)
Additional paid-in capital 6,787,963 6,373,936
Note receivable from officer (Note 12) (198,440) -
Unrealized loss on short-term investments (Note 2) (14,564) -
Retained earnings (deficit) (1,654,457) (1,760,790)
----------- -----------
Total common shareholders' equity 4,657,402 4,347,970
----------- -----------
$ 6,684,485 $ 6,558,386
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Years ended June 30,
June 24, 1995 1994 1993
------------- ---------------------------
Operating Revenues.................................. $ 11,341,609 $ 7,525,822 $ 6,048,748
------------ ------------ -----------
Operating Expenses
Selling, general and administrative................ 10,914,279 7,321,290 5,907,124
Depreciation and amortization (Note 1)............. 415,143 373,321 358,979
------------ ------------ -----------
Total operating expenses........................ 11,329,422 7,694,611 6,266,103
------------ ------------ -----------
Operating Income (Loss)............................. 12,187 (168,789) (217,355)
Interest Expense.................................... (51,543) (8,254) (24,471)
Interest Income..................................... 93,742 88,541 111,227
------------ ------------ -----------
Income (Loss) From Continuing Operations
Before Provision for Income Taxes.................. 54,386 (88,502) (130,599)
Income Tax Provision (Benefit) (Note 9)............. 2,038 (25,168) (59,207)
------------ ------------ -----------
Income (Loss) From Continuing Operations............ 52,348 (63,334) (71,392)
Discontinued Operations (Note 4)
Income (loss) from discontinued operations,
net of income taxes of ($282,401) in 1994
and ($297,793) in 1993........................... - (710,636) (359,076)
Gain (loss) on disposal of discontinued operations,
net of income taxes of $168,211 in 1995
and ($77,110) in 1994............................ 30,302 (1,167,949) -
Cumulative Effect to July 1, 1994 of
change in Accounting Principle,
net of income taxes of $12,752................... 23,683 - -
------------ ------------ -----------
Net Income (Loss)................................... $ 106,333 $ (1,941,919) $ (430,468)
============ ============ ===========
Income (Loss) Per Common Share (Note 1)
Income (loss) from continuing operations .......... $ .02 ($.02) ($.03)
Loss from discontinued operations.................. - (.24) (.12)
Gain (loss) on disposal of discontinued operations. .01 (.40) -
Cumulative Effect of change in accounting principle - - -
Net income (loss).................................. $ .03 ($.66) ($.15)
===== ====== ======
Shares Used in Computing Per Share Amounts.......... 3,111,527 2,944,526 2,960,647
========= ========== ==========
See accompanying notes to consolidated financial statements.
F-4
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended June 24, 1995, June 30, 1994 and 1993
----------------------------------------------------------------------------
Additional Note Receivable
Common Stock Treasury Stock Paid-In from
------------------ ------------------
Shares Amount Shares Amount Capital Officer
------ ------ ------ ------ ------- -------
Balances at June 30, 1992............... 2,917,794 $ 29,177 27,800 $ (62,800) $ 6,120,636 $ -
Shares issued in acquisition of
MED-PRO (Note 6).................... 170,000 1,700 - - 253,300 -
Treasury stock acquired
(Note 8)............................ - - 115,468 (233,253) - -
Net loss.............................. - - - - - -
--------- -------- ------- ---------- ----------- ------------
Balances at June 30, 1993............... 3,087,794 30,877 143,268 (296,053) 6,373,936 -
Net loss.............................. - - - - - -
--------- -------- ------- ---------- ----------- ------------
Balances at June 30, 1994............... 3,087,794 30,877 143,268 (296,053) 6,373,936 -
Stock Options exercised
including income tax
benefit (Note 12)................. 207,562 2,076 - - 414,027 (198,440)
Cumulative effect of change
in accounting principle (Note 2).... - - - - - -
Change in unrealized loss
on short-term investments........... - - - - - -
Net income............................ - - - - - -
--------- -------- ------- ---------- ----------- ------------
Balances at June 24, 1995............... 3,295,356 $ 32,953 143,268 $(296,053) $ 6,787,963 $ (198,440)
========= ======== ======= ========== =========== ============
Unrealized Retained
(Loss) on Earnings
Investments (Deficit) Total
----------- --------- -----
Balances at June 30, 1992............... $ - $ 611,597 $ 6,698,610
Shares issued in acquisition of
MED-PRO (Note 6).................... - - 255,000
Treasury stock acquired
(Note 8)............................ - - (233,253)
Net loss.............................. - (430,468) (430,468)
----------- ------------ -----------
Balances at June 30, 1993............... - 181,129 6,289,889
Net loss.............................. - (1,941,919) (1,941,919)
----------- ------------ -----------
Balances at June 30, 1994............... - (1,760,790) 4,347,970
Stock Options exercised
including income tax
benefit (Note 12)................. - - 217,663
Cumulative effect of change
in accounting principle (Note 2).... (23,683) - (23,683)
Change in unrealized loss
on short-term investments........... 9,119 - 9,119
Net income............................ - 106,333 106,333
----------- ------------ -----------
Balances at June 24, 1995............... $ (14,564) $(1,654,457) $ 4,657,402
=========== ============ ===========
See accompanying notes to consolidated financial statements.
F-5
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Years ended June 30,
June 24, 1995 1994 1993
-------------- -------------------------------------
OPERATING ACTIVITIES:
Net income (loss).................................................. $ 106,333 $ (1,941,919) $ (430,468)
Noncash items included in net income (loss):
Deferred income taxes......................................... 5,235 - -
Cumulative effect of change in accounting principles.......... (23,683) - -
(Gain) loss on disposal of discontinued operations............ (30,302) 1,167,949 -
Depreciation and amortization................................. 415,143 548,749 579,342
Provision for doubtful accounts............................... (134,423) - 140,000
Write-off of intangibles...................................... - 137,616 -
Gain on stock acquired in legal settlement.................... - - (52,500)
Loss on disposal of equipment, furniture and fixtures......... 32,680 45,078 15,575
Changes in assets and liabilities:
Accounts receivable........................................... 1,125,595 99,776 202,763
Income taxes.................................................. 326,628 200,998 (133,221)
Other assets.................................................. 94,717 (30,360) (135,451)
Accounts payable.............................................. 34,928 23,094 (9,591)
Loss contracts and unfavorable leases......................... - (44,000) (206,000)
Other liabilities............................................. (87,816) (106,876) (230,953)
---------------- ---------------- --------------
Net cash provided by (used in) operating activities................ 1,865,035 100,105 (260,504)
INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations................. 813,941 - -
Payment of costs related to discontinued operations........... (508,587) - (361,979)
Proceeds from sale of short-term investments.................. 880,000 268,750 2,503,309
Purchase of short-term investments............................ (1,586,285) (497,125) (2,064,191)
Purchase of equipment, furniture and fixtures................. (270,835) (25,965) (77,504)
Payments for acquisitions..................................... - (678,835) (871,897)
Cash received on notes receivable............................. 50,411 191,504 185,496
Issuance of note receivable .................................. - - (100,000)
Payment of earnout advance.................................... (500,000) - -
Proceeds from sale of equipment, furniture and fixtures....... 31,851 4,034 -
--------------- --------------- -------------
Net cash used in investing activities.............................. (1,089,504) (737,637) (786,766)
FINANCING ACTIVITIES:
Repayment of long-term debt................................... (166,666) - (666,666)
Purchase of treasury stock.................................... - - (180,753)
Issuance of note payable...................................... - 130,587 -
Repayment on note payable..................................... (73,349) (57,238) -
Redemption of class A preferred shares........................ (170,718) - -
Exercise of employee stock options............................ 217,663 - -
---------------- ---------------- --------------
Net cash provided by (used in) financing activities................ (193,070) 73,349 (847,419)
---------------- ---------------- --------------
Net increase (decrease) in cash and cash equivalents............... 582,461 (564,183) (1,894,689)
Cash and cash equivalents at beginning of year..................... 643,987 1,208,170 3,102,859
--------------- --------------- -------------
Cash and cash equivalents at end of year........................... $ 1,226,448 $ 643,987 $ 1,208,170
=============== =============== =============
NONCASH FINANCING AND INVESTING ACTIVITIES:
Transfer from accounts receivable to notes receivable.............. - 80,307 -
Issuance of common stock in the acquisition
of MED-PRO....................................................... - - 255,000
Issuance of Class A redeemable preferred stock
in exchange for note payable and related accrued interest..... 853,588 - -
Income tax paid.................................................... 145,784 5,294 28,347
Issuance of common stock upon exercise of options
in exchange for note receivable............................... 198,440 - -
Interest paid...................................................... 31,289 2,421 42,804
See accompanying notes to consolidated financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1/ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of AMSERV HEALTHCARE
INC. and its wholly-owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated. Certain prior
years' amounts have been reclassified to conform with current year presentation.
Fiscal Year
During fiscal 1995 the Company commenced utilizing a 52/53-week fiscal year
ending on the last Saturday in June. Monthly periods are accounted for in a
four-week, four-week, five-week sequence, with each quarter consisting of 13
weeks. All references to years relate to fiscal years rather than calendar
years.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash equivalents
represent surplus cash invested in highly liquid investments on a short-term
basis, with maturities of three months or less at date of purchase, until such
cash is required for the continuing operations of the Company. At June 24, 1995,
a substantial portion of the Company's cash is deposited in two banks and one
brokerage company. The Company monitors the financial status of the banks and
the brokerage company and does not believe the deposits are subject to a
significant degree of risk.
Accounting for Investments in Debt and Equity Securities
In July 1994, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". The Company's management has classified its investment securities
as available-for-sale and has recorded unrealized holding gains and losses as a
separate component of shareholders' equity. The cumulative effect of the change
in accounting principle resulted in an after-tax increase to income for
unrealized losses of $23,683 at July 1, 1994 (Note 2).
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated at cost. Additions and major
improvements are capitalized. Depreciation is computed using the straight-line
method over the estimated useful lives of the various classes of assets which
range from three to seven years.
Intangible Assets
Excess of cost over acquired net assets is amortized on a straight-line basis
over periods ranging from 35 to 37 years. Other intangible assets are stated at
acquisition cost and are being amortized on a straight-line basis over their
estimated useful lives of five years.
Revenue Recognition and Accounts Receivable
Operating revenue is reported at net realizable amounts from third-party payors
and individual patients for services rendered in the period in which the
services are provided. The Company receives payment for services rendered to
patients from state government sponsored programs, private third-party insurance
and individual patients. Amounts due from private third-party insurance and
individual patients are subject to differing economic conditions, and do not
represent any concentrated credit risk to the Company. Management believes that
reserves are adequate to cover any anticipated losses.
Income Taxes
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The adoption of SFAS 109
changed the Company's method of accounting for income taxes to an asset and
liability approach. Prior to July 1993, the Company accounted for income taxes
under SFAS No. 96.
F-7
Earnings Per Share
Earnings per share are based on the weighted average number of common and common
equivalent shares outstanding. Certain stock options and warrants are 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.
NOTE 2/SHORT-TERM INVESTMENTS
Short-term investments are recorded at estimated fair market value at June 24,
1995 and June 30, 1994, and consist primarily of tax exempt bonds and money
market non-government securities with maturities of more than three months, and
common and preferred stock. In July 1994, the Company classified all of its
investments as available-for-sale securities according to Statement of Financial
Accounting Standards No. 115. The following table summarizes available-for-sale
securities at June 24, 1995:
Available-for-Sale Securities
-------------------------------------
Gross Estimated
Unrealized Fair
Cost Losses Value
-------------------------------------
Money Market/Non-Govt Securities $ 453,903 $ 2,494 $ 451,409
Tax Exempt Government Bonds 605,020 158 604,862
Common Stock 110,000 23,000 87,000
Preferred Stock 250,000 1,250 248,750
----------- -------- -----------
Total $ 1,418,923 $ 26,902 $ 1,392,021
=========== ======== ===========
As a result of the adoption of SFAS No. 115, the Company records net unrealized
holding gains and losses, net of income tax effects, as a separate component of
shareholders' equity. Previously, unrealized losses had been charged to
operations. The cumulative effect of this change in accounting principle
resulted in an after-tax adjustment to earnings of $23,683 at July 1, 1994.
A net realized gain on sales of available-for-sale securities of $2,413 was
recognized in fiscal 1995. A net realized loss of $11,250 was recognized in
fiscal 1994.
The amortized cost and estimated fair value of short-term investments at June
24, 1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because issuers of the securities may have
the right to prepay obligations without prepayment penalties.
Estimated
Fair
Cost Value
-------------------------
Due in one year or less $ 603,958 $ 601,410
Due after one year through
three years - -
Due after three years 454,965 454,861
Equity Securities 360,000 335,750
----------- -----------
Total $ 1,418,923 $ 1,392,021
----------- -----------
F-8
NOTE 3/INTANGIBLE ASSETS
Intangible assets acquired in acquisitions (Note 6) consist of the following:
June 24, June 30,
1995 1994
--------- ---------
Excess of cost over acquired net assets.... $ 2,088,063 $ 1,588,063
Assembled workforce........................ 497,154 497,154
Accreditation and training programs........ 502,846 502,846
Covenant not to compete.................... 525,000 525,000
----------- -----------
3,613,063 3,113,063
Less: Accumulated amortization............ 1,409,950 1,065,523
----------- -----------
$ 2,203,113 $ 2,047,540
=========== ===========
NOTE 4/DISCONTINUED OPERATIONS
On September 20, 1994, the Company signed a Letter of Intent to sell its
temporary nursing services business. As a result, the Company recorded a fiscal
1994 fourth quarter charge of $1,167,949 (after income tax benefit of $77,110)
to provide for a loss on the disposal of these discontinued operations and their
after-tax estimated operating losses of $149,627 until the estimated date of
disposal. On November 9, 1994, the Company completed this transaction, and sold
substantially all of the fixed and intangible assets of its temporary nursing
services business for $814,000 in cash. The related net liabilities for this
discontinued operation are included in the balance sheet under the caption "Net
liabilities of discontinued operations". The balance remaining unpaid at June
24, 1995, relates to various state and local tax and payroll issues that have
not been finalized and a remaining severance obligation. The consolidated
statements of operations for fiscal 1995, 1994, and 1993, exclude sales and
expenses for its temporary nursing services business from captions applicable to
continuing operations. Revenues from the discontinued operation during fiscal
1995 were $3,988,696. Operating results of the discontinued operation for fiscal
years 1994 and 1993 are summarized below:
Fiscal Years ended June 30,
1994 1993
------------------------------
Net Sales....................... $12,022,618 $12,799,605
Loss Before Income Taxes........ (993,037) (656,869)
Income Tax Benefit.............. (282,401) (297,793)
Loss from Discontinued
Operations................... (710,636) (359,076)
F-9
NOTE 5/LONG-TERM DEBT
Long-term debt at June 30, 1994, consists of a $1,000,000 unsecured note payable
(less current maturities of $333,334) issued in the acquisition of the assets of
North Central Personnel, Inc. (Note 6). In April 1995, the Company exchanged
this note for redeemable preferred stock (Note 7).
NOTE 6/ACQUISITIONS
On June 10, 1994, the Company, through its wholly-owned subsidiary AMSERV
HEALTHCARE OF OHIO INC., acquired substantially all the assets and property of
North Central Personnel, Inc. ("North Central"). The acquisition, which was
accounted for as a purchase, had an initial purchase price of $1,553,835. The
Company paid $553,835 of the purchase price with cash, and the balance of
$1,000,000 was financed by a promissory note payable to the seller (Note 5). The
final purchase price is contingent on an earnout, of which $500,000 was advanced
on April 6, 1995. The remaining earnout will not exceed $500,000. The excess of
the purchase price over the valuation of tangible assets was assigned to
goodwill ($1,047,000) and a non-competition agreement ($25,000). The earnout
advance and all future earnout payments will be accounted for as additional
purchase price of North Central.
The consolidated statement of operations for fiscal 1994 included the operating
results of North Central from May 29, 1994. The following unaudited pro forma
results of continuing operations have been prepared assuming the acquisition had
occurred July 1, 1993. This pro forma information is for comparative purposes
only and does not purport to be indicative of results that would have occurred
if the acquisition had been made at the beginning of fiscal year 1994, and is
not intended to be a projection of results which may occur in the future.
Year ended June 30,
1994
-------------------
Net Sales............................ $ 9,639,076
Income from Continuing Operations.... $ 146,651
Income from Continuing Operations
Per Common Share................... $.05
In July 1992, the Company acquired substantially all of the operating assets and
property of MED-PRO, Inc. ("MED-PRO"), a leading provider of supplemental
staffing to healthcare facilities with offices in Phoenix, San Diego and San
Francisco. The acquisition was accounted for as a purchase and, accordingly, the
results of operations of the acquired business were included in the Company's
fiscal 1993 operating results from July 21, 1992. The purchase price consisted
of cash of $872,000 and 170,000 restricted shares of AMSERV HEALTHCARE common
stock. The operations of MED-PRO were sold with the sale of the Company's
temporary nursing services business in November 1994 (Note 4).
F-10
NOTE 7/REDEEMABLE PREFERRED STOCK
In April 1995, the Company issued 426,794 shares of its voting Class A
Redeemable Preferred Stock, which had a redemption value of $2.00 per share, in
exchange for the Company's promissory note payable to North Central (Note 6) and
related accrued interest which totalled $853,588 on the date of the exchange.
The preferred shares pay no dividends and may be redeemed at the option of the
holder, in specified installments for cash. On May 29, 1995, 85,359 shares were
redeemed for $170,718. Subsequently, on July 6, 1995, the remaining 341,435
Class A Redeemable Preferred Shares were exchanged for 260,141 Class B
Redeemable Preferred Shares, with a redemption price of $2.625 per share. These
remaining 260,141 shares with an aggregate redemption value of $682,870 at June
24, 1995, may be redeemed in installments of approximately 65,000 shares on
November 29, 1995, May 29, 1996, November 29, 1996, and May 29, 1997. All
outstanding Class B shares become redeemable in the event of default or change
of control.
Following is a summary of the aggregate redemption amounts of the Class B
shares:
Fiscal Year Ending Amount
------------------ ------
1996 $ 341,434
1997 $ 341,436
NOTE 8/COMMON STOCK
Treasury Stock
In March 1992, the Board of Directors authorized the Company to repurchase up to
ten percent of its common stock. During fiscal 1992, the Company purchased
27,800 shares at an average price of $2.26 per share. In fiscal 1993, 85,468
shares were purchased at an average price of $2.11 per share and 30,000 shares
with a value of $52,500 were acquired in a legal settlement. The Board voted to
discontinue the stock repurchase program in January 1993.
1991 Stock Option Plan
In November 1991 the shareholders of the Company approved the "1991 Stock Option
Plan" (the "Plan"), which replaced the 1982 Incentive Stock Option Plan and the
1987 Non-Qualified Stock Option plan. The purpose of the Plan is to promote the
overall financial objectives of the Company and its shareholders by motivating
those persons selected to participate in the Plan to achieve long-term growth in
shareholder equity in the Company and by retaining the association of those
individuals who are instrumental in achieving this growth. Options granted under
the Plan may be either Incentive Stock Options or Non-Qualified Stock Options.
The price per share is determined by the Stock Option Committee of the Board of
Directors at the time of the grant. The options are exercisable for a period of
ten years from the date of grant, subject to earlier termination as set forth in
the Plan. Options are exercisable according to vesting schedules as determined
by the Stock Option Committee. As of June 24, 1995, there were 1,201,677 shares
of common stock reserved for options.
F-11
Following is a summary of option activity for fiscal years 1995, 1994 and 1993:
Options Options Available
Exercisable Granted for Grant
----------- ------- ---------
Outstanding, June 30, 1992
($1.81 to $6.38 per share).......... 501,993 596,922 812,317
Granted............................. - 135,800 (135,800)
Became exercisable.................. 53,169 - -
Canceled or expired................. (51,789) (84,229) 84,229
--------- --------- --------
Outstanding, June 30, 1993
($1.44 to $6.38 per share).......... 503,373 648,493 760,746
Granted............................. - 54,800 (54,800)
Became exercisable.................. 43,812 - -
Canceled or expired................. (7,250) (39,700) 39,700
--------- --------- --------
Outstanding, June 30, 1994
($1.00 to $6.38 per share).......... 539,935 663,593 745,646
Granted............................. - 15,200 (15,200)
Became exercisable.................. 52,763 - -
Options exercised................... (207,562) (207,562) -
Canceled or expired................. (73,374) (112,750) 112,750
--------- --------- --------
Outstanding, June 24, 1995
($1.00 to $6.38 per share).......... 311,762 358,481 843,196
========= ========= ========
NOTE 9/INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS 109 on a prospective basis. The
impact of adopting SFAS 109 was not material to the consolidated financial
statements.
Components of the provision (benefit) for income taxes from continuing
operations are as follows:
June 24, 1995 June 30, 1994 June 30, 1993
------------- ------------- -------------
Current:
Federal $ (53,219) $ (25,168) $ (59,207)
State 50,022 - -
----------- ----------- -----------
(3,197) (25,168) (59,207)
Deferred:
Federal 5,235 - -
State - - -
---------- ---------- -----------
5,235 - -
---------- ---------- -----------
Total Provision $ 2,038 $ (25,168) $ (59,207)
========== ========== ===========
F-12
Significant components of the Company's deferred tax assets and liabilities are
as follows:
June 24, 1995 June 30, 1994
------------- -------------
Deferred tax assets:
Reserve for discontinued operations $ 157,249 $ 278,490
Bad debt reserve 41,448 95,403
Accrued expenses 102,190 176,983
Securities valuation 8,976 16,260
Tax credits 92,696 92,696
Net operating loss carryforward 9,060 13,288
State taxes 1,088 1,088
---------- ----------
Total deferred tax assets 412,707 674,208
---------- ----------
Deferred tax liabilities:
Depreciation and amortization (38,069) (146,555)
Prepaid expenses (38,874) (98,643)
----------- -----------
Total deferred tax liabilities (76,943) (245,198)
----------- -----------
Valuation allowance (335,764) (346,665)
----------- -----------
Net deferred tax asset $ - $ 82,345
=========== ===========
The net deferred tax assets and liabilities at June 30, 1994, are reflected in
part in the "Net liabilities of discontinued operations" on the balance sheet at
June 30, 1994. In 1995, the valuation allowance was adjusted to fully reserve
for the net deferred tax assets as realization is not assured.
The Company has a California net operating loss carryforward of approximately
$135,000 which will begin to expire in 1997. In addition, the Company has
investment tax credits of $48,401 which will begin expiring in 1999. The Company
also has $44,295 of alternative minimum tax credits which may be carried forward
indefinitely. No benefits for the credit carryforwards has been recognized in
the financial statements.
A reconciliation between the amount computed by multiplying income from
continuing operations by the statutory federal rate and the amount of reported
income taxes is as follows:
June 24, 1995 June 30, 1994 June 30, 1993
------------- ------------- -------------
Amount % Amount % Amount %
------ - ------ - ------ -
Taxes based on statutory rate of 35% $ 19,035 35.0 $ (30,975) 35.0 $ (44,403) 34.0
State taxes, net of federal benefit 33,015 60.7 - - - -
Surtax benefit (10,877) (20.0) 885 (1.0) - -
Items without tax benefit 38,552 70.9 - - - -
Valuation allowance (77,687) (142.8) 4,922 (5.5) (14,804) 11.3
----------- ------- ---------- ----- ----------- ----
Tax Provision $ 2,038 3.8 $ (25,168) 28.5 $ (59,207) 45.3
=========== === =========== ==== =========== ====
F-13
NOTE 10/LEASE COMMITMENTS
The Company leases seven office facilities for its continuing operations under
operating leases which expire on various dates through October 1999. The leases
generally provide that the Company pay the taxes, insurance, and maintenance
expenses related to the leased property and include early termination clauses
which allow cancellation with penalties. The following is a schedule by fiscal
year of future minimum rental payments for these leases as of June 24, 1995:
1996....................................... $ 202,068
1997....................................... 169,479
1998....................................... 125,344
1999....................................... 97,365
2000....................................... 6,872
----------
$ 601,128
==========
Rental expense for continuing operations for fiscal 1995, 1994 and 1993 under
all operating leases amounted to $187,106, $141,037 and $132,657, respectively.
NOTE 11/CONTINGENCY
In connection with the sale of AMSERV MEDICAL PRODUCTS in 1992, the Company has
guaranteed certain lease payments will be made by the purchasers. The amount of
future lease payments guaranteed by the Company totalled $405,093 at June 24,
1995 and are payable through September 1998.
NOTE 12/ NOTE RECEIVABLE FROM OFFICER
On April 20, 1995, the Company accepted a non-recourse promissory note from the
Company's Chief Executive Officer, Eugene J. Mora, in the original principal
amount of $198,440, bearing interest at a rate of 10% per annum and maturing in
April 2000, and $1,100 in cash for the exercise of options for 110,000 shares of
the Company's common stock. The promissory note is secured by 177,562 shares of
the Company's common stock owned by Mr. Mora.
NOTE 13/RELATED PARTY TRANSACTIONS
A director of the Company, Melvin L. Katten, is a partner in a law firm which
provided certain legal services to the Company. The Company incurred legal fees
with such firm of $114,208, $39,272 and $20,996 for fiscal years 1995, 1994 and
1993, respectively.
NOTE 14/FOURTH QUARTER ADJUSTMENT
The fiscal 1995 results of operations include an adjustment in the fourth
quarter totalling approximately $138,000 that resulted from an increase in the
income tax provision related to the Company's previously reported discontinued
operation which should have been recorded in the second quarter of fiscal 1995.
F-14
Schedule II
AMSERV HEALTHCARE INC.
Consolidated Valuation and Qualifying Accounts
For The Years Ended June 24, 1995, and June 30, 1994, and 1993
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance At Charged To Balance At
Beginning Costs and End
Description Of Year Expenses Deductions Of Year
----------- ---------- --------- ---------- ---------
1995
- ----
Allowance for Doubtful
Accounts...................... $ 237,687 $ (25,000) \2\ $ 109,423 \1\ $ 103,264
1994
- ----
Allowance for Doubtful
Accounts...................... $ 261,337 $ - $ 23,650 \1\ $ 237,687
1993
- ----
Allowance for Doubtful
Accounts................... $ 229,782 $ 140,000 $ 108,445 \1\ $ 261,337
1 Uncollectible receivables written off, net of recoveries
2 Reduction of reserve balance
F-15
EXHIBIT INDEX
Page
2.1 Asset Purchase Agreement dated March 22, 1991, by and
between Always Care of New Jersey, Inc., and AMSERV
NURSES OF NEW JERSEY, INC. incorporated herein by
reference from the Company's Form 8-K dated March 22,
1991. -
2.2 Asset Purchase Agreement dated March 31, 1992, by and
between MERX, Inc., AMSERV, Inc.,and AMSERV
MEDICAL PRODUCTS, INC. incorporated herein by
reference from the Company's Form 8-K dated March 31,
1992. -
2.3 Asset Purchase Agreement dated July 21, 1992, by and
between John Parker and AMSERV NURSES OF
WASHINGTON, INC. incorporated herein by reference from
the Company's Form 8-K dated July 21, 1992. -
2.4 Asset Purchase Agreement dated June 10, 1994, by and
between North Central Personnel, Inc. and AMSERV
HEALTHCARE OF OHIO INC. incorporated herein by
reference from the Company's Form 8-K dated June 10, 1994. -
2.5 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. incorporated herein by reference from the Company's
Form 10-Q dated May 10, 1995. -
3.1 Certificate of Incorporation of the Company, as amended. E-5
3.2 By-laws of the Company, as amended. E-12
4.1 Form of Common Stock Certificate incorporated herein by
reference from the Company's Registration Statement on Form
10, Exhibit 3, filed October 3, 1977. -
4.2 Certificate of Designation of Class A Preferred Stock, -
incorporated herein by reference from the Company's Form
10-Q dated May 10, 1995. -
4.3 Certificate of Designation of Class B Preferred Stock,
incorporated herein by reference from the Company's Form
8-K dated July 6, 1995. -
4.4 Exchange Agreement dated July 6, 1995, between the
Company and North Central Personnel, Inc. incorporated
herein by reference from the Company's Form 8-K dated July
6, 1995. -
E-1
10.1 Company's 1982 Stock Option Plan incorporated herein by
reference from the Company's Registration Statement on Form
S-8 dated August 12, 1988. -
10.2 Employment Agreement dated February 27, 1987, and
amended August 8, 1989, by and between AMSERV
HEALTHCARE INC. and Eugene J. Mora, President. E-23
10.3 Non-Competition Agreement dated March 22, 1991, by and
between Kenneth Freeman and AMSERV NURSES OF NEW
JERSEY, INC. incorporated herein by reference from the
Company's Form 8-K dated March 22, 1991. -
10.4 Consulting Agreement dated August 23, 1990, and amended
August 15, 1991, by and between AMSERV HEALTHCARE
INC. and Eugene J. Mora, President. E-33
10.5 Non-Competition Agreement dated March 31, 1992, by and
between MERX, Inc., AMSERV, Inc. and AMSERV
MEDICAL PRODUCTS, INC. incorporated herein by
reference from the Company's Form 8-K dated March 31,
1992. -
10.6 Company's 1991 Stock Option Plan incorporated herein by
reference from the Company's Registration Statement on Form
S-8 dated April 16, 1992, as amended. -
10.7 Non-Competition Agreement dated July 21, 1992, by and
between John Parker and AMSERV NURSES OF
WASHINGTON, INC. incorporated herein by reference from
the Company's Form 8-K dated July 21, 1992. -
10.8 Non-Competition Agreement dated June 10, 1994, by and
between Diane Gurik and AMSERV HEALTHCARE OF
OHIO INC. incorporated herein by reference from the
Company's Form 8-K dated June 10, 1994. -
10.9 Promissory note dated June 10, 1994, by and between North
Central Personnel, Inc. and AMSERV HEALTHCARE OF
OHIO INC. incorporated herein by reference from the
Company's Form 8-K/A dated August 22, 1994. -
10.10 Employment Agreement dated March 21, 1995, by and
between AMSERV HEALTHCARE INC. and Leslie Hodge,
Vice President - Administration and Secretary. E-36
10.11 Employment Agreement dated March 21, 1995, by and
between AMSERV HEALTHCARE INC. and Lori Anderson,
Controller and Treasurer. E-45
10.12 Promissory note dated April 20, 1995, by and between Eugene
J. Mora and AMSERV HEALTHCARE INC. incorporated
herein by reference from Amendment No. 8 to Mr. Mora's
Schedule 13D, dated April 7, 1995. -
E-2
10.13 Stock Pledge Agreement dated April 20, 1995, by and
between Eugene J. Mora and AMSERV HEALTHCARE
INC., incorporated herein by reference from Amendment No.
8 to Mr. Mora's Schedule 13D dated April 7, 1995. -
10.14 Voting Agreement and Proxy dated April 7, 1995, by and
between North Central Personnel, Inc. and
AMSERV HEALTHCARE INC., incorporated herein by
reference from Amendment No. 8 to Eugene J. Mora's
Schedule 13D dated April 7, 1995. -
10.15 Recission Agreement dated May 12, 1995, by and between
North Central Personnel, Inc. and AMSERV
HEALTHCARE INC., incorporated herein by reference from
Amendment No. 8 to Eugene J. Mora's Schedule 13D dated
April 7, 1995. -
10.16 Stock Purchase Agreement dated April 7, 1995, by and
between AMSERV HEALTHCARE INC. and North Central
Personnel, Inc. incorporated herein by reference from the
Company's Form 10-Q dated May 10, 1995. -
10.17 Standstill Agreement dated May 12, 1995, by and among
Stockbridge Investment Partners, Inc., and AMSERV
HEALTHCARE INC., and each of their affiliates, associates,
groups, directors, officers, representatives or agents,
incorporated herein by reference from Amendment No. 4 to
Stockbridge Investment Partners, Inc.'s Schedule 13D dated
May 15, 1995. -
10.18 Stipulation and Order of Settlement, Release of Claims and
Final Judgment dated May 12, 1995, by and between
Stockbridge Investment Partners, Inc., and AMSERV
HEALTHCARE INC. and its directors. E-54
10.19 Renewed Standstill Agreement dated June 9, 1995, by and
among Stockbridge Investment Partners, Inc., and AMSERV
HEALTHCARE INC., and each of their affiliates, associates,
groups, directors, officers, representatives or agents,
incorporated herein by reference from Amendment No. 5 to
Stockbridge Investment Partners, Inc.'s Schedule 13D dated
June 13, 1995. -
16.1 Letter dated March 27, 1995, from Deloitte & Touche LLP
regarding change in Company's principal accountant,
incorporated herein by reference from the Company's Form
8-K dated March 21, 1995. -
16.2 Letter dated April 25, 1995, from Deloitte & Touche LLP
amending previous letter regarding change in Company's
principal accountant, incorporated herein by reference from
the Company's Form 8-K/A dated April 26, 1995. -
21.1 Subsidiaries of AMSERV HEALTHCARE INC. E-58
E-3
23.1 Consent of Ernst & Young LLP E-59
23.2 Consent of Deloitte & Touche LLP E-60
24.1 Power of Attorney (included on signature page hereto). -
27.1 Financial Data Schedule E-61
E-4