SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 23, 1996
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OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 0-08547
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AMSERV HEALTHCARE INC
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(Exact name of Issuer as specified in its charter)
DELAWARE 94-1627467
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3252 Holiday Court, #204, La Jolla, CA 92037
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(Address of principal executive offices) (Zip code)
(Issuer's telephone number, including area code) (619) 597-1000
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Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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As of May 3, 1996, there were outstanding 3,305,953 shares of the Issuer's
common stock, par value $.01 per share.
Transitional Small Business Disclosure Format (check one):
Yes No X
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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 23, 1996 AND JUNE 24, 1995 3
B. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE AND NINE MONTH PERIODS
ENDED MARCH 23, 1996 AND MARCH 31, 1995 4
C. CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS FOR THE NINE MONTH PERIODS
ENDED MARCH 23, 1996 AND MARCH 31, 1995 5
D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 8 - 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
EXHIBIT INDEX E-1
2
PART I - FINANCIAL INFORMATION
AMSERV HEALTHCARE INC.
CONSOLIDATED BALANCE SHEETS
March 23, June 24,
1996 1995
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ASSETS (unaudited)
Current Assets
Cash and cash equivalents................................................................ $ 2,305,423 $ 1,226,448
Short-term investments, net.............................................................. 103,500 1,392,021
Accounts receivable, net of allowance for
doubtful accounts of $87,811 and $103,264, respectively................................. 1,320,969 973,731
Other current assets..................................................................... 390,827 187,463
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Total current assets................................................................... 4,120,719 3,779,663
Equipment, furniture and fixtures net of
accumulated depreciation of $273,369 and $196,069, respectively.......................... 429,597 387,821
Intangible assets, net.................................................................... 2,004,881 2,203,113
Other assets.............................................................................. 277,863 313,888
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$ 6,833,060 $ 6,684,485
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LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable......................................................................... $ 35,139 $ 105,663
Accrued payroll and related taxes........................................................ 780,407 561,143
Net liabilities of discontinued operations (Note 4)...................................... 115,422 391,770
Other current liabilities................................................................ 258,296 254,778
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Total current liabilities.............................................................. 1,189,264 1,313,354
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Long-Term Liabilities
Other long-term liabilities.............................................................. 33,406 30,859
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Total long-term liabilities............................................................ 33,406 30,859
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Redeemable Preferred Stock
Redeemable preferred stock, $.01 par value;
authorized 3,000,000 shares:
Class A; issued and outstanding 341,435 shares (Note 5)................................ - 3,414
Class B; issued and outstanding 195,106 shares (Note 5)................................ 1,951 -
Additional paid-in capital (Note 5)...................................................... 510,202 679,456
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Total redeemable preferred stock....................................................... 512,153 682,870
Common Shareholders' Equity
Common stock, $.01 par value; authorized 15,000,000 shares;
3,448,221 shares and 3,295,356 shares
outstanding, respectively............................................................... 34,482 32,953
Treasury stock, at cost, 143,268 shares.................................................. (296,053) (296,053)
Additional paid-in capital............................................................... 7,064,031 6,787,963
Notes receivable from officer............................................................ (397,782) (198,440)
Unrealized gain (loss) on short-term investments......................................... 5,838 (14,564)
Accumulated deficit...................................................................... (1,312,279) (1,654,457)
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Total common shareholders' equity...................................................... 5,098,237 4,657,402
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$ 6,833,060 $ 6,684,485
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See accompanying notes to consolidated financial statements.
3
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Nine months ended
March 23, March 31, March 23, March 31,
1996 1995 1996 1995
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Operating Revenues....................... $3,122,251 $2,899,543 $9,117,616 $8,402,485
---------- ---------- ---------- ----------
Operating Expenses
Selling, general and administrative..... 2,912,013 2,693,274 8,396,028 7,783,797
Depreciation and amortization........... 92,799 110,939 275,532 330,806
---------- ---------- ---------- ----------
Total Operating Expenses.............. 3,004,812 2,804,213 8,671,560 8,114,603
---------- ---------- ---------- ----------
Operating Income
from Continuing Operations.............. 117,439 95,330 446,056 287,882
Interest Expense......................... - (14,422) - (50,726)
Interest Income.......................... 33,216 35,617 120,122 66,599
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Income from Continuing Operations
Before Provision for Income Taxes....... 150,655 116,525 566,178 303,755
Income Tax Provision..................... 60,000 32,000 224,000 79,000
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Net Income from
Continuing Operations................... 90,655 84,525 342,178 224,755
Gain on Disposal of
Discontinued Operations
(less applicable income tax provision
of $29,777)............................. - - - 168,736
Net Income............................... $ 90,655 $ 84,525 $ 342,178 $ 393,491
========== ========== ========== ==========
Net Income Per Common Share:
Income from Continuing Operations....... $ 0.03 $ 0.03 $ 0.10 $ 0.07
Gain on Disposal of
Discontinued Operations................ - - - 0.05
Net Income.............................. $ 0.03 $ 0.03 $ 0.10 $ 0.12
========== ========== ========== ==========
Shares Used in Computing
Per Share Amounts....................... 3,346,643 3,132,660 3,269,084 3,132,660
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
AMSERV HEALTHCARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
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March 23, March 31,
1996 1995
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OPERATING ACTIVITIES:
Net income................................................. $ 342,178 $ 393,491
Noncash items included in net income:
Depreciation and amortization............................. 275,532 330,806
Loss on disposal of equipment, furniture and fixtures..... - 32,680
Changes in assets and liabilities:
Accounts receivable....................................... (347,238) 822,107
Income taxes.............................................. 151,443 105,942
Other assets.............................................. (167,339) 143,174
Accounts payable.......................................... (70,524) (54,927)
Other liabilities......................................... 73,886 (126,039)
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Net cash provided by operating activities.................. 257,938 1,647,234
INVESTING ACTIVITIES:
Proceeds from sale of discontinued operations............. - 813,941
Payment of costs related to discontinued operations....... (276,348) (560,502)
Proceeds from sale of short-term investments.............. 2,310,486 405,000
Purchase of short-term investments........................ (1,001,563) (1,572,829)
Proceeds from sale of equipment, furniture and fixtures... - 31,851
Purchase of equipment, furniture and fixtures............. (119,076) (256,028)
Cash received on notes receivable......................... - 50,411
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Net cash provided by (used in) investing activities........ 913,499 (1,088,156)
FINANCING ACTIVITIES:
Repayment on note payable................................. - (240,016)
Redemption of class B preferred shares.................... (170,717) -
Exercise of employee stock options........................ 78,255 -
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Net cash used in financing activities...................... (92,462) (240,016)
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Net increase in cash and cash equivalents.................. 1,078,975 319,062
Cash and cash equivalents at beginning of year............. 1,226,448 643,987
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Cash and cash equivalents at end of period................. $ 2,305,423 $ 963,049
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NONCASH FINANCING AND INVESTING ACTIVITIES:
Income tax paid............................................ 189,715 145,884
Interest paid.............................................. - 37,115
See accompanying notes to consolidated financial statements.
5
AMSERV HEALTHCARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 23, 1996, and the results of operations and cash
flows for the three and nine month periods ended March 23, 1996 and March 31,
1995. Information included in the condensed consolidated balance sheet as of
June 24, 1995 has been derived from the Company's Form 10-K for the year ended
June 24, 1995 ("1995 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 1995 Form
10-K.
2. 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.
3. EARNINGS PER SHARE
Earnings per share for the three and nine month periods ended March 23, 1996 and
March 31, 1995 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.
4. 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
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 March 23, 1996, relates to various
state and local tax and payroll liabilities that have not been resolved.
5. REDEEMABLE PREFERRED STOCK
On April 7, 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 Personnel,
Inc. 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
and an aggregate redemption value of $682,870. During the current fiscal year,
65,035 shares have been redeemed for $170,717. As of March 23, 1996, the
remaining 195,106 shares, with an aggregate redemption value of $512,153, may be
redeemed in installments of approximately 65,000 shares on or after May 29,
1996, November 29, 1996 and May 29, 1997, at the option of the holder. All
outstanding Class B shares become redeemable in the event of default.
6
6. SUBSEQUENT EVENTS
MERGER AGREEMENT
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On February 9, 1996, AMSERV's Board of Directors approved and the Company
executed an Agreement and Plan of Merger with Star Multi Care Services, Inc.
(NASDAQ:SMCS) ("Star"), in a stock transaction intended to qualify as a tax free
reorganization and to be accounted for as a pooling of interests. The merger is
subject to the approval of the shareholders of both companies, certain state and
regulatory approvals, and other customary conditions. The merger is expected to
be completed during the summer of 1996.
CONSENT SOLICITATION
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By letters dated January 8, February 21, and March 13, 1996, York Hannover
Pharmaceuticals, Inc., a wholly-owned subsidiary of Stockbridge Investment
Partners, Inc. ("Stockbridge") and member of the Stockbridge Group, indicated
its intent to act by written consent and requested the Board set record dates.
January 29, February 29, and March 15, 1996, were established by the Board as
the respective record dates.
On or about March 7, 1996, Stockbridge commenced its solicitation of consents to
remove the five current members of the Board of Directors and replace each
member with a Stockbridge nominee. On March 13, 1996, AMSERV commenced a
solicitation of revocations of consent in opposition to the Stockbridge
solicitation.
CASH TENDER OFFER
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On March 29, 1996, AMSERV received from Stockbridge a letter purporting to be an
offer to purchase for $3.00 per share in cash all outstanding shares of AMSERV
Common Stock. According to the letter, Stockbridge's proposal would be
structured as a merger to be voted on by AMSERV's shareholders. By letter dated
April 2, 1996, AMSERV responded to Stockbridge's proposal and stated that in
order for the Board of Directors to properly evaluate the proposal it would need
detailed answers to various questions regarding, among other things, whether the
proposal is subject to financing and, if so, the source(s) of such financing,
and the proposed structure of the merger, including what entity would be the
survivor. By letter dated April 12, 1996 addressed to Batchelder & Partners,
Inc., the Company's financial advisor, Stockbridge stated that it intends to
restructure its proposal in the form of a tender offer for any and all
outstanding shares of the Company and that Stockbridge expected to submit
evidence of irrevocable financing commitments to the Company on or before April
24, 1996. As of May 3, 1996, no such information was received.
7
AMSERV HEALTHCARE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments decreased $210,000, from
$2,619,000 to $2,409,000 during the first nine months of fiscal 1996. This
decrease is the result of an increase in accounts receivable and payments made
during the period for corporate income taxes. The Company's balance sheet
maintains a current ratio of 3.5 to 1 at March 23, 1996. As discussed
previously, the Company has executed an Agreement and Plan of Merger with Star
and is the subject of litigation and a consent solicitation by Stockbridge which
will require the Company to incur legal and accounting charges. These
professional fees are estimated to be approximately $230,000 for the fourth
quarter of fiscal 1996. Management believes that its working capital position
will enable the Company to continue its expansion in home care and other health
care services and meet its anticipated cash requirements.
OPERATING RESULTS
Operating revenues for the three and nine month periods ended March 23, 1996
increased $223,000 or 8%, and $715,000 or 8%, respectively, over the same
periods of a year ago. Higher operating revenues are the result of an overall
increase in the demand for home care services.
Selling, general and administrative expenses for the three and nine months ended
March 23, 1996 increased $219,000 or 8%, and $612,000 or 8%, respectively,
compared to the same periods of the prior fiscal year. These increases were
primarily the result of the direct variable costs associated with the increase
in operating revenues; the fixed costs incurred regarding the start-up office in
Union City, New Jersey, which began operations in October 1994; and additional
expenses incurred in connection with the JCAHO accreditation program initiated
throughout the offices in New Jersey and Ohio and the implementation of new
pediatric and marketing programs in New Jersey.
Depreciation and amortization decreased $18,000 or 16%, and $55,000 or 17%,
respectively, during the three and nine month periods ended March 23, 1996 over
the same periods of fiscal 1995. These overall decreases are the result of a
reduction of amortization expense in connection with the intangible assets
acquired in the purchase of the New Jersey subsidiary, part of which became
fully amortized, offset by an increase in depreciation expense due to the
purchase of equipment, furniture and fixtures.
Interest income totalled $33,000 and $120,000, respectively, during the three
and nine month periods ended March 23, 1996 compared to $36,000 and $67,000,
respectively, during the same periods of a year ago. The overall increase of
$53,000 during the nine month period ended March 23, 1996 is due to interest and
dividends received during the period related to various short-term investments
and interest earned during fiscal 1996 on promissory notes receivable from an
officer of the Company related to the exercise of employee stock options.
8
Net income from continuing operations increased from $85,000 to $91,000, or 7%,
for the third quarter of fiscal 1996, compared to the third quarter of fiscal
1995. For the nine months ended March 23, 1996, net income from continuing
operations increased 52% to $342,000, compared to $225,000 for the same nine
month period of fiscal 1995. Net income for the nine month period of fiscal
1995 included an after-tax gain of $169,000 as a result of the sale of the
Company's temporary nursing services business.
Provision for income taxes increased from $32,000 to $60,000, and from $79,000
to $224,000, for the three and nine month periods ended March 23, 1996 compared
to the same periods of fiscal 1995, which is an overall increase of 43% in the
Company's effective tax rate. In addition, the average shares outstanding used
in computing per share amounts increased 7% and 4%, respectively, for the three
and nine month periods of fiscal 1996 compared to fiscal 1995.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 22, 1996, Stockbridge Investment Partners, Inc. ("Stockbridge")
commenced litigation against AMSERV in the United States District Court for the
District of Massachusetts. In its complaint, Stockbridge alleges that AMSERV
breached the terms of the October 18, 1995 agreement between AMSERV and
Stockbridge by refusing to deal with a merger proposal by Stockbridge, which
Stockbridge described as "pre-emptive", in a fair and equitable manner. The
relief sought by Stockbridge includes reimbursement of Stockbridge's expenses in
the amount of $125,000, unspecified damages which Stockbridge estimates at more
than $275,000 and attorneys' fees. On March 14, 1996, AMSERV filed a motion to
dismiss Stockbridge's complaint for lack of personal jurisdiction. AMSERV
denies, and intends to vigorously defend itself against, Stockbridge's claims in
this lawsuit .
On April 9, 1996, Stockbridge commenced litigation against AMSERV in the Court
of Chancery of the State of Delaware for New Castle County. In its complaint,
Stockbridge requests that the Court enter judgment summarily ordering AMSERV to
conduct an annual meeting of shareholders for the purpose of electing directors
and conducting such other business as may properly be conducted at the meeting.
AMSERV intends to seek a dismissal of such action on the basis of its scheduling
an annual meeting of shareholders to consider and vote on the previously
announced merger pending between AMSERV and Star Multi Care Services, Inc., to
elect directors and to ratify the selection of Ernst & Young LLP as AMSERV's
independent public accountants .
On April 18, 1996, the Company filed a lawsuit in the United States District
Court for the Southern District of California against Stockbridge, the other
parties to Amendment No. 9 to Stockbridge's Schedule 13D (the "Stockbridge
Group") and other individuals not disclosed by Stockbridge as part of its group
for numerous violations of Sections 13(d) and 14(a) of the Securities Exchange
Act of 1934. Among the violations listed by the Company are the defendants'
failure to disclose all of the members of Stockbridge's Section 13(d) "group",
misstatements in the Stockbridge Group's consent solicitation materials, and
Stockbridge's failure to disclose its offer to purchase for $3.00 per share any
and all outstanding shares of AMSERV Common Stock. The Company seeks injunctive
relief against Stockbridge's stockholder consent solicitation, and a declaration
that the Stockbridge Group has and must publicly disclose beneficial ownership
of 10% or more of the Company's Common Stock, thereby triggering AMSERV's Rights
Plan. On April 19, 1996, Stockbridge filed an amended Schedule 13D which
included incomplete information about the $3.00 per share cash offer.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed as part of
this Quarterly Report.
(b) Reports on Form 8-K:
1. A Form 8-K dated January 26, 1996, was filed with the Securities and
Exchange Commission adopting a Shareholder Rights Plan. The plan declares
a dividend of one preferred stock purchase right for each share of common
stock of the Company outstanding at the close of business on January 29,
1996.
11
SIGNATURES
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In accordance with the requirements of the Securities Exchange Act of 1934, the
Issuer caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMSERV HEALTHCARE INC.
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Issuer
/s/ Eugene J. Mora
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Eugene J. Mora May 3, 1996
Chairman and President
/s/ Lori Anderson
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Lori Anderson May 3, 1996
Treasurer
12
EXHIBIT INDEX
Page
2.6 Agreement and Plan of Merger among the Company, Star Multi Care
Services, Inc. ("Star"), and AHI Acquisition Corp., dated
February 9, 1996, incorporated herein by reference from Star's
Form 10-QSB for the quarterly period ended February 29, 1996. -
27.1 Financial Data Schedule. E-2
99.2 Complaint filed February 22, 1996, in the United States
District Court for the Western District of Massachusetts, by
Stockbridge against the Company, incorporated herein by
reference from Amendment No. 10 to Stockbridge's Schedule
13D, dated April 18, 1996. -
99.3 Consent Solicitation commenced March 7, 1996, by
Stockbridge Investment Partners, Inc., incorporated herein by
reference from Amendment No. 10 to Stockbridge's Schedule
13D, dated April 18, 1996. -
99.4 Letter dated March 29, 1996 from Stockbridge to the Company,
incorporated herein by reference from Amendment No. 10 to
Stockbridge's Schedule 13D, dated April 18, 1996. -
99.5 Letter dated April 2, 1996, from the Company to Stockbridge. E-4
99.6 Letter dated April 12, 1996 from Stockbridge to Batchelder &
Partners, Inc. E-6
99.7 Complaint filed April 9, 1996, in the Court of Chancery of
the State of Delaware for New Castle County, by Stockbridge
against the Company, incorporated herein by reference from
Amendment No. 10 to Stockbridge's Schedule 13D, dated
April 18, 1996. -
99.8 Complaint filed April 18, 1996, in the United States District
Court for the Southern District of California by the Company
against Stockbridge, et al. E-7
E-1