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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2004.
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OR
|_| TRANSITION REPORT SUBJECT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ________________ to _________________
Commission File Number: 0-11380
ATC HEALTHCARE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2650500
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1983 MARCUS AVENUE, LAKE SUCCESS, NY 11042
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(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 750-1600
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Name of Exchange
Title of Each Class on Which Registered
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Securities registered pursuant to
Section 12 (b) of the Act: Class A Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| 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. _x_
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12 b-2 of the Securities Exchange Act of 1934.
Yes |_| No |X|
As of August 29, 2003, the approximate aggregate market value of voting stock
held by non-affiliates of the registrant was $18,980,307 based on a closing sale
price of $0.77 per share. The number of shares of Class A Common Stock
outstanding on May 20, 2004 was 24,682,063.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III is included in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders 2004, which information
is incorporated herein by reference. All references to "we", "us," "our," or
"ATC" in this Report on Form 10-K means ATC Healthcare, Inc.
PART I.
ITEM 1. BUSINESS
GENERAL
ATC Healthcare, Inc. ("ATC" or the "Company") is a Delaware corporation which
was incorporated in New York in 1978 and reincorporated in Delaware in May 1983.
Unless the context otherwise requires, all references to the "Company" include
ATC Healthcare, Inc. and its subsidiaries. The Company is a national provider of
medical supplemental staffing services. In August 2001, the Company changed its
name from Staff Builders, Inc. to ATC Healthcare, Inc.
OPERATIONS
The Company provides supplemental staffing to health care facilities through its
network of 52 offices in 23 states, of which 35 are operated by 23 licensees and
17 are owned and operated by the Company. The Company offers its clients
qualified health care associates in over 60 job categories ranging from the
highest level of specialty nurse, including critical care, neonatal and labor
and delivery, to medical administrative staff, including third party billers,
administrative assistants, claims processors, collection personnel and medical
records clerks. The nurses provided to clients include registered nurses,
licensed practical nurses and certified nursing assistants. Other services
include allied health staffing which includes mental health technicians, a
variety of therapists (including speech, occupational and physical), radiology
technicians and phlebotomists.
Clients rely on the Company to provide a flexible labor force to meet
fluctuations in census and business and to help clients acquire health care
associates with specifically needed skills. The Company's medical staffing
professionals also fill in for absent employees and enhance a client's core
staff with temporary workers during peak seasons.
Clients benefit from their relationship with the Company because of the
Company's expertise in providing properly skilled medical staffing employees to
a facility in an increasingly tight labor market. The Company has developed a
skills checklist for clients to provide information concerning a prospective
employee's skill level. Clients also benefit from no longer having to concern
themselves with the payment of employee wages, benefits, payroll taxes, workers
compensation and unemployment insurance for staff provided by the Company
because these are paid through the Company.
The Company also operates a Travel Nurse Program whereby qualified nurses,
physical therapists and occupational therapists are recruited on behalf of the
clients who require such services on a long-term basis. These individuals are
recruited from the United States and foreign countries, including Great Britain,
Australia, South Africa and New Zealand, to perform services on a long-term
basis in the United States.
The Company has contracted with a number of management entities for the
recruitment of foreign nurses. The management entities arrange for the nurses'
and therapists' immigration and licensing certifications so that they can be
employed in the United States.
2
ATC has expanded its client base to include nursing homes, physician practice
management groups, managed care facilities, insurance companies, surgery
centers, community health centers and schools. By diversifying its client list,
the Company believes it lessens the risk that regulatory or industry sector
shifts in staffing usage will materially affect the Company's staffing revenues.
LICENSEE PROGRAM
The Company's licensing program is one of the principal factors differentiating
it from most of its competition. After agreeing to pay an initial license fee in
exchange for a grant of an exclusive territory, the licensee is paid a royalty
of approximately 55% (60% for certain licensees who have longer relationships
with the Company) of gross profit (in general, the difference between the
aggregate amount invoiced and the payroll and related expenses for the personnel
delivering the services). The licensee has the right to develop the territory to
its fullest potential. The licensee is also responsible for marketing,
recruiting and customer relationships within the assigned territory. All
locations must be approved by the Company prior to the licensee signing a lease
for the location. Various management reports are provided to the licensees to
assist them with ongoing analysis of their medical staffing operations. The
Company pays and distributes the payroll for the direct service personnel who
are all employees of the Company, administers all payroll withholdings and
payments, invoices the customers and processes and collects the accounts
receivable. The licensees are responsible for providing an office and paying
administrative expenses, including rent, utilities, telephone and costs of
administrative personnel.
The Company grants an initial license term of ten years. The agreement has an
option to renew for two additional five-year renewal terms, subject to the
licensee adhering to the operating procedures and conditions for renewal as set
forth in the agreement. In certain cases the Company may convert an
independently owned staffing business into a licensee. In those situations, the
Company negotiates the terms of the conversion on a transaction-by-transaction
basis, depending on the size of the business, client mix and territory.
Sales of licenses are subject to compliance with Federal and particular state
franchise laws. If the Company fails to comply with the franchise laws, rules
and regulations of the particular state relating to offers and sales of
franchises, the Company will be unable to engage in offering or selling
licensees in or from such state. To offer and sell licensees, the Federal Trade
Commission requires the Company to furnish to prospective licensees a current
franchise offering disclosure document. The Company has used a Uniform Franchise
Offering Circular ("UFOC") to satisfy this disclosure obligation. The Company
must update its UFOC annually or upon the occurrence of certain material events.
If a material event occurs, the Company must stop offering and selling
franchises until the UFOC is updated. In addition, certain states require the
Company to register or file its UFOC with such states and to provide prescribed
disclosures. The Company is required to obtain an effective registration of its
franchise disclosure document in New York State and certain other registration
states. The Company is currently able to offer new franchises in 38 states.
For fiscal 2004, 2003, and 2002, total staffing licensee distributions were
approximately $6.8 million, $9.1 million, and $16.9 million, respectively.
PERSONNEL, RECRUITING AND TRAINING
The Company employs approximately 15,000 individuals who render staffing
services and approximately 154 full time administrative and management
personnel. Approximately 93 of these administrative employees are located at the
branch offices and 61 are located at the administrative office in Lake Success,
New York.
3
The Company screens personnel to ensure that they meet all eligibility
standards. This screening process includes skills testing, reference checking,
professional license verification, interviews and a physical examination. In
addition, new employees receive an orientation on the Company's policies and
procedures prior to their initial assignment. The Company is not a party to any
collective bargaining agreement and considers its relationship with its
employees to be satisfactory.
It is essential for the Company to constantly recruit and retain a qualified
staff of staffing associates who are available to be placed on assignment as
needed. Besides advertising in the local classifieds, utilizing local office web
sites and participating in local and regional job fairs, the Company offers a
variety of benefit programs to assist in recruiting high quality medical
staffing professionals. This package provides employees access to medical,
dental, life and disability insurance, a 401(k) plan, opportunities for
Continuing Education Credits, partnerships with various vendors for discount
programs (e.g. uniforms, vacations and cruises, credit cards, appliances and
cars), recognition programs and referral bonus programs. In addition, the
Company provides its licensees a full-service human resources department to
support the offices with policies and procedures as well as to assist with the
day-to-day issues of the field staff.
SALES AND MARKETING
The Company begins a marketing and operational education program as soon as an
office becomes operational. This program trains the office manager, whether at a
licensee or a Company office, in the Company's sales process. The program
stresses sales techniques, account development and retention as well as basic
sales concepts and skills. Through interactive lectures, role plays and sales
scenarios, participants are immersed in the sales program.
To provide ongoing sales support, the Company furnishes each licensee and
corporate branch manager with a variety of tools. A corporate representative is
continuously available to help with prospecting, customer identification and
retention, sales strategies, and developing a comprehensive office sales plan.
In addition, various guides and brochures have been developed to focus office
management's attention to critical areas in the sales process.
Each licensee and corporate branch manager is responsible for generating sales
in its territory. Licensees and corporate branch managers are taught to do this
through a variety of methods in order to diversify their sales conduits. The
primary method of seeking new business is to call on health care facilities in
the local area. Cold calls and referrals are often used to generate leads. Once
granted an interview, the ATC representative is instructed to emphasize the
highlights of the Company's services.
RECENT ACQUISITIONS
On February 28, 2003, the Company purchased from CMS Capital Ventures all the
assets relating to their office locations in Dallas/Fort Worth, Texas and
Atlanta, Georgia which provide temporary medical staffing services. In April
2003 the Company sold its interest in one of these temporary medical staffing
companies to its Franchisee for $130,000.
COMPETITION
The medical staffing industry is extremely fragmented, with numerous local and
regional providers nationwide providing nurses and other staffing solutions to
hospitals and other health care providers. We compete with full-service staffing
companies and with specialized temporary staffing agencies.
4
We compete with these firms to attract our temporary healthcare professionals
and to attract hospital and healthcare facility clients. We compete for
temporary healthcare professionals on the basis of the compensation package and
benefit package offered as well as the diversity and quality of assignments
available. We compete for hospital and healthcare facility clients on the basis
of the quality of our temporary healthcare professionals, price of our services
and the timely availability of our professionals with the requisite skills.
As HMOs and other managed care groups expand, so too must the medical staffing
companies that service these customers. In addition, momentum for consolidation
is increasing among smaller players, often venture capital-backed, who are
trying to win regional and even national accounts. Because the temporary
staffing industry is dominated generally by large national companies that do not
specialize in medical staffing, management believes that its specialization will
give it a competitive edge. In addition, its licensee program gives each
licensee an incentive to compete actively in his or her local marketplace.
SERVICE MARKS
The Company believes that its service trademark and the ATC(R) logo have
significant value and are important to the marketing of its supplemental
staffing services. These marks are registered with the United States Patent and
Trademark Office. The ATC(R) trademark will remain in effect through January 9,
2010 for use with nursing care services and healthcare services. These marks are
each renewable for an additional ten-year period, provided the Company continues
to use them in the ordinary course of business.
REGULATORY ISSUES
In order to service our client facilities and to comply with OSHA and Joint
Commission on Accreditation of Healthcare Organizations standards, we have
developed a risk management program. The program is designed to protect against
the risk of negligent hiring by requiring a detailed skills assessment from each
healthcare professional. We conduct extensive reference checks and credential
verifications for the nurses and other healthcare professionals that we might
hire.
Professional Licensure and Corporate Practice
Nurses and other healthcare professionals employed by us are required to be
individually licensed or certified under applicable state law. In addition, the
healthcare professionals that we hire frequently are required to have been
certified to provide certain medical care, such as CPR and anesthesiology,
depending on the positions in which they are placed. Our comprehensive
compliance program is designed to ensure that our employees possess all
necessary licenses and certifications, and we believe that our employees,
including nurses and therapists, have obtained the necessary licenses and
certification required to comply with all such applicable state laws.
Business Licenses
A number of states require state licensure for businesses that, for a fee,
employ and assign personnel, including healthcare personnel, to provide services
on-site at hospitals and other healthcare facilities to support or supplement
the hospitals' or healthcare facilities' work force. A number of states also
require state licensure for businesses that operate placement services for
individuals attempting to secure employment. Failure to obtain the necessary
licenses could interrupt business operations in a specific locale. We believe we
have all of the required state licenses to allow us to continue our business as
currently conducted.
5
Regulations Affecting Our Clients
Many of our clients are reimbursed under the federal Medicare program and state
Medicaid programs for the services they provide. In recent years, federal and
state governments have made significant changes in these programs that have
reduced reimbursement rates. Future federal and state legislation or evolving
commercial reimbursement trends may further reduce, or change conditions for,
our clients' reimbursement. Such limitations on reimbursement could reduce our
clients' cash flows, hampering their ability to pay us.
RISK FACTORS
Currently We Are Unable to Recruit Enough Nurses to Meet Our Clients' Demands
for our Nurse Staffing Services, Limiting the Potential Growth of Our Staffing
Business.
We rely significantly on our ability to attract, develop and retain nurses and
other healthcare personnel who possess the skills, experience and, as required,
licenses necessary to meet the specified requirements of our healthcare staffing
clients. We compete for healthcare staffing personnel with other temporary
healthcare staffing companies, as well as actual and potential clients, some of
which seek to fill positions with either regular or temporary employees.
Currently, there is a shortage of qualified nurses in most areas of the United
States and competition for nursing personnel is increasing. At this time we do
not have enough nurses to meet our clients' demands for our nurse staffing
services. This shortage of nurses limits our ability to grow our staffing
business. Furthermore, we believe that the aging of the existing nurse
population and declining enrollments in nursing schools will further exacerbate
the existing nurse shortage.
The Costs of Attracting and Retaining Qualified Nurses and Other Healthcare
Personnel May Rise.
We compete with other healthcare staffing companies for qualified nurses and
other healthcare personnel. Because there is currently a shortage of qualified
healthcare personnel, competition for these employees is intense. To induce
healthcare personnel to sign on with them, our competitors may increase hourly
wages or other benefits. If we do not raise wages in response to such increases
by our competitors, we could face difficulties attracting and retaining
qualified healthcare personnel. In addition, if we raise wages in response to
our competitors' wage increases and are unable to pass such cost increases on to
our clients, our margins could decline.
We Operate in a Highly Competitive Market and Our Success Depends On Our Ability
to Remain Competitive in Obtaining and Retaining Hospital and Healthcare
Facility Clients and Temporary Healthcare Professionals.
The temporary medical staffing business is highly competitive. We compete in
national, regional and local markets with full-service staffing companies and
with specialized temporary staffing agencies. Some of these companies have
greater marketing and financial resources than we do. Competition for hospital
and healthcare facility clients and temporary healthcare professionals may
increase in the future and, as a result, we may not be able to remain
competitive. To the extent competitors seek to gain or retain market share by
reducing prices or increasing marketing expenditures, we could lose revenues or
hospital and healthcare facility clients and our margins could decline, which
could seriously harm our operating results and cause the price of our stock to
decline. In addition, the development of alternative recruitment channels could
lead our hospital and healthcare facility clients to bypass our services, which
would also cause our revenues and margins to decline.
6
Our Business Depends Upon Our Continued Ability to Secure New Orders From Our
Hospital and Healthcare Facility Clients.
We do not have long-term agreements or exclusive guaranteed order contracts with
our hospital and healthcare facility clients. The success of our business
depends upon our ability to continually secure new orders from hospitals and
other healthcare facilities. Our hospital and healthcare facility clients are
free to place orders with our competitors and may choose to use temporary
healthcare professionals that our competitors offer them. Therefore, we must
maintain positive relationships with our hospital and healthcare facility
clients. If we fail to maintain positive relationships with our hospital and
healthcare facility clients, we may be unable to generate new temporary
healthcare professional orders and our business may be adversely affected.
Decreases in Patient Occupancy at Our Clients' Facilities May Adversely Affect
the Profitability of our Business.
Demand for our temporary healthcare staffing services is significantly affected
by the general level of patient occupancy at our clients' facilities. When a
hospital's occupancy increases, temporary employees are often added before
full-time employees are hired. As occupancy decreases, clients may reduce their
use of temporary employees before undertaking layoffs of their regular
employees. We also may experience more competitive pricing pressure during
periods of occupancy downturn. In addition, if a trend emerges toward providing
healthcare in alternative settings, as opposed to acute care hospitals,
occupancy at our clients' facilities could decline. This reduction in occupancy
could adversely affect the demand for our services and our profitability.
Healthcare Reform Could Negatively Impact Our Business Opportunities, Revenues
and Margins.
The U.S. government has undertaken efforts to control increasing healthcare
costs through legislation, regulation and voluntary agreements with medical care
providers and drug companies. In the recent past, the U.S. Congress has
considered several comprehensive healthcare reform proposals. Some of these
proposals could have adversely affected our business. While the U.S. Congress
has not adopt any comprehensive reform proposals, members of Congress may raise
similar proposals in the future. If some of these proposals are approved,
hospitals and other healthcare facilities may react by spending less on
healthcare staffing, including nurses. If this were to occur, we would have
fewer business opportunities, which could seriously harm our business.
State governments have also attempted to control increasing healthcare costs.
For example, the state of Massachusetts has recently implemented a regulation
that limits the hourly rate payable to temporary nursing agencies for registered
nurses, licensed practical nurses and certified nurses' aides. The state of
Minnesota has also implemented a statute that limits the amount that nursing
agencies may charge nursing homes. Other states have also proposed legislation
that would limit the amounts that temporary staffing companies may charge. Any
such current or proposed laws could seriously harm our business, revenues and
margins.
Furthermore, third party payors, such as health maintenance organizations,
increasingly challenge the prices charged for medical care. Failure by hospitals
and other healthcare facilities to obtain full reimbursement from those third
party payors could reduce the demand for, or the price paid for our staffing
services.
7
We are Dependent on the Proper Functioning of our Information Systems.
Our Company is dependent on the proper functioning of our information systems in
operating our business. Critical information systems used in daily operations
identify and match staffing resources and client assignments and perform billing
and accounts receivable functions. Our information systems are protected through
physical and software safeguards and we have backup remote processing
capabilities. However, they are still vulnerable to fire, storm, flood, power
loss, telecommunications failures, physical or software break-ins and similar
events. In the event that critical information systems fail or are otherwise
unavailable, these functions would have to be accomplished manually, which could
temporarily impact our ability to identify business opportunities quickly, to
maintain billing and clinical records reliably and to bill for services
efficiently.
We May be Legally Liable for Damages Resulting From Our Hospital and Healthcare
Facility Clients' Mistreatment of Our Healthcare Personnel.
Because we are in the business of placing our temporary healthcare professionals
in the workplaces of other companies, we are subject to possible claims by our
temporary healthcare professionals alleging discrimination, sexual harassment,
negligence and other similar injuries to them caused by our hospital and
healthcare facility clients. The cost of defending such claims, even if
groundless, could be substantial and the associated negative publicity could
adversely affect our ability to attract and retain qualified healthcare
professionals in the future.
If State Regulations that Apply to us Change, We May Face Increased Costs That
Reduce our Revenue and Profitability.
The temporary healthcare staffing industry is regulated in many states. In some
states, firms such as our company must be registered to establish and advertise
as a nurse staffing agency or must qualify for an exemption from registration in
those states. If we were to lose any required state licenses, we would be
required to cease operating in those states. The introduction of new regulations
could substantially raise the costs associated with hiring temporary employees.
These increased costs may not be able to be passed on to clients without a
decrease in demand for temporary employees. In addition, if government
regulations were implemented that limited, directly or indirectly, the amounts
we could charge for our services, our profitability could be adversely affected.
Future Changes in Reimbursement Trends Could Hamper our Clients' Ability to Pay
Us.
Many of our clients are reimbursed under the federal Medicare program and state
Medicaid programs for the services they provide. In recent years, federal and
state governments have made significant changes in these programs that have
reduced reimbursement rates. In addition, insurance companies and managed care
organizations seek to control costs by requiring that healthcare providers, such
as hospitals, discount their services in exchange for exclusive or preferred
participation in their benefit plans. Future federal and state legislation or
evolving commercial reimbursement trends may further reduce, or change
conditions for, our clients' reimbursement. Limitations on reimbursement could
reduce our clients' cash flows, hampering their ability to pay us.
8
Competition for Acquisition Opportunities May Restrict Our Future Growth by
Limiting Our Ability to Make Acquisitions at Reasonable Valuations.
Our business strategy includes increasing our market share and presence in the
temporary healthcare staffing industry through strategic acquisitions of
companies that complement or enhance our business. We have historically faced
competition for acquisitions. In the future, such competition could limit our
ability to grow by acquisitions or could raise the prices of acquisitions and
make them less attractive to us.
We May Face Difficulties Integrating Our Acquisitions Into Our Operations and
Our Acquisitions May be Unsuccessful, Involve Significant Cash Expenditures or
Expose Us to Unforeseen Liabilities.
We continually evaluate opportunities to acquire healthcare staffing companies
and other human capital management services companies that complement or enhance
our business. From time to time, we engage in strategic acquisitions of such
companies or their assets.
These acquisitions involve numerous risks, including:
- potential loss of key employees or clients of acquired companies;
- difficulties integrating acquired personnel and distinct cultures into
our business;
- difficulties integrating acquired companies into our operating,
financial planning and financial reporting systems;
- diversion of management attention from existing operations; and
- assumption of liabilities and exposure to unforeseen liabilities of
acquired companies, including liabilities for their failure to comply
with healthcare regulations.
These acquisitions may also involve significant cash expenditures, debt
incurrence and integration expenses that could have a material adverse effect on
our financial condition and results of operations. Any acquisition may
ultimately have a negative impact on our business and financial condition.
Significant Legal Actions Could Subject Us to Substantial Uninsured Liabilities.
We may be subject to claims related to torts or crimes committed by our
employees or temporary staffing personnel. Such claims could involve large
claims and significant defense costs. In some instances, we are required to
indemnify clients against some or all of these risks. A failure of any of our
employees or personnel to observe our policies and guidelines intended to reduce
these risks, relevant client policies and guidelines or applicable federal,
state or local laws, rules and regulations could result in negative publicity,
payment of fines or other damages. To protect ourselves from the cost of these
claims, we maintain professional malpractice liability insurance and general
liability insurance coverage in amounts and with deductibles that we believe are
appropriate for our operations. However, our insurance coverage may not cover
all claims against us or continue to be available to us at a reasonable cost. If
we are unable to maintain adequate insurance coverage, we may be exposed to
substantial liabilities, which could adversely affect our financial results.
9
If Our Insurance Costs Increase Significantly, These Incremental Costs Could
Negatively Affect Our Financial Results.
The costs related to obtaining and maintaining workers compensation,
professional and general liability insurance and health insurance for healthcare
providers has been increasing. If the cost of carrying this insurance continues
to increase significantly, we will recognize an associated increase in costs
which may negatively affect our margins. This could have an adverse impact on
our financial condition and the price of our common stock.
If We Become Subject to Material Liabilities Under Our Self-Insured Programs or
Certain Contingent Liabilities, Our Financial Results May Be Adversely Affected.
We provide workers compensation coverage through a program that is partially
self-insured. If we become subject to substantial uninsured workers compensation
liabilities, our financial results may be adversely affected.
We have a substantial amount of goodwill on our balance sheet. A substantial
impairment of our goodwill may have the effect of decreasing our earnings or
increasing our losses.
As of February 29, 2004, we had $32.3 million of unamortized goodwill on our
balance sheet, which represents the excess of the total purchase price of our
acquisitions over the fair value of the net assets acquired. At February 29,
2004, goodwill represented 43% of our total assets.
Historically, we amortized goodwill on a straight-line basis over the estimated
period of future benefit of up to 15 years. In July 2001, the Financial
Accounting Standards Board issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, as well as all purchase method business combinations
completed after June 30, 2001. SFAS No. 142 requires that, subsequent to March
1, 2002, goodwill not be amortized but rather that it be reviewed annually for
impairment. In the event impairment is identified, a charge to earnings would be
recorded. We have adopted the provisions of SFAS No. 141 and SFAS No. 142 as of
March 1, 2002. Although it does not affect our cash flow, an impairment charge
to earnings has the effect of decreasing our earnings. If we are required to
take a charge to earnings for goodwill impairment, our stock price could be
adversely affected.
Demand for Medical Staffing Services is Significantly Affected by the General
Level of Economic Activity and Unemployment in the United States.
When economic activity increases, temporary employees are often added before
full-time employees are hired. However, as economic activity slows, many
companies, including our hospital and healthcare facility clients, reduce their
use of temporary employees before laying off full-time employees. In addition,
we may experience more competitive pricing pressure during periods of economic
downturn. Therefore, any significant economic downturn could have a material
adverse impact on our condition and results of operations.
Our Ability to Borrow Under Our Credit Facility May be Limited.
The Company has a $35 million asset-based revolving credit line and a $3 million
term note. Our ability to borrow under the credit facility is based upon, and
thereby limited by, the amount of our accounts receivable. Any material decline
in our service revenues could reduce our borrowing base, which could cause us to
lose our ability to borrow additional amounts under the credit facility. In such
circumstances, the borrowing availability under the credit facility may not be
sufficient for our capital needs.
10
Business Conditions.
Our business is dependent on the Company continuing to establish and maintain
close working relationships with physicians and physician groups, managed care
organizations, hospitals, clinics, nursing homes, social service agencies and
other health care providers. There can be no assurance that the Company will
continue to establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the increasing
market demand for the type of services offered.
Attraction and Retention of Licensees and Employees.
Maintaining quality licensees, managers and branch administrators will play a
significant part in the future success of the Company. The Company's
professional nurses and other health care personnel are also key to the
continued provision of quality care to patients of the Company's customers. The
possible inability to attract and retain qualified licensees, skilled management
and sufficient numbers of credentialed health care professional and
para-professionals and information technology personnel could adversely affect
the Company's operations and quality of service. Also, because the travel nurse
program is dependent upon the attraction of skilled nurses from overseas, such
program could be adversely affected by immigration restrictions limiting the
number of such skilled personnel who may enter and remain in the United States.
ITEM 2. PROPERTIES
The Company's business leases its administrative facilities in Lake Success, New
York. The Lake Success office lease for approximately 14,305 square feet of
office space expires in December 2010 provides for a current annual rent of
$389,914 and is subject to a 3.5% annual rent escalation. The Company believes
that its administrative facilities are sufficient for its needs and that it will
be able to obtain additional space as needed.
There are currently 52 staffing offices in 23 states, of which 17 are operated
by the Company and 35 licensee staffing offices are operated by 23 licensees.
These offices are typically small administrative offices serving a limited
geographical area. The licensee offices are owned by licensees or are leased by
the licensee from third-party landlords. The Company believes that it will be
able to renew or find adequate replacement offices for all of the leases of the
staffing offices leased by it which are scheduled to expire within the next
twelve months at comparable costs to those currently being incurred.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of business. Management and
legal counsel periodically review the probable outcome of such proceedings, the
costs and expenses reasonably expected to be incurred, and the availability and
the extent of insurance coverage and established reserves. While it is not
possible at this time to predict the outcome of these legal actions, in the
opinion of management, based on these reviews and the disposition of the
lawsuits, these matters should not have a material effect on the Company's
financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
11
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS ISSUER
PURCHASES OF EQUITY SECURITIES
(A) MARKET INFORMATION
The Company has outstanding two classes of common equity securities: Class A
Common Stock and Class B Common Stock. In March 2002, the Company's Class A
Common Stock commenced trading on the American Stock Exchange under the symbol
"AHN".
The following table sets forth, the high and low sale prices for the Class A
Common Stock for each quarter during the two fiscal years ended February 29,
2004, as reported by the American Stock Exchange.
High Low
---- ---
Fiscal Year Ended February 28, 2003
-----------------------------------
1st quarter ended May 31, 2002 $2.74 $2.00
2nd quarter ended August 31, 2002 2.42 0.70
3rd quarter ended November 30, 2002 1.11 0.80
4th quarter ended February 28, 2003 1.10 0.54
Fiscal Year Ended February 29, 2004
-----------------------------------
1st quarter ended May 31, 2003 $0.90 $0.50
2nd quarter ended August 31, 2003 1.15 0.51
3rd quarter ended November 30, 2003 1.01 0.60
4th quarter ended February 29, 2004 0.75 0.46
There is no established public trading market for the Company's Class B Common
Stock, which has ten votes per share and upon transfer is convertible
automatically into one share of Class A Common Stock, which has one vote per
share.
(B) HOLDERS
As of February 29, 2004, there were approximately 269 holders of record of Class
A Common Stock (including brokerage firms holding stock in "street name" and
other nominees) and 368 holders of record of Class B Common Stock.
(C) DIVIDENDS
The Company has never paid any dividends on its shares of Class A or Class B
Common Stock. The Company does not expect to pay any dividends for the
foreseeable future as all earnings will be retained for use in its business.
12
(D) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of
Securities
remaining
Weighted- available for
Number of Average Future issuance
Securities Exercise under Equity
to be issued Price of Compensation
Upon Exercise Outstanding Plans (excluding
of Outstanding Options, securities
Options, Warrants Warrants and reflected in
and Rights (a) Rights column (a))
- --------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 4,226,882 $0.59 2,039,235
- --------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders (1) 400,000 $1.02 2,600,000
- --------------------------------------------------------------------------------
Total 4,626,882 $0.63 4,639,235
- --------------------------------------------------------------------------------
(1) During fiscal 2001, the Company adopted a stock option plan (the "2000 Stock
Option Plan") under which an aggregate of three million shares of common stock
are reserved for issuance. Both key employees and non-employee directors, except
for members of the compensation committee, are eligible to participate in the
2000 Stock Option Plan.
(E) RECENT SALES OF UNREGISTERED SECURITIES
The following is certain information concerning the sale by the Company of
securities which were not registered under the Securities Act of 1933 during the
fiscal year ended February 29, 2004.
On March 10, 2003, the Company sold 300 shares of its 7% Convertible Series A
Preferred Stock ("the Preferred Stock") and received cash proceeds of $150,000.
The purchasers of the stock were two executive officers of the Company. This
stock is convertible to Common Stock at the price of $.80 per share which is
120% of the weighted average market close price of the Company's Common Stock
for the ten day trading period ending on the date of the purchase of the
Convertible Preferred Stock.
On April 30, 2003, the Company sold 500 shares of its Preferred Stock and
received cash proceeds of $250,000.The purchasers of the stock were two
executive officers of the Company and two accredited investors. This stock is
convertible to Common Stock at the price of $.93 per share which is 120% of the
weighted average market close price of the Company's Common Stock for the ten
day trading period ending on the date of the purchase of Preferred Stock.
On July 16, 2003 the Company sold 367,647 shares of Series A Common Stock at
$.68 per share. On July 23, 2003 the Company sold 202,703 shares of Series A
Common Stock at $.74 per share. On July 24, 2003 the Company sold 133,333 shares
of Series A Common Stock at $.75 per share and on August 19, 2003 the Company
sold 256,410 shares of Series A Common Stock at $.78 per share. The sales price
per share was equal to or exceeded the market price of the Company's Common
Stock at the date of each transaction. The purchasers of the Series A Common
Stock were related to two executive officers of the Company.
13
ITEM 6.
SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table provides selected historical consolidated financial data of
the Company as of and for each of the fiscal years in the five year period ended
February 29, 2004. The data has been derived from the Company's audited
consolidated financial statements. Such information should be read in
conjunction with the Company's consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" which is contained in this report.
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29,
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
CONSOLIDATED OPERATIONS DATA:
Revenues $ 130,401 $ 148,720 $ 149,414 $ 120,840 $ 114,994
--------- --------- --------- --------- ---------
(Loss) income from continuing operations (6,180) (2,833) 3,593 (1,066) (2,683)
Loss from discontinued operations -- -- -- -- (557)
--------- --------- --------- --------- ---------
Net (loss) income $ (6,180) $ (2,833) $ 3,593 $ (1,066) $ (3,240)
========= ========= ========= ========= =========
(Loss) income per common share-basic $ (0.25) $ (0.12) $ 0.15 $ (0.05) $ (0.11)
Loss from discontinued operations -- -- -- -- (0.03)
--------- --------- --------- --------- ---------
Net (loss) income $ (0.25) $ (0.12) $ 0.15 $ (0.05) $ (0.14)
========= ========= ========= ========= =========
(Loss) income per common share - diluted:
(Loss) income from continuing
operations $ (0.25) $ (0.12) $ 0.14 $ (0.05) $ (0.11)
Loss from discontinued operations -- -- -- -- (0.03)
--------- --------- --------- --------- ---------
Net (loss) income $ (0.25) $ (0.12) $ 0.14 $ (0.05) $ (0.14)
========= ========= ========= ========= =========
Weighted average common shares
outstanding:
Basic 24,468 23,783 23,632 23,632 23,623
Diluted 24,468 23,783 25,695 23,632 23,623
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 74,727 $ 78,615 $ 75,329 $ 41,431 $ 39,607
Long-term debt and other liabilities 55,844 55,790 50,177 21,059 16,049
Total liabilities 68,607 67,469 62,109 31,804 28,914
Stockholders' equity 5,053 10,546 13,220 9,627 10,693
ATC Healthcare, Inc. did not pay any cash dividends on its common stock during
any of the periods set forth in the table above. Certain prior period amounts
have been reclassified to conform with the fiscal 2004 presentation.
Amortization expense of $533, $519 and $167, respectively, were included in
fiscal years 2002, 2001 and 2000 net income.
Fiscal 2002 included loss on extinguishment of debt of $854.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED FEBRUARY 29, 2004 ("FISCAL 2004") TO YEAR ENDED
FEBRUARY 28, 2003 ("FISCAL 2003").
REVENUES: In the Fiscal year ended February 29, 2004, the Company's revenue
declined 12% to $130.4 million as compared to revenue for Fiscal 2003 of $148.7
million. Office revenue for locations open during the last two fiscal years
decreased $9.7 million due to the fact that demand for temporary nurses is going
through a period of contraction as hospitals continue to experience flat to
declining admission rates. The Company also closed 18 offices due to poor
performance during Fiscal 2004. These offices accounted for $14.7 million in
revenue during Fiscal 2003.
SERVICE COSTS: Service costs were 79.1% of total revenues in Fiscal 2004 as
compared to 77.8% of total revenues in Fiscal 2003. The increase in service
costs can be attributed to the decreased demand of temporary nurses, which has
increased the competitive environment pressuring fees and the increased cost of
insurance. Service costs represent the direct costs of providing services to
patients or clients, including wages, payroll taxes, travel costs, insurance
costs, the cost of medical supplies and the cost of contracted services.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$22.7 million in fiscal 2004 as compared to $29.5 million in fiscal 2003.General
and administrative costs, expressed as a percentage of revenues, were 17.4% and
19.8% for fiscal 2004 and fiscal 2003 respectively. The reduction in general and
administrative expenses as a percentage of revenue in fiscal 2004 is the result
of the reduction in royalty payments to licensees due to decreased revenues as
well as initiatives undertaken by the Company to reduce the size of or close
marginally performing offices and a reduction of back office support staff.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses relating
to fixed assets and intangible assets was $2.1 million in Fiscal 2004 as
compared to $2.0 million in fiscal 2003.
OFFICE CLOSING AND RESTRUCTURING CHARGE: In the third quarter of fiscal 2004 the
Company recorded a charge associated with the closing of certain offices in the
amount of $2.6 million. The Company expects the restructure to result in a lower
overall cost structure to allow it to focus resources on offices with greater
potential for better overall growth and profitability. The components of the
charge are as follows:
Components Amount
----------------------------------- -------
Write-off of fixed assets $ 892
Write-off of related goodwill 889
Severance costs and other benefits 608
Other 200
-------
Total Restructuring Charge $2,589
=======
15
As of February 29, 2004, the Company has paid $165 for severance and other costs
associated with the office closings. As of February 29, 2004 the Company's
accounts payable and accrued expenses included $643 of remaining costs accrued
mainly of severance and lease costs.
INTEREST EXPENSE, NET: Interest expense, net was $4.2 million and $3.3 million
in Fiscal 2004 and 2003 respectively. Interest expense increased $0.9 million in
Fiscal 2004 from Fiscal 2003 primarily due to interest costs associated with the
Company's term loan facility and to increased interest rates associated with its
revolving line of credit.
PROVISION RELATED TO TLCS GUARANTEE: In Fiscal 2003 the Company recorded a
provision of $2.3 million related to the TLCS Guarantee. The Company is
contingently liable on $2.3 million of obligations owed by TLCS which is payable
over eight years. The Company is indemnified by TLCS for any obligations arising
out of these matters. On November 8, 2002, TLCS filed a petition for relief
under Chapter 11 of the United States Bankruptcy Code. The Company has not
received any demands for payment with respect to these obligations. The next
payment is due in September 2004. The Company believes that it has certain
defenses which could reduce or eliminate its recorded liability in this matter.
PROVISION (BENEFIT) FOR INCOME TAXES: In Fiscal 2004 the Company recorded an
expense for income taxes of $2.0 million on a pretax loss of $4.2 million.
For the year ended February 29, 2004 income tax expense is due primarily to the
valuation allowance provided in that period. In the third quarter of 2004, it
became apparent that the hospital patient volumes were not returning as
anticipated and the Company would not return to profitable operations in fiscal
2004. The Company intends to maintain its valuation allowance until such time as
positive evidence exists to support reversal of the valuation allowance. Income
tax expense recorded in the future will be reduced to the extent of offsetting
reductions in the Company valuation allowance. The realization of the Company's
remaining deferred tax assets is primarily dependent on forecasted future
taxable operating and non-operating income. Any reduction in future forecasted
taxable income may require that the Company record an additional valuation
against the deferred tax assets. An increase in the valuation allowance would
result in additional income tax expense in the period the valuation was recorded
and could have a significant impact on the earnings of the Company. Management
believes that it is more likely than not that the Company's deferred tax assets
which have not been reserved for will be realized through future profitable
operations.
COMPARISON OF YEAR ENDED FEBRUARY 28, 2003 ("FISCAL 2003") TO YEAR ENDED
FEBRUARY 28, 2002 ("FISCAL 2002").
REVENUES: Revenue for fiscal 2003 of $148.7 million remained consistent with the
revenue for fiscal 2002 of $149.4 million. Office sales for locations open
during the last two fiscal years decreased 8%. This decrease was offset by sales
from locations opened during the last two fiscal years.
SERVICE COSTS: Service costs were 77.8% and 76.4% of total revenues in Fiscal
2003 and 2002 respectively. The Company recorded an additional $.9 million
charge in the fourth quarter of fiscal 2003 to increase its liability for
expected workers compensation claims. Service costs represent the direct costs
of providing services to patients or clients, including wages, payroll taxes,
travel costs, insurance costs, the cost of medical supplies and the cost of
contracted services.
16
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$29.5 million in Fiscal 2003 as compared to $29.9 million in Fiscal 2002. The
Company experienced a reduction in royalty expense due to the purchase of its
largest licensee completed in January 2002, which eliminated approximately $2.9
million of expense. This was offset by increases in employee expenses relating
to the Company's start up of its own travel nurse division and the opening of
new company owned locations. Additionally, the Company increased its bad debt
reserve in Fiscal 2003 to reserve against potential receivable collectibility
issues.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses relating
to fixed assets and intangible assets was $2.0 million as compared to $1.8
million for fiscal years 2003 and 2002 respectively.
INTEREST EXPENSE, NET: Interest expense increased $1.3 million in Fiscal 2003 to
$3.3 million as compared to interest expense in fiscal 2002 of $2.0 million. The
increase is primarily due to the issuance of debt in connection with the
purchase of the Company's largest licensee in January 2002 and borrowings under
an acquisition line provided by its primary lender in June 2002.
PROVISION RELATED TO TLCS GUARANTEE: In fiscal 2003 the Company recorded a
provision of $2.3 million related to the TLCS Guarantee. The Company is
contingently liable on $2.3 million of obligations owed by TLCS which is payable
over eight years. The Company is indemnified by TLCS for any obligations arising
out of these matters. On November 8, 2002, TLCS filed a petition for relief
under Chapter 11 of the United States Bankruptcy Code. The Company has not
received any demands for payment with respect to these obligations. The next
payment is due in September 2004. The Company believes that it has certain
defenses which could reduce or eliminate its recorded liability in this matter.
LOSS ON EXTINGUISHMENT OF DEBT: During Fiscal 2002, the Company entered into a
new $25 million facility ("New Facility") with a lending institution. The
Company's previous credit facility was repaid in full concurrent with the
closing of the New Facility. In connection with the early extinguishment of its
debt, the Company wrote off the unamortized balance of deferred financing fees
and termination fee paid.
PROVISION (BENEFIT) FOR INCOME TAXES: In Fiscal 2003 the Company recorded an
income tax benefit for $1.4 million on a pretax loss of $4.3 million.
At February 28, 2003 management believed that it was more likely than not that
the Company's deferred tax assets would be realized through future profitable
operations. This was based upon the fact that the company had profitable
operations from September 1, 2000 through the third quarter ended November 30,
2002 which quarterly results were profitable before a charge for the guarantee
of certain debt of a former related party, TLC. Losses incurred in the fourth
quarter of fiscal 2003 were due to an unanticipated shortfall in hospital
patient volumes, which were expected to return in fiscal 2004. Management
believed that it would return to profitable operations during Fiscal 2004 and,
accordingly, it was more likely than not that it would realize its deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its cash needs through various equity and debt issuances and
through cash flow from operations. The Company generally pays its billable
employees weekly for their services, and remits certain statutory payroll and
related taxes as well as other fringe benefits. Invoices are generated to
reflect these costs plus the Company's markup.
Cash used in operating activities was $0.4 million during the year ended
February 29, 2004 compared to cash provided from operating activities of $0.5
million and cash used in operating activities of $1.5 million for the years
17
ended February 28, 2003 and 2002 respectively. Cash used in investing activities
was $0.1 million during the year ended February 29, 2004 compared to cash used
in investing activities of $2.4 million and $0.7 million during the year ended
February 28, 2003 and 2002 respectively. Cash provided by financing activities
was $0.4 million in fiscal 2004 as compared to cash provided by financing
activities of $1.2 million and $1.5 million in Fiscal 2003 and 2002
respectively.
Cash used in operating activities during fiscal 2004 was mainly used to fund the
company's new workers compensation collateral account. Cash used in investing
activities during Fiscal 2004 was mainly used on capital expenditures. Cash used
in investing activities during Fiscal 2003 was primarily used for business
acquisitions. Cash provided by financing activities in Fiscal 2004 and 2003 was
mainly from borrowings under the Company credit facility and the sale of
preferred and common stock. Cash provided by Financing activities in Fiscal 2002
was mainly from borrowings under the credit facility.
In April 2001, the Company entered obtained a new financing facility ("New
Facility") with a new lending institution for a $25 million, three year term,
revolving loan. The New Facility limit was increased to $27.5 million in October
2001. Amounts borrowed under the New Facility were used to repay $20.6 million
of borrowing on its existing facility.
In November 2002, the lending institution with which the Company has the New
Facility, increased the revolving credit line to $35 million and provided for an
additional term loan facility totaling $5 million. Interest accrues at a rate of
3.95% over LIBOR on the revolving credit line and 6.37% over LIBOR on the term
loan facility. The New Facility expires in November 2005. The term loan facility
is for acquisitions and capital expenditures. Repayment of this additional term
facility will be on a 36 month straight line amortization.
In November 2002, the interest rates were revised to 4.55% over LIBOR on the
revolving line and 7.27% over the LIBOR on the term loan facility as part of a
loan modification.
On June 13, 2003, the Company received a waiver from the lender for
non-compliance of certain New Facility covenants as of February 28, 2003.
Interest rates on both the revolving line and term loan facility were increased
2% and can decrease if the Company meets certain financial criteria. In
addition, certain financial ratio covenants were modified. The additional
interest is not payable until the current expiration date of the Facility which
is November 2005. As part of this modification, the lender and the DSS and DSI
noteholders amended the subordination agreement and the noteholders amended the
Notes issued to pay the purchase price. As a result of that amendment, what had
been two promissory notes issued to each of the former owners of DSS and DSI has
been condensed into one note. The note issued to one of the former owners is for
a term of seven years, with a minimum monthly payment (including interest) of
$40,000 in year one and minimum monthly payments of $80,000 in subsequent years,
with a balloon payment of $3,700,000 due in year 4. The balance on that note
after the balloon payment is payable over the remaining 3 years of the note,
subject to certain limitations in the subordination agreement. The notes issued
to the other three former owners are for terms of ten years, with minimum
monthly payments (including interest) of $25,000 in the aggregate in the first
year and minimum monthly payments of $51,000 in the aggregate for the remaining
years. Any unpaid balance at the end of the note term will be due at that time.
Additional payments are payable to the noteholders if the Company achieves
certain financial ratios. In conjunction with this revision, one of the note
holders agreed to reduce his note by approximately $2,800,000 provided the
Company does not default under the notes or, in certain instances, the Company's
senior lending facility.
On January 8, 2004 an amendment to the New Facility was entered into modifying
certain financial ratio covenants as of November 30, 2003.
18
On May 24, 2004 an amendment to the New Facility was entered into modifying
certain financial ratio covenants as of February 29, 2004.
The Company's working capital was $19.7 million and $20.7 million on February
29, 2004 and February 28, 2003, respectively.
The Company anticipates that capital expenditures for furniture and equipment,
including improvements to its management information and operating systems
during the next twelve months will be approximately $0.3 million.
Operating cash flows have been our primary source of liquidity and historically
have been sufficient to fund our working capital, capital expenditures, and
internal business expansion and debt service. The Company's cash flow has been
aided by the recent sale of unregistered equity securities, securities
convertible into equity and by the debt restructuring completed on June 13,
2003. We believe that our capital resources are sufficient to meet our working
capital requirements for the next twelve months. We expect to meet our future
working capital, capital expenditure, internal business expansion, and debt
service from a combination of operating cash flows and funds available under the
Facility. No assurance can be given, however, that this will be the case. The
Company may require additional equity and debt financing to meet our working
capital needs, or to fund our acquisition activities, if any. There can be no
assurance that additional financing will be available when required, or, if
available, will be available on satisfactory terms.
INDEBTEDNESS AND CONTRACTUAL OBLIGATIONS OF THE COMPANY
The following are contractual cash obligations of the Company at February 29,
2004:
Payments due by period (amounts in thousands):
Less Than 1-2 3-4
Total One Year Years Years Thereafter
------------------------------------------------------------------------
Bank Financing $25,542 $ 1,310 $ 24,232 $ -- $ --
Debt 32,389 1,148 2,419 6,179 22,643
Operating leases 4,668 1,122 1,524 1,162 860
------------------------------------------------------------------------
Total $62,599 $ 3,580 $ 28,175 $ 7,341 $23,503
========================================================================
BUSINESS TRENDS
Sales and margins have been under pressure as demand for temporary nurses is
currently going through a period of contraction. Hospitals are experiencing flat
to declining admission rates and are placing greater reliance on full-time staff
overtime and increased nurse patient loads. Because of difficult economic times,
nurses in many households are becoming the primary breadwinner, causing them to
seek more traditional full time employment. The U.S. Department of Health and
Human Services said in a July 2002 report that the national supply of full-time
equivalent registered nurses was estimated at 1.89 million and demand was
estimated at 2 million. The 6 percent gap between the supply of nurses and
vacancies in 2000 is expected to grow to 12 percent by 2010 and then to 20
percent five years later. As the economy rebounds, the prospects for the medical
staffing industry should improve as hospitals experience higher admission rates
and increasing shortages of healthcare workers.
19
CRITICAL ACCOUNTING POLICIES
Management's discussion in this Item 7 addresses the Company's consolidated
financial statements which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an on-going basis, management evaluates its estimates and
judgments, including those related to bad debts, intangible assets, income
taxes, workers' compensation, and contingencies and litigation. Management bases
its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions.
Management believes the following critical accounting policies, among others,
affect its more significant judgments and estimates used in the preparation of
its consolidated financial statements. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the Company's
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. The Company determines a
need for a valuation allowance to reduce its deferred tax assets to the amount
that it believes is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event the
Company were to determine that it would not be able to realize all or a part of
its net deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to income in the period such determination was made.
The Company believes the following are its most critical accounting policies in
that they are the most important to the portrayal of the Company's financial
condition and results of operations and require management's most difficult,
subjective or complex judgments.
Revenue Recognition
A substantial portion of the Company's service revenues are derived from a
unique form of franchising under which independent companies or contractors
("licensees") represent the Company within a designated territory. These
licensees assign Company personnel, including registered nurses and therapists,
to service clients using the Company's trade names and service marks. The
Company pays and distributes the payroll for the direct service personnel who
are all employees of the Company, administers all payroll withholdings and
payments, bills the customers and receives and processes the accounts
receivable. The revenues and related direct costs are included in the Company's
consolidated service revenues and operating costs. The licensees are responsible
for providing an office and paying related expenses for administration,
including rent, utilities and costs for administrative personnel. The Company
pays a monthly distribution or commission to its domestic licensees based on a
defined formula of gross profit generated. Generally, the Company pays a
licensee approximately 55% (60% for certain licensees who have longer
relationships with the Company). There is no payment to the licensees based
solely on revenues. For Fiscal 2004, 2003 and 2002, total licensee distributions
were approximately $6,800, $9,100 and $16,900, respectively, and are included in
the general and administrative expenses.
Two of the Company's largest licensees, Direct Staffing, Inc. and DSS Staffing
Corp., were owned by one unrelated third party and by a son and two sons-in-law
of the President and Chairman of the Board of Directors of the Company. Such
licensees were paid (gross licensee fees) approximately $6,527 in Fiscal 2002.
The Company recognizes revenue as the related services are provided to customers
and when the customer is obligated to pay for such completed services. Revenues
are recorded net of contractual or other allowances to which customers are
entitled. Employees assigned to particular customers may be changed at the
20
customer's request or at the Company's initiation. A provision for uncollectible
and doubtful accounts is provided for amounts billed to customers which may
ultimately be uncollectible due to billing errors, documentation disputes or the
customer's inability to pay.
Allowance for Doubtful Accounts
The Company regularly monitors and assesses its risk of not collecting amounts
owed to it by its customers. This evaluation is based upon an analysis of
amounts currently and past due along with relevant history and facts particular
to the customer. Based upon the results of this analysis, the Company records an
allowance for uncollectible accounts for this risk. This analysis requires the
Company to make significant estimates, and changes in facts and circumstances
could result in material changes in the allowance for doubtful accounts.
Goodwill Impairment
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. The Company adopted Statement of
Financial Accounting Standards No. 141, "Business Combinations," ("SFAS 141")
and Statement of Financial Accounting Standards No. 142, "Goodwill and
Intangible Assets," ("SFAS 142") as of March 1, 2002. SFAS 141 provides specific
criteria for the initial recognition and measurement of intangible assets apart
from goodwill. SFAS 142 requires that (1) goodwill and intangible assets with
indefinite useful lives should no longer be amortized, (2) goodwill and
intangibles must be reviewed for impairment annually (or more often if certain
events occur which could impact their carrying value), and (3) the Company's
operations be formally identified into reporting units for the purpose of
assessing impairments of goodwill. Other definite lived intangibles, primarily
customer lists and non-compete agreements, are amortized on a straight line
basis over periods ranging from three to 10 years.
In accordance with SFAS 142 the Company tested goodwill impairment at the end of
the third and fourth quarters of Fiscal 2004. As a result of the testing in the
third quarter of Fiscal 2004, the Company wrote off $0.9 million of goodwill.
The Company also performed its annual testing for goodwill impairment in the
fourth quarter of Fiscal 2004 and determined that no additional write-offs were
required to be taken.
If management's expectations of future operating results change, or if there are
changes to other assumptions, the estimate of the fair value of the Company's
goodwill could change significantly. Such change could result in additional
goodwill impairment charges in future periods, which could have a significant
impact on the Company's consolidated financial statements.
Income Taxes
The Company accounts for income taxes in accordance with the Financial
Accounting Standards Board ("FASB") statement NO. 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases, and
net operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered. The Company records a valuation allowance against deferred tax assets
for which utilization of the asset is not likely.
Management's judgment is required in determining the realizability of the
deferred tax assets and liabilities and any valuation allowances recorded. The
realization of our remaining deferred tax assets is primarily dependent on
forecasted future taxable income. Any reduction in future forecasted operating
and non-operating taxable income may require that the Company record an
additional valuation against our deferred tax assets. An increase in the
21
valuation allowance would result in additional income tax expense in the period
the valuation was recorded and could have a significant impact on the earnings
of the Company.
Workers Compensation Reserves
The Company records its estimate of the ultimate cost of, and reserve for,
workers compensation based on actuarial computations using the Company's loss
history as well as industry statistics. Furthermore, in determining its
reserves, the Company includes reserves for estimated claims incurred but not
reported. The ultimate cost of workers compensation will depend on actual costs
incurred to settle the claims and may differ from the amounts reserved by the
Company for those claims.
Accruals for workers compensation claims are included in accrued expenses in the
consolidated balance sheets. A significant increase in claims or changes in laws
may require the Company to record additional expenses related to workers
compensation. On the other hand, significantly improved claim experience may
result in lower annual expense levels.
EFFECT OF INFLATION
The impact of inflation on the Company's sales and income from continuing
operations was immaterial during Fiscal 2004. In the past, the effects of
inflation on salaries and operating expenses have been offset by the Company's
ability to increase its charges for services rendered. The Company anticipates
that it will be able to continue to do so in the future. The Company continually
reviews its costs in relation to the pricing of its services.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 145, "RESCISSION OF FAS NOS. 4, 44, AND 64, AMENDMENT OF SFAS 13, AND
TECHNICAL CORRECTIONS AS OF APRIL 2002". This statement amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions as well as other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for Fiscal years beginning after December 31, 2002. The Company has adopted SFAS
No. 145 in Fiscal 2003 and has reclassified the 2002 extraordinary loss on early
extinguishment of debt to interest and other expenses.
In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is
effective for Fiscal years beginning after December 31, 2002. The Company does
not anticipate that the adoption of SFAS No. 146 will have a material impact on
the consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE that amends FASB Statement No. 123
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 amends the
disclosure requirements of APB Opinion No. 28, "Interim Financial Reporting" and
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
22
compensation and the effect of the method used on reporting results. SFAS No.
148 is effective for Fiscal years ending after December 15, 2002. The adoption
of SFAS No. 148, except for the disclosure requirements, had no impact on the
consolidated financial statements.
In November 2002, the FASB issued Interpretation 45 ("FIN 45"), "Guarantor's
accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 requires a guarantor entity, at
the inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 applies prospectively to guarantees
issued or modified subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after December 15,
2002.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY, ("FAS 150").
This statement establishes standards for how an issuer classifies and measures
in its statement of financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with the
statement, financial instruments that embody obligations for the issuer are
required to be classified as liabilities. This Statement shall be effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS 150 has no impact on the consolidated
financial statements of the Company.
In January 2003, the FASB issued Interpretation No. 46 ("FINAL"), "Consolidation
of Variable Interest Entities." This interpretation provides guidance with
respect to the consolidation of certain entities, referred to as variable
interest entities ("VIE"), in which an investor is subject to a majority of the
risk of loss from the VIE's activities, or is entitled to receive a majority of
the VIE's residual returns. This interpretation also provides guidance with
respect to the disclosure of VIEs in which an investor maintains an interest,
but is not required to consolidate. The provisions of the interpretation are
effective immediately for all VIEs created after January 31, 2003, or in which
the Company obtains an interest after that date.
In October 2003, the FASB issued a revision to FIN 46, which among other things
deferred the effective date for certain variable interests. Application is
required for interest in special-purpose entities in the period ending after
December 15, 2003 and application is required for all other types of VIEs in the
period ending after March 15, 2004. The adoption of Fin 46 and FIN46R did not
have any impact on the Company's consolidated financial statements as of and for
the year ended February 29, 2004.
FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. From time to time, the Company also provides
forward-looking statements in other materials it releases to the public as well
as oral forward-looking statements. These statements are typically identified by
the inclusion of phrases such as "the Company anticipates", "the Company
believes" and other phrases of similar meaning. These forward looking statements
are based on the Company's current expectations. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements expressed or implied by such
forward-looking statements. The potential risks and uncertainties which would
cause actual results to differ materially from the Company's expectations
include, but are not limited to, those discussed in the section entitled
"Business - Risk Factors". Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's opinions only as of
the date hereof. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including Quarterly Reports on Form 10-Q to be filed by the Company in the
fiscal year 2005.
23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity: The Company's primary market risk exposure is
interest rate risk. The Company's exposure to market risk for changes in
interest rates relates to its debt obligations under its New Facility described
above. Under the New Facility, the weighted average interest rate is 6.72 over
the LIBOR. At February 29, 2004, drawings on the Facility were $25.5 million.
Assuming variable rate debt at February 29, 2004, a one point change in interest
rates would impact annual net interest payments by $255 thousand. The Company
does not use derivative financial instruments to manage interest rate risk.
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ATC HEALTHCARE, INC. AND SUBSIDIARIES
INDEX
Page
----
Report of Independent Registered Public Accounting Firms F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of
February 29, 2004 and February 28, 2003 F-3
Consolidated Statements of Operations
for the Years ended February 29, 2004, February 28, 2003 and
2002 F-4
Consolidated Statements of Stockholders' Equity for the Years ended
February 29, 2004, February 28, 2003 and
2002 F-5
Consolidated Statements of Cash Flows
for the Years ended February 29, 2004, February 28,
2003 and 2002 F-6
Notes to Consolidated Financial Statements F-8
FINANCIAL STATEMENT SCHEDULE FOR THE YEARS ENDED
FEBRUARY 29, 2004, February 28, 2003 and 2002
II - Valuation and Qualifying Accounts F-26
All other schedules were omitted because they are not required, not applicable
or the information is otherwise shown in the financial statements or the notes
thereto.
Report of Independent Registered Public Accounting Firm
To the Board of Directors
ATC HEALTHCARE, INC.
We have audited the accompanying consolidated balance sheet of ATC Healthcare,
Inc. and Subsidiaries as of February 29, 2004 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ATC Healthcare, Inc.
and Subsidiaries as of February 29, 2004 and the results of their operations and
their cash flows for the year then ended, in conformity with U.S. generally
accepted accounting principles.
The information included on Schedule II is the responsibility of management, and
although not considered necessary for a fair presentation of financial position,
results of operations, and cash flows is presented for additional analysis and
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements. In our opinion, the information included on
Schedule II relating to the year ended February 29, 2004 is fairly stated in all
material respects, in relation to the basic consolidated financial statements
taken as a whole. Also, such schedule presents fairly the information set forth
therein in compliance with the applicable accounting regulations of the
Securities and Exchange Commission.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 16, 2004, except for the last paragraph of
Note 7(a) as to which the date is May 28, 2004
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of ATC Healthcare, Inc. and
Subsidiaries:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of ATC Healthcare, Inc. and Subsidiaries as of February 28, 2003 and
the results of their operations and their cash flows for the years ended
February 28, 2003 and 2002, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule for the years ended February 28,
2003 and 2002 listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States), which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 2, the Company changed the manner in which it accounts
for goodwill and other intangible assets upon adoption of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets", on March 1, 2002.
PricewaterhouseCoopers LLP
Melville, New York
May 12, 2003, except for the fifth paragraph
of Note 7(a) as to which the date is
June 13, 2003.
F-2
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------
February 29, February 28,
ASSETS 2004 2003
CURRENT ASSETS:
Cash and cash equivalents $ 543 $ 585
Accounts receivable, less allowance for doubtful
accounts of $737 and $1,784, respectively 27,216 26,876
Deferred income taxes -- 1,787
Prepaid expenses and other current assets 4,700 3,087
-----------------------------
Total current assets 32,459 32,335
Fixed assets, net 848 2,670
Intangibles 6,423 7,186
Goodwill 32,256 33,449
Deferred income taxes 1,984 2,076
Other assets 757 899
-----------------------------
Total assets $ 74,727 $ 78,615
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,595 $ 1,332
Accrued expenses 6,468 6,192
Book overdraft 2,242 2,580
Current portion of due under bank financing 1,310 679
Current portion of notes and guarantee payable 1,148 896
-----------------------------
Total current liabilities 12,763 11,679
Notes and guarantees payable 31,241 31,463
Due under bank financing 24,232 24,249
Other liabilities 371 78
-----------------------------
Total liabilities 68,607 67,469
-----------------------------
Convertible Series A Preferred Stock ($.01 par value, 4,000 shares
authorized; 2,000 and 1,200 shares issued and outstanding, respectively) 1,067 600
-----------------------------
STOCKHOLDERS' EQUITY:
Class A Common Stock - $.01 par value;
75,000,000 shares authorized; 24,665,537 and 23,582,552 shares
issued and outstanding at February 29, 2004 and February 29, 2003, respectively 247 235
Class B Common Stock - $.01 par value;
1,554,936 shares authorized; 245,617 and 256,191 shares issued
and outstanding at February 29, 2004 and February 28, 2003, respectively 3 3
Additional paid-in capital 14,421 13,679
Accumulated deficit (9,618) (3,371)
-----------------------------
Total stockholders' equity 5,053 10,546
-----------------------------
Total liabilities and stockholders' equity $ 74,727 $ 78,615
=============================
F-3
See notes to consolidated financial statements
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------
FOR THE FISCAL YEARS ENDED
- -----------------------------------------------------------------------------------------------------------------------
FEBRUARY 29, 2004 FEBRUARY 28, 2003 FEBRUARY 28, 2002
REVENUES:
Service revenues $130,401 $148,720 $149,414
--------------------------------------------------------------
COSTS AND EXPENSES:
Service costs 103,191 115,694 114,225
General and administrative expenses 22,692 29,458 29,879
Depreciation and amortization 2,106 2,037 1,753
Office closing and restructuring charge 2,589 -- --
--------------------------------------------------------------
Total operating expenses 130,578 147,189 145,857
--------------------------------------------------------------
INCOME FROM OPERATIONS (177) 1,531 3,557
INTEREST AND OTHER EXPENSES (INCOME):
Interest expense, net 4,151 3,255 2,037
Other (income) expense, net (139) 260 (748)
Provision related to TLCS guarantee -- 2,293 --
Loss on early extinguishment of debt -- -- 854
--------------------------------------------------------------
Total interest and other expenses 4,012 5,808 2,143
--------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES (4,189) (4,277) 1,414
INCOME TAX (BENEFIT) PROVISION 1,991 (1,444) (2,179)
--------------------------------------------------------------
NET (LOSS) INCOME $ (6,180) $ (2,833) $ 3,593
==============================================================
DIVIDENDS ACCRETED TO PREFERRED STOCKHOLDERS' $ 67 $ -- $ --
==============================================================
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS' $ (6,247) $ (2,833) $ 3,593
==============================================================
(LOSS) EARNINGS PER COMMON SHARE - BASIC $ (0.25) $ (0.12) $ 0.15
==============================================================
(LOSS) EARNINGS PER COMMON SHARE - DILUTED $ (0.25) $ (0.12) $ 0.14
==============================================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 24,468 23,783 23,632
==============================================================
Diluted 24,468 23,783 25,695
==============================================================
- -----------------------------------------------------------------------------------------------------------------------
F-4
See notes to consolidated financial statements
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------
Class A Class B
Common Stock Common Stock
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------
Balances, February 28, 2001 23,357,782 $ 233 274,015 $ 3
Exchange of Class B for Class A Common Stock 11,161 -- (11,161) --
Net income -- -- -- --
-------------------------------------------------------
Balances, February 28, 2002 23,368,943 233 262,854 3
Exchange of Class B for Class A Common Stock 6,663 -- (6,663) --
Exercise of employee stock options 103,333 1 -- --
Issuance of shares through Employee Stock Purchase Plan 103,613 1 -- --
Net loss -- -- -- --
-------------------------------------------------------
Balances, February 28, 2003 23,582,552 235 256,191 3
Exchange of Class B for Class A Common Stock 10,774 -- (10,774) --
Exercise of employee stock options 56,500 1 -- --
Issuance of shares through Employee Stock Purchase Plan 55,618 1 -- --
Common Stock issued for cash 960,093 10 -- --
Accrued dividends on Preferred Stock -- -- -- --
Net loss -- -- -- --
-------------------------------------------------------
Balances, February 29, 2004 24,665,537 $ 247 245,417 $ 3
=======================================================
- ---------------------------------------------------------------------------------------------------------
Additional
Paid-In Accumulated
Capital Deficit Total
- ---------------------------------------------------------------------------------------------------------
Balances, February 28, 2001 $13,522 $ (4,131) $ 9,627
Exchange of Class B for Class A Common Stock -- -- --
Net income -- 3,593 3,593
----------------------------------------------
Balances, February 28, 2002 13,522 (538) 13,220
Exchange of Class B for Class A Common Stock -- -- --
Exercise of employee stock options 51 -- 52
Issuance of shares through Employee Stock Purchase Plan 106 -- 107
Net loss -- (2,833) (2,833)
----------------------------------------------
Balances, February 28, 2003 13,679 (3,371) 10,546
Exchange of Class B for Class A Common Stock -- -- --
Exercise of employee stock options 16 -- 17
Issuance of shares through Employee Stock Purchase Plan 35 36
Common Stock issued for cash 691 701
Accrued dividends on Preferred Stock -- (67) (67)
Net loss -- (6,180) (6,180)
------------------------------------------------
Balances, February 29, 2004 $ 14,421 $ (9,618) $ 5,053
================================================
F-5
See notes to consolidated financial statements
ATC HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the Fiscal Years Ended
February 29, February 28, February 28,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (6,180) $ (2,833) $ 3,593
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operations:
Depreciation and amortization 2,373 2,261 1,890
Write-off of fixed assets, net 892 -- --
Impairment of goodwill 889
Provision related to TLCS guarantee -- 2,293 --
Loss on early extinguishment of debt -- -- 854
Provision for doubtful accounts 7 1,629 400
Deferred income taxes 1,891 (1,584) (2,279)
In-kind interest 927 886 72
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (347) 178 (2,514)
Prepaid expenses and other current assets (1,613) (2,714) (176)
Other assets (37) 108 (293)
Accounts payable and accrued expenses 526 269 (3,007)
Other long-term liabilities 293 (14) 7
---------------------------------------------
Net cash provided by (used in) operating activities (379) 479 (1,453)
---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (238) (417) (458)
Finalization of acquisition purchase price 130 -- --
Acquisition of businesses -- (2,071) (320)
Notes receivable from licensees -- (33) --
Other -- 108 85
---------------------------------------------
Net cash used in investing activities (108) (2,413) (693)
---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings under previous credit facility -- -- (20,936)
Borrowings under new credit facility 1,838 1,417 23,600
Payment of notes and capital lease obligations (1,363) (2,948) (798)
Repayment of term loan facility (757) (87) --
Payment of debt issuance costs (87) (520) (413)
Book overdraft (338) 2,580 --
Issuance of common and preferred stock 1,152 757 --
---------------------------------------------
Net cash provided by financing activities 445 1,199 1,453
---------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (42) (735) (693)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 585 1,320 2,013
---------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 543 $ 585 $ 1,320
=============================================
- ---------------------------------------------------------------------------------------------------------------------------------
F-6
See notes to consolidated financial statements
Cash paid for:
Interest $ 2,490 $ 2,081 $ 2,020
===============================================
Income taxes $ 43 $ 71 $ 142
===============================================
Supplemental schedule of noncash investing and financing activities:
Fair value of assets acquired $ -- $ 3,041 $31,290
Notes issued in connection with acquisition of businesses $ -- 970 30,970
-----------------------------------------------
Net cash paid $ -- $ 2,071 $ 320
===============================================
Fixed assets acquired through capital leases $ -- $ -- $ 97
Dividends $ 67 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
F-7
See notes to consolidated financial statements
ATC HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ATC Healthcare, Inc. and Subsidiaries, including ATC Healthcare Services, Inc.
and ATC Staffing Services, Inc, (collectively the "Company") are providers of
supplemental staffing to healthcare facilities. In August 2001, the Company
changed its name from Staff Builders, Inc. to ATC Healthcare, Inc. The Company
offers a skills list of qualified healthcare associates in over 60 job
categories ranging from the highest level of specialty nurse including critical
care, neonatal and labor and delivery, to medical administrative staff,
including third party billers, administrative assistants, claims processors,
collection personnel and medical records clerks. The nurses provided to clients
include registered nurses, licensed practical nurses and certified nursing
assistants.
During October 1999, the Company separated its home healthcare business from
its existing staffing business. To accomplish this separation, the Board of
Directors established a new, wholly-owned subsidiary, Tender Loving Care Health
Care Services, Inc. ("TLCS"), which acquired 100% of the outstanding capital
stock of the subsidiaries engaged in the home healthcare business. The spin-off
was effected through a pro-rata distribution to the Company's stockholders of
all the shares of common stock of TLCS owned by the Company (the
"Distribution"). The Distribution was made by issuing one share of TLCS common
stock for every two shares of the Company's Class A and Class B common stock
outstanding. The accompanying consolidated financial statements reflect the
financial position, results of operations, changes in stockholders' equity and
cash flows of the Company as if it were a separate entity for all periods
presented. The consolidated financial statements have been prepared using the
historical basis of assets and liabilities and historical results of operations
related to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after the elimination of all significant
intercompany balances and transactions and include the results of operations of
purchased businesses from the respective dates of acquisition.
REVENUE RECOGNITION
A substantial portion of the Company's service revenues is derived from a
unique form of franchising under which independent companies or contractors
("licensees") represent the Company within a designated territory. These
licensees assign Company personnel, including registered nurses and therapists,
to service clients using the Company's trade names and service marks. The
Company pays and distributes the payroll for the direct service personnel who
are all employees of the Company, administers all payroll withholdings and
payments, bills the customers and receives and processes the accounts
receivable. The revenues and related direct costs are included in the Company's
consolidated service revenues and operating costs. The licensees are responsible
for providing an office and paying related expenses for administration,
including rent, utilities and costs for administrative personnel. The Company
pays a monthly distribution or commission to its domestic licensees based on a
defined formula of gross profit generated. Generally, the Company pays a
licensee approximately 55% (60% for certain licensees who have longer
relationships with the Company). There is no payment to the licensees based
solely on revenues. For Fiscal 2004, 2003 and 2002, total licensee distributions
were approximately $6,800, $9,100 and $16,900, respectively, and are included in
general and administrative expenses.
F-8
REVENUE RECOGNITION (CONTINUED)
Two of the Company's largest licensees, Direct Staffing, Inc. ("DSI") and DSS
Staffing Corp. ("DSS"), were owned by one unrelated third party and by a son and
two sons-in-law of the President and Chairman of the Board of Directors of the
Company. Such licensees were paid (gross licensee fees) approximately $6,527 in
Fiscal 2002. The Company recognizes revenue as the related services are provided
to customers and when the customer is obligated to pay for such completed
services. Revenues are recorded net of contractual or other allowances to which
customers are entitled. Employees assigned to particular customers may be
changed at the customer's request or at the Company's initiation. A provision
for uncollectible and doubtful accounts is provided for amounts billed to
customers which may ultimately be uncollectible due to billing errors,
documentation disputes or the customer's inability to pay.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses as well as the disclosure of contingent
assets and liabilities in the consolidated financial statements. Actual results
could differ from those estimates. The most significant estimates relate to the
collectibility of accounts receivable, obligations under workers' compensation
and valuation allowances on deferred taxes.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include liquid investments with original maturities of
three months or less.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers and their dispersion across a
number of geographic areas. However, essentially all trade receivables are
concentrated in the hospital and healthcare sectors in the United States and,
accordingly, the Company is exposed to their respective business, economic and
country-specific variables. Although the Company does not currently foresee a
concentrated credit risk associated with these receivables, repayment is
dependent upon the financial stability of these industry sectors.
FIXED ASSETS
Fixed assets, consisting of equipment (primarily computer hardware and
software), furniture and fixtures, and leasehold improvements, are stated at
cost and depreciated from the date placed into service over the estimated useful
lives of the assets using the straight-line method. Leasehold improvements are
amortized over the shorter of the lease term or estimated useful life of the
improvement. Maintenance and repairs are charged to expense as incurred;
renewals and improvements which extend the life of the asset are capitalized.
Gains or losses from the disposition of fixed assets are reflected in operating
results.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards Board ("SFAS")
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The Company periodically reviews its fixed assets to determine if
any impairment exists based upon projected, undiscounted net cash flows of the
Company. During fiscal 2004, the Company charged operations $892 for fixed
assets that were impaired. As of February 29, 2004, the Company believes that no
other impairment of long-lived assets exists.
F-9
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of purchase price over the fair value of
identifiable net assets of companies acquired. The Company adopted Statement of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, ("SFAS 141") and
SFAS NO. 142, GOODWILL AND INTANGIBLE ASSETS, ("SFAS 142") as of March 1, 2002.
SFAS 141 provides specific criteria for the initial recognition and measurement
of intangible assets apart from goodwill. SFAS 142 requires that (1) goodwill
and intangible assets with indefinite useful lives should no longer be
amortized, (2) goodwill and intangibles must be reviewed for impairment annually
(or more often if certain events occur which could impact their carrying value),
and (3) the Company's operations be formally identified into reporting units for
the purpose of assessing impairments of goodwill. Prior to 2002, goodwill was
amortized on a straight-line basis over 15 years. Goodwill amortization for the
year ended February 28, 2002 was $499. Other definite lived intangibles,
primarily customer lists and non-compete agreements, are amortized on a
straight-line basis over periods ranging from three to 10 years.
In accordance with SFAS 142, the Company performed a transitional impairment
test as of March 1, 2002 and its annual impairment test at the end of each year
for its unamortized goodwill. As a result of the impairment tests performed, the
Company charged operations $889 for the year ended February 29, 2004 for
goodwill the Company determined was impaired. No other impairment was noted at
the date of the adoption of SFAS 142 or at February 29, 2004 and February 28,
2003. During fiscal 2004, the Company's net goodwill decreased by $1.193 million
as a result of an impairment charge of $889 and $304 of final purchase price
allocations.
Goodwill and other intangibles are as follows:
- -----------------------------------------------------------------------------------------------------------------------------
FEBRUARY 29, 2004 FEBRUARY 28, 2003
- -----------------------------------------------------------------------------------------------------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated Amortization
Amount Amortization Amount Amortization Period
Goodwill $ 34,945 $ 2,689 $ 36,389 $ 2,940 none
Customer lists 6,400 1,120 6,400 480 10
Covenants not to compete 900 375 900 246 3-10
Other intangibles 844 226 672 60 5-10
-----------------------------------------------------------------------
$ 43,089 $ 4,410 $ 44,361 $ 3,726
=======================================================================
- -----------------------------------------------------------------------------------------------------------------------------
Amortization expense was $938, $662 and $623 for fiscal 2004, 2003 and 2002,
respectively. Estimated amortization expense for the next five fiscal years is
as follows:
-------------------------------
Amortization Expense
-------------------------------
2005 $ 937
2006 912
2007 904
2008 846
2009 717
-------------------------------
F-10
GOODWILL AND INTANGIBLE ASSETS (Continued)
As required by SFAS 142, the results for fiscal 2002 have not been restated. A
reconciliation of net income, as if SFAS 142 had been adopted in fiscal 2002, is
presented below:
- -----------------------------------------------------------------------------------------------------------------------------
For the years ended
February 29 and 28,
- -----------------------------------------------------------------------------------------------------------------------------
2004 2003 2002
---- ---- ----
Reported (loss) income $ (6,180) $ (2,833) $ 3,593
Addback: goodwill amortization, net of tax 294
--------------------------------------------------------
Adjusted net (loss) income $ (6,180) $ (2,833) $ 3,887
========================================================
Basic earnings per share: $ (0.25) $ (0.12) $ 0.15
Reported (loss) income 0.01
Addback: goodwill amortization, net of tax
--------------------------------------------------------
Adjusted net (loss) income $ (0.25) $ (0.12) $ 0.16
========================================================
Diluted earnings per share: $ (0.25) $ (0.12) $ 0.14
Reported (loss) income 0.01
Addback: goodwill amortization, net of tax
--------------------------------------------------------
Adjusted net (loss) income $ (0.25) $ (0.12) $ 0.15
========================================================
- -----------------------------------------------------------------------------------------------------------------------------
INSURANCE COSTS
The Company is obligated for certain costs under various insurance programs,
including workers' compensation. The Company recognizes its obligations
associated with these policies in the period the claim is incurred. The costs of
both reported claims and claims incurred but not reported, up to specified
deductible limits, are estimated based on historical data, current enrollment
statistics and other information. Such estimates and the resulting reserves are
reviewed and updated periodically, and any adjustments resulting there from are
reflected in earnings currently.
OFFICE CLOSINGS AND RESTRUCTURE CHARGES
In the third quarter of Fiscal 2004, the Company recorded a charge associated
with the closing of seven offices in the amount of $2.6 million. The Company
expects the restructure to result in a lower overall cost structure to allow it
to focus resources on offices with greater potential for better overall growth
and profitability. The components of the charge are as follows:
- --------------------------------------------------------------------------------
Components Amount
- --------------------------------------------------------------------------------
Write-off of fixed assets $ 892
Write-off of related goodwill 889
Severance costs and other benefits 608
Other exit costs 200
------
Total restructuring charge $2,589
======
- --------------------------------------------------------------------------------
As of February 29, 2004, the Company has paid $165 for severance and other costs
associated with the office closings. As of February 29, 2004 the Company's
accounts payable and accrued expenses included $643 of remaining costs accrued
consisting mainly of severance and lease costs. The severance and remaining
other exit costs will be paid in fiscal 2005. The remaining lease costs will be
paid through the term of the related leases which expire through January 2007.
F-11
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed using the weighted average number of
common shares outstanding for the applicable period. Diluted earnings (loss) per
share is computed using the weighted average number of common shares plus
potential common shares outstanding, unless the inclusion of such potential
common equivalent shares would be anti-dilutive. Dilutive earnings per share
include common stock equivalents of 2,063 shares related to outstanding stock
options in Fiscal 2002. In Fiscal 2004 and 2003, common stock equivalents would
have been anti-dilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable, accounts
payable, amounts due under bank financing and acquisition notes payable
approximate fair value.
ADVERTISING
Advertising costs, which are expensed as incurred, were $571, $1,088 and $787 in
Fiscal 2004, 2003 and 2002, respectively, and are included in general and
administrative expenses.
STOCK BASED COMPENSATION
The Company applies the intrinsic value method in accounting for its stock-based
compensation. Had the Company measured compensation under the fair value method
for stock options granted, the Company's net (loss) income and net (loss) income
per share, basic and diluted, would have been as follows:
- ---------------------------------------------------------------------------------------------------------------------------
February 29, 2004 February 28, 2003 February 28, 2002
- ---------------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (6,180) $ (2,833) $ 3,593
Fair value method of stock based compensation,
net of tax (384) (59) (98)
Net (loss) income (6,564) (2,892) 3,495
Basic (loss) income per share (0.25) (0.12) 0.15
Basic (loss) income per share (0.27) (0.12) 0.15
Diluted (loss) income per share (0.25) (0.12) 0.14
Diluted (loss) income per share (0.27) (0.12) 0.14
- ---------------------------------------------------------------------------------------------------------------------------
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in Fiscal 2004, 2003 and 2002, respectively. Risk-free interest rates of
4.4%, 4.7% and 4.5%; dividend yield of 0% for each year; expected lives of 10
years for each year and volatility of 96%, 96% and 89%.
F-12
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 145, RESCISSION OF FAS NOS. 4, 44, AND 64, AMENDMENT OF SFAS 13, AND
TECHNICAL CORRECTIONS AS OF APRIL 2002. This statement amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions as well as other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. SFAS No. 145, is
effective for fiscal years beginning after December 31, 2002. The Company has
adopted SFAS No. 145 in Fiscal 2003 and has reclassified the 2002 extraordinary
loss on early extinguishment of debt to interest and other expenses.
In June 2002, the FASB issued SFAS No. 146 ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is
effective for Fiscal years beginning after December 31, 2002. The Company does
not anticipate that the adoption of SFAS No. 146 will have a material impact on
the consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE that amends FASB Statement No. 123
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 amends the
disclosure requirements of APB Opinion No. 28, "Interim Financial Reporting" and
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reporting results. SFAS No.
148 is effective for Fiscal years ending after December 15, 2002. The adoption
of SFAS No. 148, except for the disclosure requirements, had no impact on the
consolidated financial statements.
In November 2002, the FASB issued Interpretation 45 ("FIN 45"), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 requires a guarantor entity, at
the inception of a guarantee covered by the measurement provisions of the
interpretation, to record a liability for the fair value of the obligation
undertaken in issuing the guarantee. FIN 45 applies prospectively to guarantees
issued or modified subsequent to December 31, 2002, but has certain disclosure
requirements effective for interim and annual periods ending after December 15,
2002.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position, certain financial instruments with characteristics of
both liabilities and equity. In accordance with the statement, financial
instruments that embody obligations for the issuer are required to be classified
as liabilities. This Statement shall be effective for financial instruments
entered into or modified after May 31, 2003, and otherwise shall be effective at
the beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 has no impact on the consolidated financial statements of
the Company.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." This interpretation provides
guidance with respect to the consolidation of certain entities, referred to as
variable interest entities ("VIE"), in which an investor is subject to a
majority of the risk of loss from the VIE's activities, or is entitled to
receive a majority of the VIE's residual returns. This interpretation also
provides guidance with respect to the disclosure of VIEs in which an investor
maintains an interest, but is not required to consolidate. The provisions of the
interpretation are effective immediately for all VIEs created after January 31,
2003, or in which the Company obtains an interest after that date.
F-13
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In October 2003, the FASB issued a revision to FIN 46, which among other things
deferred the effective date for certain variable interests. Application is
required for interest in special-purpose entities in the period ending after
December 15, 2003 and application is required for all other types of VIE's in
the period ending March 15, 2004. The adoption of FIN 46 and FIN 46R did not
have any impact on the Company's consolidated financial statements as of and for
the year ended February 29, 2004.
Management does not believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
3. ACQUISITIONS
In October 2001, the Company acquired substantially all of the assets of
Doctors' Corner and Healthcare Staffing, Inc., which is a provider of both
permanent and temporary medical administrators in Southern California. The
purchase price was $1,075, of which $300 was paid at closing, $100 was paid on
January 1, 2002, $100 was paid on April 1, 2002 and the remaining $575 is
payable in 20 quarterly installments beginning July 1, 2002. The purchase price
included a covenant not to compete for $500. The remaining purchase price was
allocated to goodwill whose amortization is deductible for tax purposes.
In January 2002, the Company purchased substantially all of the assets of DSI, a
licensee of the Company serving the territory consisting of Westchester County,
New York, and northern New Jersey, and DSS, a licensee of the Company serving
New York City and Long Island, New York, for a purchase price of $30,195. These
two licensees were owned by an unrelated third party and by a son and two
sons-in-law of the Company's Chairman of the Board of Directors who have
received an aggregate 60% of the proceeds of the sale. The Company will be
required to pay contingent consideration equal to the amount by which (a) the
product of (i) Annualized Revenues (as defined in the purchase agreement), and
(ii) 5.25 exceeds (b) $17,220, but if and only if the resulting calculation
exceeds $20 million.
The company has obtained a valuation on the tangible and intangible assets
associated with the transaction and has allocated $6,400 to customer lists
(which is being amortized over 10 years), $200 to a covenant not to complete
(which is being amortized over 8 years) and the remaining balance to goodwill.
The purchase price was evidenced by two series of promissory notes issued to
each of the four owners of DSS and DSI. The first series of notes (the "First
Series"), in the aggregate principal amount of $12,975, bore interest at 5% per
annum and was payable in 36 consecutive equal monthly installments of principal,
together with interest thereon, with the first installment having become due on
March 1, 2002. The second series of notes (the "Second Series"), in the
aggregate principal amount of $17,220, bore interest at the rate of 5% per annum
and was payable as follows: $11 million, together with interest thereon, on
April 30, 2005 (or earlier if certain capital events occur prior to such date)
and the balance in 60 consecutive equal monthly installments of principal,
together with interest thereon, with the first installment becoming due on April
30, 2005. If the contingent purchase price adjustment was triggered on April 30,
2005, then the aggregate principal balance of the Second Series was to be
increased by such contingent purchase price. Payment of the First Series and the
Second Series was collateralized by a second lien on the assets of the acquired
licensees (see Note 7). In June 2003, the Notes were modified.
F-14
In June 2002, the Company bought out a management contract with a company
("Travel Company") which was managing its travel nurse division. The purchase
price of $620 is payable over two years beginning in December 2002. The Travel
Company had received payments from the Company of $702 and $1,362 for Fiscal
years ended February 28, 2003 and 2002, respectively, for its management of the
travel nurse division. The Company is amortizing the cost of the buyout over the
five years that were remaining on the management contract.
During Fiscal 2003, the Company purchased substantially all of the assets and
operations of eight temporary medical staffing companies totaling $3,041, of
which $2,071 was paid in cash and the remaining balance is payable under notes
payable with maturities through January 2007. The notes bear interest at rates
between 6% to 8% per annum. The purchase prices were allocated primarily to
goodwill (approximately $2,282). In April 2003, the Company sold its interest in
one of these temporary medical staffing companies to its franchisee for $130.
The acquisitions were accounted for under the purchase method of accounting and,
accordingly, the accompanying consolidated financial statements include the
results of the acquired operations from their respective acquisition dates. The
table below reflects unaudited pro forma combined results of the Company, as if
the acquisitions had taken place on March 1, 2001.
The unaudited pro forma financial information does not purport to be indicative
of the results of operations that would have occurred had the transactions taken
place at the beginning of the periods presented or of future results of
operations. For fiscal 2004, the acquisitions are included in the statement of
operations from the date of acquisition through February 29, 2004.
---------------------------------------------------------------------
February 28, February 28,
2003 2002
Net revenues $ 161,625 $ 157,586
Income from operations 2,178 5,672
Net (loss) income (2,451) 4,103
(Loss) earnings per share:
Basic $ (0.10) $ 0.17
Diluted $ (0.10) $ 0.16
---------------------------------------------------------------------
4. FIXED ASSETS
Fixed assets consist of the following:
- ----------------------------------------------------------------------------------------------------------
Estimated Useful February 29, February 28,
Life in Years 2004 2003
Computer equipment and software 3 to 5 $ 1,487 $ 7,080
Office equipment, furniture and fixtures 5 215 558
Leasehold improvements 5 191 218
-------------------------------------
1,893 7,856
Less: accumulated depreciation
and amortization 1,045 5,186
-------------------------------------
Net $ 848 $ 2,670
=====================================
- ----------------------------------------------------------------------------------------------------------
As of February 29, 2004 and February 28, 2003, fixed assets include amounts for
equipment acquired under capital leases with an original cost of $262 and
$1,529, respectively. Depreciation expense was $1,168, $1,376 and $1,217 in
2004, 2003 and 2002, respectively. The accumulated amortization on equipment
acquired under capital lease obligations was $170 and $988 as of February 29,
2004 and February 28, 2003, respectively.
F-15
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
- --------------------------------------------------------------------------
February 29, February 28,
2004 2003
- ------------------------------------------------------------------------
Prepaid workers compensation expense $ 3,946 $ 2,284
Other 754 803
--------------------------
Total $ 4,700 $ 3,087
==========================
- --------------------------------------------------------------------------
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
- --------------------------------------------------------------------------
February 29, February 28,
2004 2003
- -------------------------------------------------------------------------
Payroll and related taxes $ 2,297 $ 1,518
Accrued licensee payable 1,076 1,123
Insurance accruals 2,264 2,871
Interest payable 20 232
Other 811 448
--------------------------
Total $ 6,468 $ 6,192
==========================
- --------------------------------------------------------------------------
7. FINANCING ARRANGEMENTS
Debt financing payable consists of the following:
- ----------------------------------------------------------------------
February 29, February 28,
2004 2003
- ----------------------------------------------------------------------
Financing Agreement (a) $ 25,542 $ 24,928
-------------------------------
25,542 24,928
Less: current portion 1,310 679
-------------------------------
$ 24,232 $ 24,249
===============================
- ----------------------------------------------------------------------
(a) Prior to April 2001, the Company borrowed under a financing facility (the
"Facility") with a lending institution (the "Lender") for $20 million. The term
of the Facility was for three years and bore interest at a rate of prime plus
3%. The Facility was collateralized by all of the Company's assets.
During April 2001, the Company entered into a Financing Agreement ("New
Financing Arrangment") with a lending institution, whereby the lender agreed to
provide a revolving credit facility of up to $25 million. The New Financing
Agreement was amended in October 2001 to increase the facility to $27.5 million.
Amounts borrowed under the New Financing Agreement were used to repay $20,636 of
borrowing on its existing facility. As a result, the Company recognized a loss
of approximately $850 (before a tax benefit of $341), which includes the
write-off of deferred financing costs and an early termination fee.
F-16
Availability under the New Financing Agreement is based on a formula of eligible
receivables, as defined in the New Financing Agreement. The borrowings bear
interest at rates based on the LIBOR plus 3.65%. At February 28, 2002, the
interest rate was 5.65%. Interest rates ranged from 5.4% to 8.2% in Fiscal 2002.
An annual fee of 0.5% is required based on any unused portion of the total loan
availability.
In November 2002, the lending institution with which the Company has the secured
facility increased the revolving credit line to $35 million and provided for an
additional term loan facility totaling $5 million. Interest accrues at a rate of
3.95% over the LIBOR on the revolving credit line and 6.37% over the LIBOR on
the term loan facility. The Facility expires in November 2005. The term loan
facility is for acquisitions and capital expenditures. Repayment of this
additional term facility will be on a 36 month straight line amortization. The
Agreement contains various restrictive covenants that, among other requirements,
restrict additional indebtedness. The covenants also require the Company to meet
certain financial ratios. In November 2002, the interest rates were revised to
4.55% over the LIBOR on the revolving line and 7.27% over the LIBOR on the term
loan facility as part of a loan modification. As of February 29, 2004 and
February 28, 2003, the outstanding balance on the revolving credit facility was
$22,698 and $22,561, respectively. As of February 29, 2004 and February 28,
2003, the outstanding balance on the term loan was $2,841 and $2,367,
respectively.
On June 13, 2003, the Company received a waiver from the lender for
non-compliance of certain Facility covenants as of February 28, 2003. Interest
rates on both the revolving line and term loan facility were increased 2% and
can decrease if the Company meets certain financial criteria. In addition,
certain financial ratio covenants were modified. The additional interest is not
payable until the current expiration date of the Facility which is November
2005. As part of this modification, the lender and the DSS and DSI noteholders
amended the subordination agreement (see Note 8). As a result of that amendment,
the two series of promissory notes to the former owners of DSS and DSI have been
condensed into one series of notes. One of the notes is for a term of seven
years, with a minimum monthly payment (including interest) of $40 in year one
and minimum monthly payments of $80 in subsequent years, with a balloon payment
of $3,600 due in year four. The balance on the first note after the balloon
payment is payable over the remaining three years of the note, subject to
limitations. The other three notes are for 10 years, with minimum monthly
payments (including interest) of $25 in the aggregate in the first year and
minimum monthly payments of $51 in the aggregate for the remaining years. Any
unpaid balance at the end of the note term will be due at that time. Additional
payments may be made to the noteholders if the Company achieves certain
financial ratios. In conjunction with this revision, one of the note holders has
agreed to reduce its note by approximately $2,800, contingent upon the Company's
compliance under the modified subordination agreement.
On January 8, 2004, an amendment to the Facility was entered into modifying
certain financial ratio covenants as of November 30, 2003.
On May 28, 2004, an amendment to the Facility was entered into modifying certain
financial ratio covenants as of February 29, 2004.
(b) Annual maturities of notes and guarantee payable discussed above are as
follows:
----------------------------------------------------
2005 1,310
2006 24,232
------------
Total $ 25,542
============
----------------------------------------------------
F-17
8. NOTES AND GUARANTEE PAYABLE
Notes and guarantee payable consist of the following:
- ---------------------------------------------------------------------
February 29, February 28,
2004 2003
- ---------------------------------------------------------------------
Notes payable to DSS and DSI (a) $ 29,293 $ 28,544
Guarantee of TLCS liability (c) 2,293 2,293
Other (b) 803 1,522
------------------------------------
32,389 32,359
Less: current portion 1,148 896
------------------------------------
$ 31,241 $ 31,463
====================================
- ---------------------------------------------------------------------
(a) The Company originally issued two series of promissory notes to each of the
four owners of DSS and DSI (three related and one unrelated party; see Note 3).
The first series of notes (the "First Series"), in the aggregate principal
amount of $12,975, bore interest at a rate of 5% per annum and was payable in 36
equal monthly installments of principal, together with interest, with the first
installment having become due on March 1, 2002. The second series of notes (the
"Second Series"), in the aggregate principal amount of $17,220, bore interest at
a rate of 5% per annum and was payable as follows: $11 million, together with
interest, on April 30, 2005 (or earlier if certain events, as defined, occur
prior to such date) and the balance in 60 equal monthly installments of
principal, together with interest, with the first installment becoming due on
April 30, 2005. On June 13 2003, in connection with the receipt by the Company
of a waiver from its senior lender for non-compliance of certain Facility
covenants the lender and the DSS and DSI noteholders amended the subordination
agreement and the Company and the noteholders amended the notes issued to those
noteholders (See note 7). As a result of the amendment, what had been two
promissory notes issued to each of the former owners of DSS and DSI have been
condensed into one note. The amended note issued to one of the former owners is
for a term of seven years with a minimum monthly payment (including interest) of
$40 in year one and minimum monthly payments of $80 in subsequent years, with a
balloon payment of $3,600 due in year four. The balance on that note after the
balloon payment is payable over the remaining three years of the note, subject
to limitations. The amended note issued to other three former owners are for ten
years, with minimum monthly payments (including interest) of $25 in the
aggregate in the first year and minimum monthly payments of $51 in the aggregate
for the remaining years. Any unpaid balance at the end of the note term will be
due at that time. Additional payments are to be made to the noteholders if the
Company achieves certain financial ratios. In conjunction with this revision,
one of the noteholders has agreed to reduce his note by approximately $2,800,
provided the Company does not default under the notes or, in certain instances,
the Company's senior lending facility. Payment of the First Series and the
Second Series notes and of the amended Notes was and is collateralized by the
assets of the acquired licensees. Payments on these notes are in accordance with
a subordination agreement between the four former owners of DSS and DSI, the
Facility and the Company. These notes are subordinated to the borrowings under
the Company's revolving credit facilities (see Note 7).
(b) The Company issued various notes payable, bearing interest at rates ranging
from 6% and 8% per annum, in connection with various acquisitions with
maturities through January 2007.
F-18
(c) Guarantee of TLCS Liability - The Company is contingently liable on $2.3
million of obligations owed by TLCS which is payable over eight years. The
Company is indemnified by TLCS for any obligations arising out of these matters.
On November 8, 2002, TLCS filed a petition for relief under Chapter 11 of the
United States Bankruptcy Code. As a result, the Company has recorded a provision
of $2.3 million representing the balance outstanding on the related TLCS
obligations. The Company has not received any demands for payment with respect
to these obligations. The next payment is due in September 2004. The obligation
is payable over eight years. The Company believes that it has certain defenses,
that could reduce or eliminate its recorded liability in this matter.
(d) Annual maturities of notes and guarantee payable discussed above are as
follows:
----------------------------
2005 $ 1,148
2006 1,199
2007 1,220
2008 4,920
2009 1,259
Thereafter 22,643
------------
Total $ 32,389
============
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
- ---------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED
-----------------------------------------------------------------------
FEBRUARY 29, 2004 FEBRUARY 28, 2003 FEBRUARY 28, 2002
Current:
Federal $ -- $ -- $ --
State 100 140 100
-----------------------------------------------------------------
100 140 100
-----------------------------------------------------------------
Deferred
Federal 1,791 (1,490) (2,143)
State 100 (94) (136)
-----------------------------------------------------------------
1,891 (1,584) (2,279)
-----------------------------------------------------------------
Total income tax (benefit) expense $ 1,991 $ (1,444) $ (2,179)
=================================================================
- ---------------------------------------------------------------------------------------------------------------------
F-19
9. INCOME TAXES (CONTINUED)
A reconciliation of the differences between income taxes computed at the federal
statutory rate and the provision (benefit) for income taxes as a percentage of
pretax income from continuing operations for each year is as follows:
- --------------------------------------------------------------------------------
2004 2003 2002
- --------------------------------------------------------------------------------
Federal statutory rate (34.0%) (34.0%) 34.0%
State and local income taxes, net 4.0% .1% 12.2%
of federal income tax benefit
Goodwill amortization -- -- 7.4%
Valuation allowance increase (decrease) 80.9% -- (208.1%)
Other (3.4%) .1% 0.4%
-------------------------------------
Effective rate 47.5% (33.8%) (154.1%)
=====================================
- --------------------------------------------------------------------------------
The Company's net deferred tax assets are comprised of the following:
- --------------------------------------------------------------------------------
February 29, 2004 February 28, 2003
Current:
Allowance for doubtful accounts $ 295 $ 711
Accrued expenses 1,219 1,076
----------------------------------------
1,514 1,787
----------------------------------------
Valuation allowance (1,514) --
----------------------------------------
-- 1,787
----------------------------------------
Non current:
Revenue recognition 16 16
Net operating loss carryforward 3,566 1,551
Depreciation and amortization (637) (407)
TLCS guarantee 916 916
----------------------------------------
3,861 2,076
----------------------------------------
Valuation allowance (1,877) --
----------------------------------------
$ 1,984 $ 3,863
========================================
Prior to the year ended February 28, 2002, the Company had provided a valuation
allowance for the full amount of its deferred tax assets, because of the
substantial uncertainties associated with the Company's ability to realize a
deferred tax benefit due to its financial condition. However, based on the
Company's expected profitability, the valuation allowance of $2,952 was
eliminated in fiscal 2002.
At February 28, 2003, management believed that it was more likely than not that
the Company's deferred tax assets would be realized through future profitable
operations. This was based upon the fact that the Company had profitable
operations from September 1, 2000 through the third quarter ended November 30,
2002, which quarterly results were profitable before a charge for the guarantee
of certain debt of a former related party, TLC. Losses incurred in the fourth
quarter of fiscal 2003 were due to an unanticipated shortfall in hospital
patient volume, which were expected to return in fiscal 2004. Management
believed that it would return to profitable operations during fiscal 2004 and,
accordingly, it was more likely than not that it would realize its deferred tax
assets.
F-20
For the year ended February 29, 2004, income tax expense is due primarily to the
valuation allowance provided in that period. In the third quarter of 2004, it
became apparent that the hospital patient volumes were not returning as
anticipated and the Company would not return to profitable operations in fiscal
2004. The Company intends to maintain its valuation allowance until such time as
positive evidence exists to support reversal of the valuation allowance. Income
tax expense recorded in the future will be reduced to the extent of offsetting
reductions in the Company valuation allowance. The realization of the Company's
remaining deferred tax assets is primarily dependent on forecasted future
operating and non-operating taxable income. Any reduction in future forecasted
taxable income may require that the Company record an additional valuation
against the deferred tax assets. An increase in the valuation allowance would
result in additional income tax expense in the period the valuation was recorded
and could have a significant impact on the earnings of the Company. Management
believes that it is more likely than not that the Company's deferred tax assets
which have not been reserved for will be realized through future profitable
operations.
At February 29, 2004, the Company has a federal net operating loss of
approximately ($10,490) which expires in 2020 through 2024.
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments:
Future minimum rental payments under non-cancellable operating leases relating
to office space and equipment rentals that have an initial or remaining lease
term in excess of one year as of February 29, 2004 are as follows:
--------------------------------------------------------------
Year Ending February 28,
--------------------------------------------------------------
2005 $ 1,122
2006 841
2007 683
2008 658
2009 504
Thereafter 860
----------------
Total minimum lease payments $ 4,668
================
--------------------------------------------------------------
Certain operating leases contain escalation clauses with respect to real estate
taxes and related operating costs.
Rental expense was approximately $1,702, $1,504 and $1,176 in Fiscal 2004, 2003
and 2002, and respectively.
Capital lease obligations represent obligations under various equipment leases
with variable interest rates. The minimum annual principal payments for the
capital lease obligations are as follows as of February 29, 2004:
---------------------------------------------------------------------
Year Ending February 28,
2005 $ 30
-----------------
Total minimum lease payments 30
Less: amount representing interest --
-----------------
Present value of net minimum payments $ 30
=================
---------------------------------------------------------------------
F-21
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements:
In November 2002, the Company entered into amended employment agreements with
two of its officers, under which they will receive annual base salaries of $302
and $404, respectively. Their employment agreements are automatically extended
at the end of each Fiscal year and are terminable by the Company.
In September 2003, the Company entered into a three year employment agreement
with another officer of the Company, under which he receives an annual base
salary of $185, with a $10 increase per annum.
If a "change of control" (as defined in the agreements) were to occur and cause
the respective employment agreements to terminate, the Company would be required
to make lump sum severance payments of $906 and $1,212, respectively to the
officers who amended their employment contracts in November 2002. In addition,
the Company would be liable for payments to other officers, of which such
payments are immaterial.
Litigation
The Company is subject to various claims and legal proceedings covering a wide
range of matters that arise in the ordinary course of its business. Management
and legal counsel periodically review the probable outcome of such proceedings,
the costs and expenses reasonably expected to be incurred, and the availability
and extent of insurance coverage and established reserves. While it is not
possible at this time to predict the outcome of these legal actions, in the
opinion of management, based on these reviews and the likely disposition of the
lawsuits, these matters will not have a material effect on the Company's
financial position, results of operations or cash flows.
11. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK OFFERING:
On February 26, 2003, the Company announced it was offering to sell 4,000 shares
of 7% Convertible Series A Preferred Stock at a cost of $500 per share to
certain accredited investors in an offering exempt from registration under the
Securities Act of 1933, as amended. Each share of the Preferred Stock may be
converted at any time by the holder after April 30, 2003 at a conversion price
equal to the lower of (i) 120% of the weighted average closing price of the
Company's common stock on the American Stock Exchange during the 10 trading day
period ending April 30, 2003, and (ii) 120% of the weighted average closing
price of the Company's common stock on the American Stock Exchange during the 10
trading day period ending on the date the Company accepts a purchaser's
subscription for shares, subject in either case to adjustment in certain events.
As of May 2, 2003, 2,000 shares were sold with conversion prices of $.73 to $.93
per share.
The Preferred Stock will be redeemed by the Company on April 30, 2009 at $500
per share, plus all accrued dividends. At any time after April 30, 2004, the
Company may redeem all or some of a purchaser's shares of Preferred Stock, if
the weighted-average closing price of the Company's common stock during the 10
trading day period ending on the date of notice of redemption is greater than
200% of the conversion price of such purchaser's shares of Preferred Stock.
F-22
11. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK - RECAPITALIZATION AND VOTING RIGHTS:
During Fiscal 1996, the shareholders approved a plan of recapitalization by
which the existing Common Stock, $.01 par value, was reclassified and converted
into either Class A Common Stock, $.01 par value per share, or Class B Common
Stock, $.01 par value per share. Prior to the recapitalization, shares of Common
Stock that were held by the beneficial owner for at least 48 consecutive months
were considered long-term shares, and were entitled to 10 votes for each share
of stock. Pursuant to the recapitalization, long-term shares were converted into
Class B Common Stock and short-term shares (beneficially owned for less than 48
months) were converted into Class A Common Stock.
A holder of Class B Common Stock is entitled to ten votes for each share and
each share is convertible into one share of Class A Common Stock (and will
automatically convert into one share of Class A Common Stock upon transfer
subject to certain limited exceptions). Except as otherwise required by the
Delaware General Corporation Law, all shares of common stock vote as a single
class on all matters submitted to a vote by the shareholders. The
recapitalization included all outstanding options and warrants to purchase
shares of Common Stock which were converted automatically into options and
warrants to purchase an equal number of shares of Class A Common Stock.
On August 12, 2003 the shareholders of the Company approved an amendment to the
Company's Restated Certificate of Incorporation to increase the total number of
authorized shares of Class A Common Stock from 50,000,000 shares to 75,000,000
shares.
On July 16, 2003 the Company sold 367,647 shares of Series A Common Stock at
$.68 per share. On July 23, 2003 the Company sold 202,703 shares of Series A
Common Stock at $.74 per share. On July 24, 2003 the Company sold 133,333 shares
of Series A Common Stock at $.75 per share and on August 19, 2003 the Company
sold 256,410 shares of Series A Common stock at $.78 per share. The sales price
per share was equal to or exceeded the market price of the Company's common
stock at the date of each transaction. The purchasers of the Series A Common
Stock were related to two executive officers of the Company.
During September 2003, the Company issued 56,500 shares of Series A Common Stock
at a range of $.23 to $.50 per share for the exercise of employee stock options.
During Fiscal 2004, 10,774 shares of Series A Common Stock were issued upon the
conversion of the same number of Series B Common Stock.
During Fiscal 2004, the Company issued 55,618 shares of Series A Common Stock
pursuant to the Employee Stock Purchase Plan.
STOCK OPTIONS:
1993 Stock Option Plan
During the year ended February 28, 1994, the Company adopted a stock option plan
(the "1993 Stock Option Plan"). Stock options issued under the 1993 Stock Option
Plan may be incentive stock options ("ISOs") or non-qualified stock options
("NQSOs"). This plan replaced the 1986 Non- Qualified Plan and the 1983
Incentive Stock Option Plan which terminated in 1993 except as to options then
outstanding. Employees, officers, directors and consultants are eligible to
participate in the 1993 Stock Option Plan. Options are granted at not less than
the fair market value of the Common Stock at the date of grant and vest over a
period of two years.
F-23
11. STOCKHOLDERS' EQUITY (CONTINUED)
A total of 3,021,750 stock options were granted under the 1993 Stock Option
Plan, at prices ranging from $.50 to $3.87, of which 809,000 remain outstanding
at February 29, 2004.
1994 Performance-Based Stock Option Plan
During the year ended February 28, 1995, the Company adopted a stock option plan
(the "1994 Performance-Based Stock Option Plan") which provides for the issuance
of up to 3.4 million shares of Common Stock. Executive officers of the Company
and its wholly owned subsidiaries are eligible for grants. Performance-based
stock options are granted for periods of up to 10 years and the exercise price
is equal to the average of the closing price of the common stock for the 20
consecutive trading days prior to the date on which the option is granted.
Vesting of Performance Based Stock Options is during the first four years after
the date of grant, and is dependent upon increases in the market price of the
common stock.
Since inception, a total of 10,479,945 stock options were granted under the 1994
Performance-Based Stock Option Plan, at option prices ranging from $.53 to
$3.14, of which 2,767,382 remain outstanding at February 29, 2004.
1998 Stock Option Plan
During Fiscal 1999, the Company adopted a stock option plan (the "1998 Stock
Option Plan") under which an aggregate of two million shares of Common Stock are
reserved for issuance. Options granted under the 1998 Stock Option Plan may be
ISOs or NQSOs. Employees, officers and consultants are eligible to participate
in the 1998 Stock Option Plan. Options are granted at not less than fair market
value of the common stock at the date of grant and vest over a period of two
years.
A total of 1,898,083 stock options were granted under the 1998 Stock Option
Plan, at exercise prices ranging from $.23 to $2.40, of which 650,500 remain
outstanding at February 29, 2004.
2000 Stock Option Plan
During Fiscal 2001, the Company adopted a stock option plan (the "2000 Stock
Option Plan") under which an aggregate of three million shares of common stock
is reserved for issuance. Both key employees and non-employee directors, except
for members of the compensation committee, are eligible to participate in the
2000 Stock Option Plan.
A total of 400,000 stock options were granted under the 2000 Stock Option Plan
at an exercise price of $1.02, of which all are outstanding as of February 29,
2004.
F-24
11. STOCKHOLDERS' EQUITY (CONTINUED)
Information regarding the Company's stock option activity is summarized below:
- ----------------------------------------------------------------------------------------------------------------
Stock Option Option Price Weighted-Average
Activity Exercise Price
------------------
Options outstanding as of February 28, 2001 4,848,682 $.23 - $2.06 $0.61
Granted 507,500 $.56 - $1.02 $1.00
Exercised -- --
Terminated (220,000) $.23 - $2.06 $1.92
------------------
Options outstanding as of February 28, 2002 5,136,182 $.25 - $1.02 $0.59
Granted 45,000 $.85 - $2.40 $1.46
Exercised (103,333) $.50 - $.56 $0.50
Terminated (6,667) $.56 $0.56
------------------
Options outstanding as of February 28, 2003 5,071,182 $.25 - $2.40 $0.59
Granted 3,916,382 $.59 - $.79 $0.60
Exercised (56,500) $.23 - $.50 $0.30
Terminated (4,304,182) $.50 - $2.40 $0.57
------------------
Options outstanding as of February 29, 2004 4,626,882 $.25 - $2.40 $0.63
==================
- ----------------------------------------------------------------------------------------------------------------
Included in the outstanding options are 253,333 ISOs and 400,000 NQSOs which
were exercisable at February 29, 2004.
The following tables summarize information about stock options outstanding at
February 29, 2004:
- -----------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------------
Weighted-Average Weighted
Remaining Weighted Average
Range of Number Contractual Life (In Average Number Exercise
Exercise Prices Outstanding Years) Exercise Price Exercisable Price
- -----------------------------------------------------------------------------------------------------------------------------
$.25 to $.58 245,500 5.5 $0.37 170,000 $0.37
$0.59 3,811,382 9.8 $0.59 83,333 $0.59
$.60 to $2.40 570,000 7.3 $1.00 400,000 $1.02
---------------------------------------------------------------------------------------------------------
4,626,882 9.43 $0.63 653,333 $0.79
=========================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan under which eligible employees
may purchase common stock of the Company at 90% of the lower of the closing
price of the Company's Common Stock on the first and last day of the three-month
purchase period. Employees elect to pay for their stock purchases through
payroll deductions at a rate of 1% to 10% of their gross payroll.
12. EMPLOYEE 401(K) SAVINGS PLAN
The Company maintains an Employee 401(k) Savings Plan. The plan is a defined
contribution plan which is administered by the Company. All regular, full-time
employees are eligible for voluntary participation upon completing one year of
service and having attained the age of 21. The plan provides for growth in
savings through contributions and income from investments. It is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
Plan participants are allowed to contribute a specified percentage of their base
salary. However, the Company retains the right to make optional contributions
for any plan year. Optional contributions were not made in fiscal 2004, 2003 and
2002.
F-25
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for Fiscal 2004 and 2003 are as
follows (in thousands, except per share data):
- --------------------------------------------------------------------------------------------------------------------------------
Year ended February 29, 2004 First Quarter Second Quarter Third Quarter Fourth Quarter
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 34,043 $ 33,640 $ 32,383 $ 30,335
----------------------------------------------------------------------------
Net loss available to common stockholders' $ (235) $ (671) $ (5,064)(1) $ (277)
============================================================================
(Loss) earnings per common share-basic $ (0.01) $ (0.03) $ (0.20) $ (0.01)
============================================================================
(Loss) earnings per common share-diluted $ (0.01) $ (0.03) $ (0.20) $ (0.01)
============================================================================
- --------------------------------------------------------------------------------------------------------------------------------
Year ended February 28, 2003 First Quarter Second Quarter Third Quarter Fourth Quarter
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 37,699 $ 38,979 $ 38,282 $ 33,759
----------------------------------------------------------------------------
Net (loss) income available to common stockholders' $ 427 $ 442 $ (1,249) $ (2,454)(2)
============================================================================
(Loss) earnings per common share-basic $ 0.02 $ 0.02 $ (0.05) $ (0.10)
============================================================================
(Loss) earnings per common share-diluted $ 0.02 $ 0.02 $ (0.05) $ (0.10)
============================================================================
- --------------------------------------------------------------------------------------------------------------------------------
(1) In the third quarter of Fiscal 2004, the Company recorded a charge of
approximately $2,600 for a restructuring expense.
(2) In the fourth quarter of fiscal 2003, the Company recorded a charge of
approximately $900 for workers' compensation liabilities.
ATC HEALTHCARE, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended
-------------------------------------------------------------------------
February 29, 2004 February 28, 2003 February 28, 2002
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance, beginning of period $ 1,784 $ 830 $ 1,344
Additions charged to costs and expenses 7 1,629 400
Deductions (1,054) (675) (914)
-------------------------------------------------------------------------
Balance, end of period $ 737 $ 1,784 $ 830
=========================================================================
- -----------------------------------------------------------------------------------------------------------------------
F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Previous Independent Accountants
(i) On September 17, 2003, ATC Healthcare, Inc. (the "Company") dismissed
PricewaterhouseCoopers LLP as its independent accountants. The Company's Audit
Committee participated in and approved the decision to change independent
accountants.
(ii) The reports of PricewaterhouseCoopers LLP on the financial statements for
the past two Fiscal years contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principle.
(iii) In connection with its audits for the two most recent Fiscal years and
through September 17, 2003, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused them to make reference thereto in their report on the
financial statements for such years.
(iv) During the two most recent Fiscal years and through September 17, 2003,
there were no reportable events (as defined in Regulation S-K Item
304(a)(1)(v)).
(v) The Company has requested that PricewaterhouseCoopers LLP furnish it with a
letter addressed to the SEC stating whether or not it agrees with the above
statements. A copy of such letter, dated September 22, 2003, was filed as
exhibit16 to Form 8-K.
(b) New Independent Accountants
The Company engaged Goldstein Golub and Kessler LLP as its new independent
accountants as of September 17, 2003. During the two most recent Fiscal years
and through September 17, 2003, the Company has not consulted with Goldstein
Golub and Kessler LLP regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on the Company's financial statements,
and neither a written report was provided to the Company nor oral advice was
provided by Goldstein Golub and Kessler LLP concluded on that was an important
factor considered by the Company in reaching a decision as to the accounting,
auditing or financial reporting issue; or (ii) any matter that was either the
subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a
reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation
S-K.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Our management has evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Annual
Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that information we are required to disclose
in reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
(b) During the last Fiscal quarter, there were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the evaluation of these controls.
51
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this section will be included in the Company's Proxy
Statement, which will be filed with the Securities Exchange Commission on or
before June 28, 2004 and is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this section will be included in the Company's Proxy
Statement, which will be filed with the Securities and Exchange Commission on or
before June 28, 2004 and is incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMNT AND
RELATED STOCKHOLDER MATTERS
The information required by this section will be included in the Company's Proxy
Statement, which will be filed with the Securities and Exchange Commission on or
before June 28, 2004 and is incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this section will be included in the Company's Proxy
Statement, which will be filed with the Securities and Exchange Commission on or
before June 28, 2004 and is incorporated by reference herein.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees billed to the Company by Goldstein Golub Kessler LLP during the fiscal year
ended February 29, 2004 were as follows:
Audit fees-Goldstein Golub Kessler LLP billed an aggregate of $70,000 in
fees for services rendered for the annual audit of the Company's consolidated
financial statements for the fiscal year ended February 29, 2004.
Financial Information System Design and Implementation fees-None.
All other fees-None.
The Audit Committee has reviewed the amount of fees paid to Goldstein
Golub Kessler LLP for the audit and non-audit services, and concluded that since
no non-audit services were provided and no fees paid therefore, they could not
have impaired the independence of Goldstein Golub Kessler LLP.
52
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements, including the supporting schedules, filed as part of
the report, are listed in the Table of Contents to the Consolidated Financial
Statements.
(B) REPORTS ON 8-K
There were two reports on Form 8-K filed by the Company during the Company's
last Fiscal quarter.
(1) On January 13, 2004, the Company filed a Report on Form 8-K
furnishing information under Item 12.
(2) On January 21, 2004, the Company filed a Report on Form 8-K
furnishing information under Item 9.
(C) EXHIBITS
The Exhibits filed as part of the Report are listed in the Index to
Exhibits below.
53
D. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Restated Certificate of Incorporation of the Company, filed July 11, 1998
(A)
3.2 Certificate of Amendment to the Restated Certificate of Incorporation of
the Company, filed August 22, 1991. (B)
3.3 Certificate of Amendment to the Restated Certificate of Incorporation of
the Company, filed September 3, 1992. (A)
3.4 Certificate of Retirement of Stock of the Company, filed February 28,
1994.
3.5 Certificate of Retirement of Stock of the Company, filed June 3, 1994. (A)
3.6 Certificate of Designation, Rights and Preferences of the Class A
Preferred Stock of the Company, filed June 6, 1994. (A)
3.7 Certificate of Amendment of Restated Certificate of Incorporation of the
Company, filed August 23, 1994. (A)
3.8 Certificate of Amendment of Restated Certificate of Incorporation of the
Company, filed October 26, 1995. (C)
3.9 Certificate of Amendment of Restated Certificate of Incorporation of the
Company, filed December 19, 1995. (D)
3.10 Certificate of Amendment of Restated Certificate of Incorporation of the
Company, filed December 19, 1995 (D)
3.11 Amended and Restated By-Laws of the Company. (A)
3.12 Certificate of Amendment of Certificate of Incorporation of Staff
Builders, Inc., filed August 2, 2001 (X)
4.1 Specimen Class A Common Stock Certificate. (E)
4.2 Specimen Class B Common Stock Certificate. (F)
10.8 1986 Non-Qualified Stock Option Plan of the Company. (H)
10.9 First Amendment to the 1986 Non-Qualified Stock Option Plan, effective as
of May 11, 1990. (A)
10.10 Amendment to the 1986 Non-Qualified Stock Option Plan, dated as of October
27, 1995. (I)
10.11 Resolutions of the Company's Board of Directors amending the 1983
Incentive Stock Option Plan and the 1986 Non-Qualified Stock Option Plan,
dated as of June 3, 1991. (A)
54
EXHIBIT NO. DESCRIPTION
10.12 1993 Stock Option Plan of the Company. (A)
10.13 1998 Stock Option Plan of the Company (incorporated by reference to
Exhibit C to the Company's Proxy Statement dated August 27, 1998, filed
with the Commission on August 27, 1998).
10.14 Amended and Restated 1993 Employee Stock Purchase Plan of the Company (J)
10.15 1998 Employee Stock Purchase Plan of the Company (incorporated by
reference to Exhibit D to the Company's Proxy Statement dated August 27,
1998, filed with the Commission on August 27, 1998).
10.18 1994 Performance-Based Stock Option Plan of the Company (incorporated by
reference to Exhibit B to the Company's Proxy Statement, dated July 18,
1994, filed with the Commission on July 27, 1994).
10.19 Stock Option Agreement, dated as of March 28, 1990, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and Stephen
Savitsky. (A)
10.20 Stock Option Agreement, dated as of June 17, 1991, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and Stephen
Savitsky. (A)
10.21 Stock Option Agreement, dated December 1, 1998, under the Company's 1993
Stock Option Plan between the Company and Stephen Savitsky. (K)
10.22 Stock Option Agreement, dated December 1, 1998, under the Company's 1994
Performance-Based Stock Option Plan between the Company and Stephen
Savitsky. (A)
10.23 Stock Option Agreement, dated as of March 28, 1990, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and David
Savitsky. (A)
10.24 Stock Option Agreement, dated as of June 17, 1991, under the Company's
1986 Non-Qualified Stock Option Plan between the Company and David
Savitsky. (A)
10.25 Stock Option Agreement, dated December 1, 1998, under the Company's 1993
Stock Option Plan between the Company and David Savitsky. (K)
10.26 Stock Option Agreement, dated December 1, 1998, under the Company's 1994
Performance-Based Stock Option Plan between the Company and David
Savitsky. (K)
10.27 Stock Option Agreement, dated December 1, 1998, under the Company's 1993
Stock Option Plan, between the Company and Edward Teixeira. (K)
See Notes to Exhibits
55
EXHIBIT NO. DESCRIPTION
10.29 Stock Option Agreement, dated December 1, 1998, under the Company's 1994
Performance-Based Stock Option Plan, between the Company and Edward
Teixeira. (K)
10.30 Stock Option Agreement, dated December 1, 1998, under the Company's 1998
Stock Option Plan, between the Company and Edward Teixeira. (K)
10.39 Employment Agreement, dated as of June 1, 1987, between the Company and
Stephen Savitsky. (A)
10.40 Amendment, dated as of October 31, 1991, to the Employment Agreement
between the Company and Stephen Savitsky. (A)
10.41 Amendment, dated as of December 7, 1992, to the Employment Agreement
between the Company and Stephen Savitsky. (A)
10.42 Employment Agreement, dated as of June 1, 1987, between the Company and
David Savitsky. (A)
10.43 Amendment, dated as of October 31, 1991, to the Employment Agreement
between the Company and David Savitsky. (A)
10.44 Amendment, dated as of January 3, 1992, to the Employment Agreement
between the Company and David Savitsky. (A)
10.45 Amendment, dated as of December 7, 1992, to the Employment Agreement
between the Company and David Savitsky. (A)
10.54 Amended and Restated Loan and Security Agreement, dated as of January 8,
1997, between the Company, its subsidiaries and Mellon Bank, N.A. (M)
56
EXHIBIT NO. DESCRIPTION
10.55 First Amendment to Amended and Restated Loan and Security Agreement dated
as of April 27, 1998, between the Company, its subsidiaries and Mellon
Bank, N.A. (G)
10.56 Master Lease Agreement dated as of December 4, 1996, between the Company
and Chase Equipment Leasing, Inc. (M)
10.57 Premium Finance Agreement, Disclosure Statement and Security Agreement
dated as of December 26, 1996, between the Company and A.I. Credit Corp.
(M)
10.58 Agreement of Lease, dated as of October 1, 1993, between Triad III
Associates and the Company. (A)
10.59 First Lease Amendment, dated October 25, 1998, between Matterhorn USA,
Inc. and the Company.
10.60 Supplemental Agreement dated as of January 21, 1994, between General
Electric Capital Corporation, Triad III Associates and the Company (A)
10.61 Agreement of Lease, dated as of June 19, 1995, between Triad III
Associates and the Company. (D)
10.62 Agreement of Lease, dated as of February 12, 1996, between Triad III
Associates and the Company. (D)
10.63 License Agreement, dated as of April 23, 1996, between Matterhorn One,
Ltd. and the Company (M)
10.64 License Agreement, dated as of January 3, 1997, between Matterhorn USA,
Inc. and the Company (M)
10.65 License Agreement, dated as of January 16, 1997, between Matterhorn USA,
Inc. and the Company . (M)
10.66 License Agreement, dated as of December 16, 1998, between Matterhorn USA,
Inc. and the Company. (S)
10.71 Asset Purchase and Sale Agreement, dated as of September 6, 1996, by and
among ATC Healthcare Services, Inc. and the Company and William Halperin
and All Care Nursing Service, Inc. (N)
10.73 Stock Purchase Agreement by and among the Company and Raymond T. Sheerin,
Michael Altman, Stephen Fleischner and Chelsea Computer Consultants, Inc.,
dated September 24, 1996. (L)
See Notes to Exhibits
57
EXHIBIT NO. DESCRIPTION
10.74 Amendment No. 1 to Stock Purchase Agreement by and among the Company and
Raymond T. Sheerin, Michael Altman, Stephen Fleischner and Chelsea
Computer Consultants, Inc., dated September 24, 1996 (L)
10.75 Shareholders Agreement between Raymond T. Sheerin and Michael Altman and
Stephen Fleischner and the Company and Chelsea Computer Consultants, Inc.,
dated September 24, 1996. (L)
10.76 Amendment No. 1 to Shareholders Agreement among Chelsea Computer
Consultants, Inc., Raymond T. Sheerin, Michael Altman and the Company,
dated October 30, 1997 (L)
10.77 Indemnification Agreement, dated as of September 1, 1987, between the
Company and Stephen Savitsky. (A)
10.78 Indemnification Agreement, dated as of September 1, 1987, between the
Company and David Savitsky. (A)
10.79 Indemnification Agreement, dated as of September 1, 1987, between the
Company and Bernard J. Firestone. (A)
10.80 Indemnification Agreement, dated as of September 1, 1987, between the
Company and Jonathan Halpert. (A)
10.81 Indemnification Agreement, dated as of May 2, 1995, between the Company
and Donald Meyers. (M)
10.82 Indemnification Agreement, dated as of May 2, 1995, between the Company
and Edward Teixeira. (A)
10.84 Form of Medical Staffing Services Franchise Agreement (D)
10.89 Confession of Judgment, dated January 27, 2000, granted by a subsidiary of
the Company, to Roger Jack Pleasant.First Lease Amendment, dated October
28, 1998, between Matterhorn USA, Inc. and the Company. (B)
10.91 Forbearance and Acknowledgement Agreement, dated as of February 22, 2000,
between TLCS's subsidiaries, the Company and Chase Equipment Leasing, Inc.
Agreement and Release, dated February 28, 1997, between Larry Campbell and
the Company. (C)
10.92 Distribution agreement, dated as of October 20, 1999, between the Company
and TLCS.(O)
10.93 Tax Allocation agreement dated as of October 20, 1999, between the Company
and TLCS. (O)
See Notes to Exhibits
58
EXHIBIT NO. DESCRIPTION
10.94 Transitional Services agreement, dated as of October 20, 1999, between
the Company and TLCS. (O)
10.95 Trademark License agreement, dated as of October 20, 1999, between the
Company and TLCS. (O)
10.96 Sublease, dated as of October 20, 1999, between the Company and TLCS.
(O)
10.97 Employee Benefits agreement, dated as of October 20, 1999, between the
Company and TLCS. (O)
10.98 Amendment, dated as of October 20, 1999, to the Employment agreement
between the Company and Stephen Savitsky. (P)
10.99 Amendment, dated as of October 20, 1999, to the Employment agreement
between the Company and David Savitsky. (P)
10.105 Second Amendment to ATC Revolving Credit Loan and Security Agreement,
dated October 20, 1999 between the Company and Mellon Bank, N.A. (P)
10.106 Master Lease dated November 18, 1999 between the Company andTechnology
Integration Financial Services. (Q)
10.107 Loan and Security Agreement between the Company and Copelco/American
Healthfund Inc. dated March 29, 2000. (Q)
10.108 Loan and Security Agreement First Amendment between the Company and
Healthcare Business Credit Corporation (formerly known as
Copelco/American Health fund Inc.) dated July 31, 2000. (R)
10.109 Employment agreement dated August 1, 2000 between the Company and Alan
Levy (R)
10.110 Equipment lease agreements with Technology Integration Financial
Services, Inc. (R)
10.111 Loan and Security Agreement dated April 6, 2001 between the Company and
HFG Healthco-4 LLC (W)
10.112 Receivables Purchase and Transfer Agreement dated April 6, 2001 between
the Company and HFG Healthco-4 LLC (W)
10.113 Asset purchase agreement dated October 5, 2001, between the Company and
Doctors' Corner and Healthcare Staffing, Inc. (U)
10.114 Asset purchase agreement dated January 31, 2002, between the Company
and Direct Staffing, Inc. and DSS Staffing Corp. (V)
10.115 Amendment to Employment agreement dated November 28, 2001 between the
Company and Stephen Satisfy (Y)
10.116 Amendment to Employment agreement dated November 28, 2001 between the
Company and David Savitsky (Y)
10.117 Amendment to Employment agreement dated December 18, 2001 between the
Company and Edward Teixeira (Y)
10.118 Amendment to Employment agreement dated May 24, 2002 between the
Company and Alan Levy (Y)
10.119 Loan and Security Agreement dated November 7, 2002 between the Company
and HFG Healthco-4 LLC (Z)
59
EXHIBIT NO. DESCRIPTION
21. Subsidiaries of the Company. *
23.1 Consent of Goldstein Golub Kessler LLP*
23.2 Consent of PricewaterhouseCoopers LLP*
24. Powers of Attorney. *
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
- ---------------------------
See Notes to Exhibits
60
NOTES TO EXHIBITS
(A) Incorporated by reference to the Company's exhibit booklet to its Form
10-K for the Fiscal year ended February 28, 1995 (File No. 0-11380), filed
with the Commission on May 5, 1995.
(B) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-43728), dated January 29, 1992.
(C) Incorporated by reference to the Company's Form 8-K (file No. 0-11380),
filed with the Commission on October 31, 1995.
(D) Incorporated by reference to the Company's exhibit booklet to it Form 10-K
for the Fiscal year ended February 28, 1996 (file No. 0-11380), filed with
the Commission on May 13, 1996.
(E) Incorporated by reference to the Company's Form 8-A (file No. 0-11380),
filed with the Commission on October 24, 1995.
(F) Incorporated by reference to the Company's Form 8-A (file No. 0-11380),
filed with the Commission on October 24, 1995.
(G) Incorporated by reference to the Company's exhibit booklet to its Form
10-K for the Fiscal year ended February 28, 1998 (File No. 0-11380), filed
with the Commission on May 28, 1998.
(H) Incorporated by reference to the Company's Registration Statement on Form
S-4, as amended (File No. 33-9261), dated April 9, 1987.
(I) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File No. 33-63939), filed with the Commission on November 2, 1995.
(J) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 3371974), filed with the Commission on November 19, 1993.
(K) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1997 (File No. 0-11380), filed with the
Commission on January 19, 1999.
(L) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1997 (File No. 0-11380), field with the
Commission on January 14, 1998.
(M) Incorporated by reference to the Company's exhibit booklet to its Form
10-K for the Fiscal year ended February 28, 1997 (File No. 0-11380), filed
with the Commission on May 27, 1997.
61
NOTES TO EXHIBIT
(N) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended November 30, 1996 (File No. 0-11380), filed with the
Commission on January 14, 1997.
(O) Incorporated by reference to Tender Loving Care Health Care Services
Inc.'s Form 10-Q for the quarterly period ended August 31, 1999 (File No.
0-25777) filed with the Commission on October 20, 1999.
(P) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 1999 (File No. 0-11380) filed with the Commission
on October 20, 1999.
(Q) Incorporated by reference to the Company's Form 10-K for the year ended
February 29, 2000 (File No. 0-11380) filed with the Commission on July 17,
2000.
(R) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 2000 (File No. 0-11380) filed with the Commission
on October 16, 2000.
(S) Incorporated by reference to the Company's Form 10-K for the year ended
February 28, 1999 (File No. 0-11380) filed with the Commission on June 11,
1999.
(T) Incorporated by reference to the Company's exhibit booklet to its Form
10-K for the Fiscal year ended February 28, 1994 (File No. 0-11380), filed
with the Commission on May 13, 1994.
(U) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended August 31, 2001 (File No. 0-11380) filed with the Commission
on October 15, 2001.
(V) Incorporated by reference to the Company's Form 8-K (File No. 0-11380)
filed with the Commission on February 19, 2002.
(W) Incorporated by reference to the Company's Form 10-K/A (File No. 0-11380)
filed with the Commission on June 28, 2001.
(X) Incorporated by reference to the Company's Form Def 14A (File No. 0-11380)
filed with the Commission on June 27, 2001.
(Y) Incorporated by reference to the Company's Form 10-K for the year ended
February 28, 2002 (File No. 0-11380) filed with the Commission on June 10,
2002.
(Z) Incorporated by reference to the Company's Form 10-Q for the quarter ended
November 30, 2002 (File No. 0-11380) filed with the Commission on January
21, 2003
* Incorporated herein
62
SIGNATURES
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.
ATC HEALTHCARE, INC.
By: /S/ DAVID SAVITSKY
------------------------
David Savitsky
Chief Executive Officer
Dated: ________, 2004
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.
SIGNATURE TITLE DATE
/S/ DAVID SAVITSKY Chief Executive Officer _________, 2004
- ------------------
David Savitsky (Principal Executive
Officer) and Director
/S/ ANDREW REIBEN Senior Vice President, Finance, _________, 2004
- ------------------
Andrew Reiben Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
/S/ STEPHEN SAVITSKY President and Chairman of the Board ________, 2004
- ---------------------
Stephen Savitsky
*_________________ Director ________, 2004
Bernard J. Firestone, Ph. D.
*_________________ Director ________, 2004
Jonathan Halpert, Ph. D.
*_________________ Director ________, 2004
Martin Schiller
*By: /S/ DAVID SAVITSKY
-------------------
David Savitsky
Attorney-in-Fact
63