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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 COMMISSION FILE NO. 0-28379
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HEALTHCOMP EVALUATION SERVICES CORPORATION
NEVADA 88-0395372
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2001 SIESTA DRIVE, SUITE 302
SARASOTA, FLORIDA 34239
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(Address and zip code of principal executive offices
941-925-2625
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(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
COMMON STOCK 39,705,171 SHARES OUTSTANDING
$0.001 PAR VALUE AS OF NOVEMBER 10, 2000
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HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
REPORT ON FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
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Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of September 30, 2000 and
December 31, 1999
Consolidated statements of operations for the three months
and nine months ended September 30, 2000 and September 30, 1999.
Consolidated statements of cash flows for the nine months ended
September 30, 2000 and September 30, 1999.
Notes to consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Part II. Other Information
Item 1. Legal Proceedings
Item 3. Default on Senior Security
Item 6. Exhibits and Report Filed on Form 8-K
3
ITEM 1. FINANCIAL INFORMATION
HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) September 30, December 31,
2000 1999
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 345 $ 57
Accounts receivable, net of allowance for doubtful accounts of
$70,000 and $248,000 in 2000 and 1999, respectively................... 2,847 1,622
Inventory................................................................... 105 122
Prepaid expenses and other current assets................................... 480 254
-------- --------
Total current assets................................. 3,776 2,055
-------- --------
PROPERTY AND EQUIPMENT, net................................................. 2,789 1,655
INTANGIBLES, net............................................................ 4,739 2,981
OTHER ASSETS................................................................ 369 376
-------- --------
Total Assets......................................... $ 11,674 $ 7,067
======== ========
CURRENT LIABILITIES:
Current portion of long-term debt and notes payable......................... $ 7,098 $ 1,440
Accounts payable............................................................ 2,695 1,972
Accrued liabilities......................................................... 1,260 791
Interest payable............................................................ 44 32
Deferred tax liabilities.................................................... 69 75
Other....................................................................... -- 12
Total current liabilities............................ 11,167 4,322
LONG-TERM DEBT, less current portion........................................ 1,826 972
-------- --------
Total liabilities.................................... 12,993 5,294
-------- --------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value, 50,000,000 shares authorized, 14,804,891
and 13,846,902 share issued during 2000 and 1999 respectively............... 15 14
Paid-in capital............................................................. 10,716 10,328
Treasury stock, 946,000 shares.............................................. (142) (142)
Accumulated deficit......................................................... (11,907) (8,427)
-------- --------
Total shareholders' equity (deficit)................. (1,319) 1,773
-------- --------
$ 11,674 $ 7,067
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HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- ------- -------- -------
NET SALES....................................... $ 3,413 $ 2,638 $ 10,180 $ 7,146
COST OF SALES................................... 2,341 1,361 6,150 3,759
-------- ------- -------- -------
Gross Profit.................... 1,071 1,277 4,030 3,386
-------- ------- -------- -------
OPERATING EXPENSES
Selling, general, and administrative expenses... 2,397 1,375 5,408 3,576
Depreciation and amortization expense........... 168 134 543 366
-------- ------- -------- -------
Total operating expenses........ 2,565 1,509 5,951 3,943
-------- ------- -------- -------
INCOME (LOSS)................................... (1,493) (232) (1,921) (556)
INTEREST EXPENSE................................ 241 123 550 377
OTHER EXPENSE................................... 651 105 853 928
-------- ------- -------- -------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT)...... (2,385) (461) (3,324) (1,862)
INCOME TAX PROVISION............................ -- -- -- --
-------- ------- -------- -------
NET LOSS........................................ $ (2,385) $ (461) $ (3,324) $(1,862)
======== ======= ======== =======
BASIC AND DILUTED EARNINGS PER SHARE............ $ (0.17) $ (0.05) $ (0.23) $ (0.19)
======== ======= ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING............. 14,450 9,675 14,450 9,675
======== ======= ======== =======
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HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 30,
------------------------
2000 1999
Cash flows from operating activities:
Net Income/(Loss)................................................... $(3,324) $(1,862)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............................... 543 366
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net............................ (1,225) (469)
Prepaid expenses and other current assets........... (209) (1,704)
Accounts payable and accrued expenses............... 1,187 333
Change in other assets.............................. (65) 41
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Net cash used in operating activities....... (3,094) (3,294)
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Cash flows from investing activities:
Capital expenditures................................................ (519) (322)
Acquisitions........................................................ (3,000) 1,756
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Net cash used in investing activities.............. (3,519) 1,434
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Cash flows from financing activities:
Borrowings of notes payable......................................... 6,702 951
(Repayments) of notes payable....................................... (190) (1,411)
Proceeds from the issuance of common stock.......................... 388 1,919
Purchase of treasury stock.......................................... -- --
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Net cash provided by financing activities........... 6,901 1,459
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Net Change in Cash and Cash Equivalents..................................... 288 (402)
Cash and Cash Equivalents, beginning of period.............................. 57 457
------- -------
Cash and Cash Equivalents, end of period.................................... $ 345 $ 55
======= =======
SUPPLEMENTAL NON-CASH DISCLOSURE:
During 1999, the Company converted $1.3 million in long-term debt to
common stock.
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HEALTHCOMP EVALUATION SERVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB. Therefore, they do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, and cash flows, in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the quarter ended September 30, 2000 are
not necessarily indicative of the results that can be expected for the entire
year.
The Company filed a Form-10SB on December 8, 1999 which became
effective on February 8, 2000, pursuant to which the Company is subject to the
reporting requirements of the Securities Exchange Act of 1934. These statements
should be read in conjunction with information provided in the Form 10-SB filing
and related amendments thereto.
Basic earnings per share ("EPS") are computed based on the weighted
average number of shares of the Company's common stock outstanding. Since the
impact of the Company's common equivalent shares from stock options, warrants
and convertible securities is antidilutive, they are not included in the
computation of diluted EPS.
Comprehensive income includes all changes in a company's equity during
the period that result from transactions and other economic events other than
transactions with its stockholders. For the Company, comprehensive income (loss)
equals net income (loss).
NOTE 2 - BUSINESS COMBINATIONS
On March 15, 1999, the Company acquired all of the outstanding shares
of Afton, Inc. ("Afton") in a reverse merger transaction accomplished through
the issuance of 5.4 million shares of the Company's $0.001 par value common
stock in exchange for all of Afton's outstanding common stock. In addition, the
Company issued 4.1 million warrants to purchase its common stock in exchange for
all of Afton's outstanding warrants to purchase common stock. Until its
acquisition of Afton, the Company had no operating activities; accordingly, all
comments concerning the Company's operating activities prior to March 15, 1999
included in these notes and the related consolidated financial statements
included herein pertain to the operating activities of Afton.
On April 1, 1999, the Company acquired the assets of Health Services of
Florida, Inc., a Clearwater, Florida-based wellness testing firm, for a purchase
price of $187,000, which included the assumption of liabilities of $4,000. The
excess of the purchase price over the fair value of the identifiable assets
acquired of $110,000 has been recorded as an intangible and is being amortized
on a straight-line basis over 20 years. The allocation of the purchase price to
the assets acquired and liabilities assumed has been recorded based on the fair
value, as follows:
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Working capital, net............................ $ 31,000
Property and equipment.......................... 50,000
Intangibles..................................... 110,000
Liabilities assumed............................. (4,000)
--------
$187,000
========
On June 1, 1999, the Company acquired certain mobile health testing
services assets from UPMC Diversified Health Services, Inc., a unit of the
University of Pittsburgh health system, for a purchase price of $814,000. The
excess of the purchase price over the fair value of the identifiable assets
acquired of $251,000 has been recorded as an intangible and is being amortized
on a straight-line basis over 20 years. The allocation of the purchase price to
the assets acquired and liabilities assumed has been recorded based on the fair
value, as follows:
Working capital, net............................. $125,000
Property and equipment........................... 439,000
Intangibles...................................... 250,000
--------
$814,000
========
As of September 15, 2000, the Company acquired the Preventive Services
Division of U.S. HealthWorks, Inc., a leading provider of clinic-based
occupational health services, for total consideration of $3.0 million, of which
$2.0 million was paid in cash at closing on September 21, 2000 with the balance
to be paid in quarterly installments over the next twelve months. Funds used to
complete the acquisition were provided under the terms of a financing
arrangement between the Company and Diligenti, Inc. (see Note 3. "Debt" below).
The excess of the purchase price over the fair value of the identifiable assets
acquired of $1,560,000 has been recorded as an intangible and is being amortized
on a straight-line basis over 20 years. The allocation of the purchase price to
the assets acquired and liabilities assumed has been recorded based on the fair
value, as follows:
Working capital, net............................. $ 340,000
Property and equipment........................... 1,100,000
Intangibles...................................... 1,560,000
----------
$3,000,000
==========
The Preventive Services Division ("PSD") provides mobile audiometric
and respiratory testing services, industrial hygiene and safety consulting and
data processing and health evaluation services to a national client base. The
assets acquired by the Company will be integrated into the Company's worksite
medical surveillance business to service existing clients of the Company and of
PSD.
NOTE 3 - DEBT
During the quarter, the Company received $500,000 in short-term bridge
financing from one of its customers, the proceeds of which were applied to meet
short-term working capital requirements of the Company. That note bears interest
at 12.5 % per annum and was due on September 11, 2000. The Company is
negotiating with the lender to restructure this note; however, while the Company
believes that discussions are proceeding satisfactorily, there can be no
assurance that an acceptable resolution will be achieved.
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In addition, as of September 15, 2000, the Company entered into a
strategic relationship with Diligenti, a global life sciences group, through its
US subsidiary, Diligenti, Inc. (collectively, "Diligenti"). Pursuant to the
terms of an Amended and Restated Loan Agreement, dated as of October 3, 2000
(the "Loan Agreement"), between the Company and Diligenti, Inc., $3.75 million
was loaned to the Company on September 21, 2000 in exchange for a convertible
note, the proceeds of which were used to finance the acquisition of the
Preventive Services Division of U.S. HealthWorks, Inc. (See Note 2. "Business
Combinations" above). Under the terms of the Loan Agreement, Diligenti has the
option, subject to satisfaction of certain conditions, to make an additional
investment of $1.25 million in HESc's common stock in the future. The
combination of those shares of stock issuable on conversion of the note,
together with the shares of stock issuable in connection with the additional
$1.25 million investment that Diligenti has the option to make, would result in
Diligenti owning shares of common stock representing 51% of HESc's fully diluted
common stock.
Subsequent to September 30, 2000, Diligenti converted the note and
invested the additional $1.25 million in exchange for approximately 24.9 million
shares of the Company's common stock. Interest accrued on the note has been
cancelled.
NOTE 4 - OPERATING SEGMENTS
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that an enterprise disclose certain information about
operating segments. The Company operates in two segments - Substance Abuse
Screening Services and Mobile Health Screening Services. In evaluating financial
performance, management focuses on a segment's earnings before interest, taxes,
depreciation and amortization ("EBITDA").
Segment Information
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
2000 1999 2000 1999
------- ------- -------- -------
SEGMENT REVENUES
Substance Abuse......................... $ 1,690 $ 1,445 $ 5,346 $ 4,240
Mobile Screening........................ 1,743 1,230 4,940 3,011
Corporate items and eliminations........ (20) (37) (106) (106)
------- ------- -------- -------
CONSOLIDATED REVENUES................... $ 3,413 $ 2,638 $ 10,180 $ 7,146
======= ======= ======== =======
SEGMENT EARNINGS (LOSS) (EBITDA)
Substance Abuse......................... $ (70) $ 153 $ 509 $ 367
Mobile Screening........................ (513) 185 (122) 440
Corporate items and eliminations........ (743) (436) (1,765) (997)
------- ------- -------- -------
CONSOLIDATED EARNINGS (LOSS) (EBITDA)... $(1,325) $ (98) $ (1,378) $ (190)
======= ======= ======== =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Cautionary Statement Identifying Important Factors
That Could Cause the Company's Actual Results to Differ
From Those Projected in Forward Looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document and any
document incorporated by reference herein, are advised that this document and
documents incorporated by reference into this document contain both statements
of historical facts and forward looking statements. Forward looking statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earnings or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance and (iv) statements
of assumptions underlying other statements and statements about the Company or
its business.
This document and any documents incorporated by reference herein also
identify important factors which could cause actual results to differ materially
from those indicated by the forward looking statements. These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products, customers acceptance of products and services, the
possible effects of acquisitions and related financings and other factors which
are described herein and/or in documents incorporated by reference herein.
The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not be
construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many
cases the Company cannot predict what factors would cause results to differ
materially from those indicated by the forward looking statements.
Introduction
The Company specializes in data management services for employers'
worker populations, and provides substance abuse, worksite medical surveillance,
and related employee health, wellness and screening and compliance services. The
Company provides these services at their customers' place of business or through
a network of clinics and other fixed sites. Screening examinations are completed
in accordance with recognized protocols established by federal or state
mandates, clients or generally accepted medical screening procedures. While the
Company provides screening services, it does not provide diagnostic or treatment
services, if necessary, based on the test results. If further action is required
(e.g., treatment or further testing), examination or testing results are
provided to the employees' personal physician (if requested by the employee) or
to the Company's customer.
The Company operates in two reportable segments: Substance Abuse and
Mobile Medical Screening. Substance Abuse includes the collection of urine
samples and the administration of the testing, reporting and compliance process
for client companies. Mobile Medical Screening entails the operation of a fleet
of vehicle equipped with various medical screening and testing equipment that
perform a variety of services at customers' places of business. Following the
acquisition of the Preventive Services Division ("PSD") from U.S. HealthWorks,
Inc. as of September 15, 2000, this
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segment also includes certain industrial safety consulting services. The Company
was formed in 1993, and through acquisitions and internal growth, delivers its
services throughout the United States.
Capital and Sources of Liquidity
The Company has invested heavily in infrastructure to service its
customers and in the development of information systems, data base management
software and customer reporting applications software. As a result, the
Company's cash flow from operations has historically been negative and has
required the Company to raise substantial additional capital in the form of bank
financing (as described below), long-term debt provided by private investors and
equity in order to continue operations. The Company believes that it will begin
realizing benefits, in the form of increased revenues, during the years 2001 and
beyond through acquisition of new clients and sales of information services to
existing customers.
The Company has entered into a financing arrangement with Bank of
America to provide working capital to support the Company's operations and
growth. Under the terms of this facility, the Bank advances 70% of the face
value of the invoice upon presentation with the balance being remitted to the
Company upon payment of the amount due by the Company's customer. Furthermore,
the Company has received a $5.0 million capital infusion from Diligenti, Inc.
("Diligenti") (see Note 3. "Debt" under Item 1. above). While this $5.0 million
investment has helped the Company to address its immediate working capital
needs, additional funding is still required to sustain operations, settle
certain past due accounts payable and fund the continued growth of its core
business. To address these needs, the Company is in the final stage of
negotiations with Diligenti Limited, Diligenti's parent company, to secure a
further $5.0 million of funding in the form of a secured convertible bridge
note. Should the Company be successful in securing this further facility, the
funds made available thereunder will allow the Company to settle certain past
debts as well as normalize working capital. In addition, the facility will fund
projected future growth as well as allowing the Company to complete the
integration of PSD, its most recent acquisition. Moreover, the Company is
negotiating with certain debtholders to restructure earlier financings that are
currently in default. The Company believes that these negotiations are
proceeding satisfactorily; however, there can be no assurance that an acceptable
resolution will be achieved.
For the nine months ended September 30, 2000, cash flow from operations
used $3.1 million as operating losses and increases in accounts receivable
resulting from increased sales volumes more than offset increases in accounts
payable and other expense accruals. Cash flows from investing activities used
$3.5 million during the first nine months of 2000 for the PSD acquisition ($3.0
million) and capital expenditures ($519,000). In addition, for the nine months
ended September 30, 2000, the Company had net borrowings of notes payable of
$6,512,000 (including the $3.75 million received from Diligenti and a $1.0
million note issued to U.S. HealthWorks, Inc. in connection with the PSD
acquisition) and received $388,000 from the issuance of common stock. As a
result, the Company had net cash provided from financing activities of $6.9
million for the nine months ended September 30, 2000.
For the nine months ended September 30, 1999, cash flow from operations
declined $3.3 million as a result of net losses and an increase in other current
assets as a result of (a) the deferred receipt (at the Company's request) of a
portion of capital raised by Afton, Inc. before its reverse merger with the
Company, (b) higher accounts receivable resulting from acquisitions, and (c)
increases in prepaid expenses, sundry receivables and other current items
resulting from acquisitions by the Company during 1999. Capital expenditures
during the first nine months of 1999 aggregated $322,000.
Results of Operations
In evaluating financial performance, management focuses on a segment's
earnings before interest, taxes, depreciation and amortization ("EBITDA"). Net
income, determined after corporate
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expenses, interest and depreciation and amortization costs, is reviewed by
management on a consolidated basis only. The following paragraphs describe key
operating measurements for each segment and consolidated net income.
Substance Abuse
Substance Abuse revenues for the three months ended September 30, 2000
totaled $1.7 million compared with $1.4 million for the three months ended
September 30, 1999. The increase ($245,000 or 17%) was primarily attributable to
new customer contracts and increased volume from acquisition of Medical Drug
Testing, Inc. ("MDT") during fourth quarter 1999 and expansion of services
within the Company's existing customer base. Revenues for the nine months ended
September 30, 2000 totaled $5.3 million, up 26% ($1,106,000) from the comparable
period during 1999. The increase resulted from higher volumes and the
acquisition of MDT described previously.
Gross profit for the three months ended September 30, 2000 aggregated
$579,000 compared with $606,000 for the three months ended September 30, 1999.
This decrease was attributable to lower margins in the Company's collection
services associated with new contract start-ups and higher collection network
costs offset partially by the higher volume described above and operating
efficiencies from consolidation of TPA operations. Gross profit for the nine
months ended September 30, 2000 totaled $1.4 million, up 27% from $1.1 million
for the same period during 1999. Increased volume and consolidation efficiencies
in the Company's TPA operations accounted for most of the increase.
Selling, general and administrative expenses increased 30.1% from
$453,000 for the three months ended September 30, 1999 to $589,000 during the
same period this year. This increase was attributable principally to higher
collection services compensation and benefit costs; office expenses, principally
telephone costs associated with acquired operations and higher business volumes;
and contract start-up costs. For the nine months ended September 30, 2000,
selling, general and administrative expenses increased $76,000 from the nine
month period ended September 30, 1999, primarily as a result of higher contract
start-up costs and office expenses offset, in part, by lower compensation and
benefit costs.
EBITDA for the three months ended September 30, 2000 totaled a negative
$70,000 compared with $153,000 income during the same period in 1999 as higher
volumes and cost reductions in the TPA operations were more than offset by
higher collection network and contract start-up costs. For the nine months ended
September 30, 2000, EBITDA increased $142,000 (up 39%) compared with the nine
months ended September 30, 1999. The increase resulted from higher sales volumes
and consolidation benefits, offset partially by start-up costs in the Company's
collection operations.
Mobile Screening
Mobile Screening revenues for the three months ended September 30, 2000
totaled $1.7 million compared with $1.2 million for the three months ended
September 30, 1999. This increase (42%) was attributable to new contracts and
higher volume associated with a business acquired during fourth quarter 1999 and
the PSD acquisition during mid-September 2000. During the nine months ended
September 30, 2000, revenues increased $1.9 million, from $3.0 million during
the first nine months of 1999 to $4.9 million during the same period of 2000.
Higher volumes from the existing customer base and new contracts associated with
acquisitions during the second and fourth quarters of 1999 and the PSD
acquisition during mid-September 2000 resulted in the higher revenue level.
Gross profits decreased 18% during the three months ended September 30,
2000, from $671,000 in 1999 to $552,000 for the same period during 2000. This
decrease resulted from higher direct labor and related travel costs for the
Company's technicians and lower utilization of the business' mobile vehicle
fleet. For the nine months ended September 30, 2000, gross profits totaled $2.1
million compared with
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$1.6 million during the same period of 1999, an increase of 26%. The increase
resulted from higher sales volumes and new customer contracts as described
above.
Selling, general and administrative expenses for the three months ended
September 30, 2000 totaled $1.1 million compared with $486,000 for the same
period in 1999, primarily as a result of operating costs associated with
companies acquired during fourth quarter of 1999, higher lodging and related
travel costs and initial expenses related to the PSD acquisition. Selling,
general and administrative expenses for the nine months ended September 30, 2000
increased $995,000 from $1.2 million during 1999 to $2.2 million during 2000 as
a result of higher compensation, office and travel expenses associated with the
acquisitions described above.
EBITDA for the period ended September 30, 2000 was a $513,000 loss
compared with earnings of $185,000 for the same period in 1999. The decreased
earnings resulted from higher costs associated with the consolidation of
acquired operations and lower gross profits as described above. For the nine
months ended September 30, 2000, EBITDA losses totaled $122,000 compared with
earnings of $440,000 during the comparable period of 1999. The year-to-date
decrease was principally attributable to the third quarter losses described
above, offset partially by the strong sales performance during the first quarter
of 2000 and sales associated with the Company's new call center.
CORPORATE ITEMS AND NET LOSS
Corporate selling, general and administrative expenses, including costs
associated with the Company's executive offices, corporate sales and marketing,
accounting and information and data management operations, totaled $743,000 for
the period ended September 30, 2000 compared with $436,000 for the same period
in 1999. The increase resulted principally from higher costs related to
corporate sales activities, insurance expense, facility costs related to the
Company's new corporate offices and the addition of headquarters marketing
personnel. For the nine months ended September 30, 2000, corporate selling,
general and administrative expenses totaled $1.8 million compared with $997,000
for the nine months ended September 30, 1999, an increase of $768,000 resulting
primarily from higher compensation costs, office expense and insurance costs
during 2000.
Interest expenses ($241,000) increased $118,000 during third quarter
2000 compared with the same period last year. The increase was attributable
principally to (a) financing the higher level of operating activity associated
with sales volume growth and prior period acquisitions and (b) higher debt
levels associated with bridge loans required to finance the Company's on-going
operations. For the nine month period ending September 30, 2000, interest
expense totaled $550,000, an increase of $173,000, as a result of higher working
capital needs and funding of operating losses.
Net loss increased $1.9 million, from $461,000 during the three months
ended September 30, 1999 to $2.4 million for the comparable period this year,
primarily as a result of lower operating earnings in the Company's mobile health
screening business and costs associated with the PSD acquisition during
September 2000. Net loss for the first nine months of 2000 totaled $3.3 million
compared with $1.9 million during the same period last year. The increased loss
was attributable to lower mobile testing operating profits, higher corporate
expenses and interest costs and acquisition expenses associated with the PSD
business.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company's officers and directors are aware of no threatened or
pending litigation which would have a material, adverse effect on the Company.
ITEM 3. DEFAULT ON SENIOR SECURITY.
During the quarter, the Company received $500,000 in short-term bridge
financing from one of its customers, the proceeds of which were applied to meet
short-term working capital requirements of the Company. That note bears interest
at 12.5 % per annum and was due on September 11, 2000. The Company is
negotiating with the lender to restructure this note; however, while the Company
believes that discussions are proceeding satisfactorily, there can be no
assurance that an acceptable resolution will be achieved.
ITEM 6. EXHIBITS AND REPORT FILED ON FORM 8-K.
On September 13, 2000, the Company filed a report on Form 8-K
describing a condition of default on a $500,000 bridge loan that matured on
September 11, 2000. That report is incorporated by reference (see also Item 1.
Note 3. "Debt" above).
(3) Charter and by-laws.
(4) Instruments defining the rights of security holders. (21) Subsidiaries
of the registrant.
(27) Financial Data Schedule.
DESCRIPTION OF EXHIBITS
(3.1) Articles of Incorporation incorporated by reference to Form 10-SB filed
December 8, 1999
(3.2) Bylaws incorporated by reference to Form 10-SB filed December 8, 1999
(4) Common Stock Certificate incorporated by reference to Form 10-SB filed
December 8, 1999
(21) Subsidiaries of the registrant incorporated by reference to Amendment 1
to Form 10-SB
(27) Financial Data Schedule.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Healthcomp Evaluation Services Corporation
(Registrant)
Date: November 13, 2000 /s/ Martin J. Clegg
------------------------------------------
(Signature)*
Date: November 13, 2000 /s/ Thomas M. Hartnett
------------------------------------------
(Signature)*
*Print the name and title of each signing officer under his signature.