2
Securities and Exchange Commission
Washington, DC 20549
-----------------------------------
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 June 30, 2000
Commission File No. 0-28379
Healthcomp Evaluation Services Corporation
Nevada 88-0395372
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
2001 Siesta Drive, Suite 302
Sarasota, Florida 34239
(Address and zip code of principal executive offices
941-925-2625
(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 14,487,391 Shares Outstanding
$0.001 par value as of August 14, 2000
3
Healthcomp Evaluation Services Corporation
and Subsidiaries
Report on Form 10-QSB
Quarter Ended June 30, 2000
Table of Contents
------------------
Part I. Financial Information
Item 1. Financial Statements
Consolidated balance sheets as of June 30, 2000 and December
31, 1999
Consolidated statements of operations for the three months and
six months ended June 30, 2000 and June 30, 1999.
Consolidated statements of cash flows for the six months ended
June 30, 2000.
Notes to consolidated financial statements.
Item 2.:
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information
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Item 1. Financial Information
Healthcomp Evaluation Services Corporation
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(In thousands) June 30, December 31,
2000 1999
-------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 25 $ 57
Accounts receivable, net of allowance for doubtful accounts of 2,569 1,622
$88,000 and $248,000 in 2000 and 1999, respectively
Inventory 91 122
Prepaid expenses and other current assets 243 254
----------- -----------
Total current assets 2,928 2,077
PROPERTY AND EQUIPMENT, net 1,797 1,655
INTANGIBLES, net 2,791 2,981
OTHER ASSETS 711 376
------------ ------------
Total Assets $ 8,227 $ 7,067
============ ============
CURRENT LIABILITIES:
Current portion of long-term debt and notes payable $ 1,977 $ 1,440
Accounts payable 3,050 1,972
Accrued liabilities 914 791
Interest payable 26 32
Deferred tax liabilities 75 75
Other 0 12
------------ ------------
Total current liabilities 6,042 4,322
LONG-TERM DEBT, less current portion 1,046 972
------------ -----------
Total liabilities 7,088 5,294
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $0.001 par value, 50,000,000 shares authorized, 14,487,391 14 14
and 13,846,902 shares issued during 2000 and 1999 respectively
Paid-in capital 10,633 10,328
Treasury stock, 946,000 shares (142) (142)
Accumulated deficit (9,366) (8,427)
Total shareholders' equity 1,139 1,773
------------ ------------
$ 8,227 $ 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 Six Months Ended
June 30, June 30,
---------------------- ------------------
2000 1999 2000 1999
------ ------ ------ ------
NET SALES $ 3,412 $ 2,446 $ 6,767 $ 4,508
COST OF SALES 1,946 1,331 3,809 2,398
----------- ----------- ----------- -----------
Gross Profit 1,466 1,116 2,959 2,109
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general, and administrative expenses 1,688 1,173 3,011 2,202
Depreciation and amortization expense 246 120 375 232
----------- --------- ----------- -----------
Total operating expenses 1,934 1,293 3,386 2,434
----------- --------- ----------- -----------
OPERATING INCOME (LOSS) (467) (178) (427) (324)
INTEREST EXPENSE 157 143 309 254
OTHER EXPENSE 169 368 203 823
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) (794) (689) (939) (1,401)
INCOME TAX PROVISION - - - -
----------- ----------- ---------- -----------
NET LOSS $ (794) $ (689) $ (939) $ (1,401)
=========== =========== ========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ (0.06) $ (0.07) $ (0.07) $ (0.14)
=========== =========== ========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 14,206 9,359 14,326 9,853
=========== =========== ========== ===========
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Healthcomp Evaluation Services Corporation
And Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30,
------------------
2000 1999
------ ------
Cash flows from operating activities:
Net Income/(Loss) $ (939) $ (1,401)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 375 232
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net (947) (829)
Prepaid expenses and other current assets 42 (1,832)
Accounts payable and accrued expenses 1,183 759
Change in other assets (335) 27
--------- ---------
Net cash used in operating activities (622) (3,044)
--------- ---------
Cash flows from investing activities:
Capital expenditures (326) (322)
Acquisitions 0 494
--------- ---------
Net cash used in investing activities (326) 172
--------- ---------
Cash flows from financing activities:
Borrowings of notes payable 781 951
(Repayments) of notes payable (170) (1,411)
Proceeds from the issuance of common stock 305 3,102
Purchase of treasury stock 0 0
--------- ---------
Net cash provided by financing activities 916 2,642
--------- ---------
Net Change in Cash and Cash Equivalents (32) (230)
Cash and Cash Equivalents, beginning of period 57 457
--------- ----------
Cash and Cash Equivalents, end of period $ 25 $ 227
========= ==========
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 June 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 June 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:
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:
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Working capital, net $ 125,000
Property and equipment 439,000
Intangibles 250,000
-----------
$ 814,000
===========
NOTE 3 - DEBT
During the three months ended June 30, 2000, the Company issued
one-year notes totaling $560,000 bearing interest at 8% per annum
during the first 120 days from date of issuance, increasing to 15% per
annum until the earlier of maturity or repayment. In addition, the
Company entered into a capital lease arrangement with Deutsche
Financial Corporation for the lease of a telephone system at its
corporate headquarters. The unpaid balance on this lease totaled
$72,000 at June 30, 2000.
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 Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
Segment Revenues
Substance Abuse $ 1,846 $ 1,455 $ 3,656 $ 2,795
Mobile Screening 1,608 1,029 3,197 1,781
Corporate items and eliminations (42) (38) (86) (69)
-------- -------- -------- --------
Consolidated Revenues $ 3,412 $ 2,446 $ 6,767 $ 4,508
-------- -------- -------- --------
Segment Earnings (Loss) (EBITDA)
Substance Abuse $ 307 $ 110 $ 578 $ 214
Mobile Screening 128 248 391 255
Corporate items and eliminations (656) (416) (1,022) (561)
-------- -------- -------- --------
Consolidated Earnings (Loss)
(EBITDA) $ (221) $ (57) $ (53) $ (92)
======== ======== ======== ========
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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 services
customers' places of business. 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 2000 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. Based on the funding available under the bank facility and
the increasing volume of business with existing customers, the Company
believes that it will have the resources to meet its capital
requirements for its current operations. To the extent that the
Company enters into significant new customer contracts, additional cash
may be required during the start up phases of those contracts.
For the six months ended June 30, 2000, cash flow from operations used
$622,000 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 $326,000 during the first half of 2000 for capital
expenditures ($326,000). In addition, for the six months ended June
30, 2000, the Company had net borrowings of notes payable of $611,000
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and received $305,000 from the issuance of common stock. As a result,
the Company had net cash provided from financing activities of $916,000
for the six months ended June 30, 2000.
For the six months ended June 30, 1999, cash flow from operations
declined $3.0 million as a result of a higher net loss 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 and (b) increases in prepaid
expenses, sundry receivables and other current items resulting from
acquisitions by the Company during 1999. Capital expenditures during
the first six 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 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 June 30, 2000
totaled $1.8 million compared with $1.5 million for the three months
ended June 30, 1999. The increase ($391,000 or 27%) 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 six months ended June 30, 2000 totaled $3.7
million, up 31% ($861,000) 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 June 30, 2000 aggregated
$701,000 compared with $553,000 for the three months ended June 30,
1999. This increase was attributable to the higher volume described
above and operating efficiencies from consolidation of TPA operations
offset partially by lower margins in the Company's collection services
associated with new contract start-ups. Gross profit for the six
months ended June 30, 2000 totaled $1.4 million, up 27% from $1.1
million for the same period during 1999. Increased volume and
consolidation efficiencies accounted for most of the increase.
Selling, general and administrative expenses decreased 10.9% from
$443,000 for the three months ended June 30, 1999 to $394,000 during
the same period this year. This decrease was attributable principally
to lower compensation and benefit costs offset partially by higher
office expenses, principally telephone costs associated with acquired
operations and higher business volumes. For the six months ended June
30, 2000, selling, general and administrative expenses decreased
$61,000 from the six month period ended June 30, 1999, primarily as a
result of lower compensation and benefit costs offset, in part, by
higher office expenses.
EBITDA for the three months ended June 30, 2000 totaled $307,000
compared with $110,000 (up 179%) during the same period in 1999 as a
result of higher volumes and cost reductions. For the six months ended
June 30, 2000, EBITDA increased $364,000 (up 170%) compared with the
six months ended June 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 June 30, 2000
totaled $1.6 million compared with $1.0 million for the three months
ended June 30, 1999. This increase (56%) was attributable to new
contracts and higher volume associated with businesses acquired during
second and fourth quarters of 1999. During the six months ended June
30, 2000, revenues increased $1.4 million, from $1.8 million during the
first half of 1999 to $3.2 million during the same period of 2000.
Higher volumes from the existing customer base and new contracts
resulted in the higher revenue level.
Gross profits increased 36% during the three months ended June 30,
2000, from $562,000 in 1999 to $765,000 for the same period during
2000. This increase resulted from higher sales volumes described above
and operating efficiencies associated with improved utilization of the
Company's mobile vehicle fleet, offset partially by higher direct labor
costs for the Company's technicians. For the six months ended June 30,
10
2000, gross profits totaled $1.5 million compared with $973,000 during
the same period of 1999, an increase of 57%. The increase resulted
from higher sales volumes and new customer contracts as described
above.
Selling, general and administrative expenses for the three months ended
June 30, 2000 totaled $637,000 compared with $314,000 for the same
period in 1999, primarily as a result of operating costs associated
with companies acquired during second and fourth quarters of 1999.
Selling, general and administrative expenses for the six months ended
June 30, 2000 increased $416,000 from $719,000 during 1999 to $1.1
million during 2000 as a result of the acquisitions described above.
EBITDA for the period ended June 30, 2000 aggregated $128,000 compared
with $248,000 for the same period in 1999. The decrease ($120,000) is
attributable to costs associated with consolidating operations offset,
in part, by higher sales volumes. For the six months ended June 30,
2000, EBITDA totaled $391,000, up $136,000 (53%) compared with the
comparable period during 1999. The year-to-date increase was
principally attributable to 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 $656,000 for the period ended June 30, 2000 compared to
$417,000 for the same period in 1999. The increase resulted
principally from higher travel costs related to corporate sales
activities, insurance expense, facility costs related to the Company's
new corporate offices and addition of headquarters marketing personnel.
For the six months ended June 30, 2000, corporate selling, general and
administrative expenses totaled $1.0 million compared with $562,000 for
the six months ended June 30, 1999, an increase of $460,000 resulting
primarily from higher compensation costs, travel and insurance costs
during 2000.
Interest expenses ($157,000) increased $14,000 during second
quarter 2000 compared with the same period last year. The increase was
attributable principally to financing (a) the higher level of operating
activity associated with sales volume growth and (b) prior period
acquisitions. For the six month period ending June 30, 2000, interest
expense totaled $309,000, an increase of $56,000, as a result of higher
working capital needs.
Net loss increased $105,000, from $689,000 during the three months
ended June 30, 1999 to $794,000 for the comparable period this year,
primarily as a result of lower operating earnings in the Company's
mobile health screening business. Net loss for the first half of 2000
totaled $939,000 compared with $1.4 million during the same period last
year. The improvement ($462,000) was attributable to higher operating
profits in both business segments, offset, in part, by higher corporate
expenses and interest costs.
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 6. Exhibits.
(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
Subsidiaries of the registrant incorporated by reference to Amendment 1 to Form
10-SB
Financial Data Schedule.
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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: August 17, 2000
/s/ John F. Thomas
- --------------------------
John F. Thomas, Chairmand and CEO
Date: August 17, 2000
/s/ Thomas M. Hartnett
- -------------------------
Thomas M. Hartnett, Senior Vice President