SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended June 30, 1997
Commission File No. 033-97034
HELP AT HOME, INC.
(Exact Name of registrant as specified in its charter)
DELAWARE 36-4033986
(State or other jurisdiction of incorporation (IRS Employer Identifi-
or organization) cation Number)
223 West Jackson Blvd.
Chicago, IL 60606
(Address of principal executive offices) (Zip Code)
312-663-4244
(Registrant s telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class: Name of Exchange on which registered:
Common Stock, Par Value $0.02 NASDAQ National Market
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes[X]No[ ]
Indicate by checkmark 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-KSB or any amendment in this Form 10-KSB. [X]
Registrant s revenues for its most recent fiscal year: $22,213,000
The aggregate market value of the registrant s Common Stock held by non-
affiliates of the registrant as of September 19, 1997 was approximately
$2,841,800 (for purposes of the foregoing calculation only, each of the
registrant s officers and directors is deemed to be an affiliate).
There were 1,869,375 shares of the registrant s Common Stock outstanding
as of September 19, 1997.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS.
Help at Home, Inc. ( Help at Home ) and its subsidiaries (collectively,
the Company ) provide homemaker, custodial and skilled home health care
services to elderly and disabled persons within their homes. Such
services consist of nutritional planning and assistance, household
management, personal care, skilled nursing interventions, rehabilitative
therapy, and medical social work services. The majority of the
Company s clients are obtained and served through 15 regional contracts
with the Illinois Department on Aging (IDOA) and 20 contracts with other
state and municipal agencies. Help at Home also provides medically
necessary, skilled home health care services through its subsidiaries
that are certified as Medicare home health agencies. The Company
operates through 40 offices in Illinois, Indiana, Missouri, Alabama and
Mississippi.
History of the Company.
The Company was incorporated on August 7, 1995 in the State of Delaware.
On December 5, 1995, Help at Home completed an initial public offering
through which 819,375 units were offered and sold to the general public.
Help at Home received gross proceeds of $5,162,063 from the initial
public offering. Each unit consisted of one share of Common Stock, $.02
par value, of Help at Home, Inc. and two redeemable common stock
purchase Warrants. The Common Stock and Warrants were immediately
detached upon the effective date of the offering and are separately
transferable. The Warrants are immediately exercisable. Each Warrant
generally entitles the holder to purchase one share of Common Stock for
$6.00 commencing one year after the offering, or sooner if the Warrants
are called for redemption, until the close of business on December 5,
2000. The Warrants are redeemable, in whole or in part, at a price of
$.10 per Warrant, commencing one year after December 5, 1995 and prior
to the expiration date, provided that prior written notice of not less
than 30 days is given to the Warrant holders and the closing price of
the Common Stock is at least $9.00 for ten consecutive trading days.
Help at Home, Inc., an Illinois corporation, was incorporated on October
29, 1974 and, through a merger on June 17, 1982, merged with and into
Help at Home of Evanston, Inc., an Illinois corporation, which was
originally incorporated on February 27, 1975. Simultaneously with the
merger, the surviving entity changed its name to Help at Home, Inc.
Lakeside Home Health Agency, Inc. was incorporated in the State of
Missouri on April 20, 1993. Lakeside Home Health Agency, Inc., a
Medicare certified home health agency, was acquired by the Company on
July 20, 1995. Lakeside Home Health Agency, Inc., an Illinois
corporation, was incorporated on August 3, 1995 and certified as a
Medicare provider in August, 1997.
Rosewood Home Health, Inc. was incorporated in the State of Illinois on
March 4, 1994. A Medicare certified home health agency, Rosewood was
acquired by the Company on January 30, 1996.
<PAGE>
As of May 31, 1996, the Company acquired HASC Staffing Services, Inc.,
Homemakers of Montgomery, Inc. and Statewide Healthcare Services, Inc.,
all doing business as Oxford Health Care (the Oxford companies ). HASC
Staffing Services, Inc., a Mississippi corporation, was incorporated on
March 23, 1986. Homemakers of Montgomery, Inc., an Alabama corporation,
was incorporated on March 27, 1985. Statewide Healthcare Services,
Inc., a Mississippi corporation, was incorporated on January 10, 1974.
As of October 1, 1996, the Company acquired Preferred Nursing Care,
Inc., an Alabama corporation, for $175,000. Preferred Nursing Care,
Inc. was incorporated in the State of Alabama on April 28, 1994.
Overview of the Home Care Industry.
The home care industry serves the elderly as well as persons with
temporary or permanent disabilities of any age. The primary purpose of
home care programs is to keep clients from becoming institutionalized
and to fill the gap created by inadequate health insurance coverage.
The need for such services has escalated over the last decade due to the
general aging of the population and the desire of elderly or disabled
persons to maintain their quality of life by remaining independent and
living in their own homes.
According to published industry data, the home care industry in 1994
constituted a $23 Billion market, with annual growth rates for this
sector of the economy exceeding 20%. In addition to the general aging
of the population, primary reasons cited for such rapid growth include
the substantial cost savings achievable through at-home care as an
a l t e rnative to more expensive institutional care, medical and
technological advances which enable a growing number of treatments to be
administered at home rather than in a medical facility, and Medicare
reimbursement policies which provide certain incentives to minimize the
length of in-patient hospital stays.
Moreover, it has been predicted that long-term maintenance home care
services will be the largest area of growth in the home care field.
Fully 20% of those over 65 can be considered frail elderly who
e x p e rience functional limitations secondary to chronic disease
processes; while 46% of those over the age of 85 fall into the frail
elderly grouping and are, therefore, candidates for continuous, long-
term custodial home care services. The need for assistance with the
activities of daily living such as eating, dressing, bathing, walking
and household management is sometimes thought of as a social need rather
than a medical requirement. However, the provision of these basic
services, often by a paid home care worker, is crucial to the health and
well-being of the elderly patient and is being considered more and more
often as medically necessary, preventive care.
The majority of home care recipients obtain services by participating in
federally or state-funded programs for which they are eligible.
Medically necessary, skilled home health care interventions, such as
those provided through the Company s Medicare certified home health
agencies, are reimbursed through Medicare Part A payments. Similarly,
non-medical, custodial services to homebound clients are provided
pursuant to contracts with agencies such as the Illinois Department on
Aging or various Medicaid Waiver Programs. The Company is a provider to
Medicare, Medicaid and other state and local program recipients through
various contractual arrangements.
<PAGE>
There have been a number of proposals offered in recent years through
which the Federal government would increase its involvement in the
delivery of health care, lower reimbursement rates for home care
services and/or modify the payment methodology for Medicare home care
services. The Company cannot predict what effect, if any, such
proposals may have, given the wide variety of proposals and the changing
nature of the political, economic and regulatory influences at work in
the government and U.S. economy. The Company believes, however, that
such proposals will take time to enact, will likely have a phased-in
approach and will, therefore, have minimal impact on the Company s
business in the immediate future. With respect to the six-month
moratorium on certification of new Medicare providers, announced by
President Clinton on September 15, 1997, the Company has no applications
for Medicare certification pending and does not anticipate a meaningful
effect on its business as a result of the President s initiative.
The Company s principal executive offices are located at 223 West
Jackson Blvd., Chicago, IL 60606. The telephone number of the executive
office is (312)663-4244.
Business Strategy.
The Company s business strategy is to provide a variety of home care
services, through skilled therapeutic interventions (nursing and therapy
services) and custodial care(homemaker services), to a diversified mix
of groups and individuals in the geographic markets served by the
Company. The Company expects to continue its expansion of locations and
markets it serves through development of additional service contracts,
introduction of complementary services, and limited acquisition of
existing home care businesses. Key elements of the Company s strategy
include:
1) New Market Development and Penetration. The Company has
continued its emphasis on development of new operating locations within
the key states of Illinois, Alabama and Mississippi. The Company has
established 18 new offices since July 1996 for the purpose of responding
to contract opportunities that enable the Company to provide custodial
services to clients in previously under-served areas. The Company will
c o ntinue to focus on business development in neighboring areas
throughout the Midwest, Southeastern, Mid-Atlantic and Southwestern
regions of the United States.
2) Cross-Marketing Services. The Company believes that numerous
opportunities exist to cross-market services, thus ensuring retention of
clients who may experience fluctuations or changes in their home care
needs. For example, an elderly custodial care client who becomes ill
may require skilled services for a time, after which his/her needs may
revert back to custodial care. The Company is in a position, either
through its homemaker service divisions or Medicare home health
agencies, to meet the needs of such clients. As the Company continues to
strengthen its ability to continuously meet changes in the home care
requirements of its elderly clientele, it will avoid loss of business to
other providers with a wider, or more specialized, array of service
offerings.
<PAGE>
3) Development of New Services. The Company has made a
commitment to expand temporary professional staffing services in certain
areas in order to take advantage of existing marketplace opportunities.
With the Company s extensive rosters of nurses and home health aides, it
is in an excellent position to offer intermittent nurse/aide staffing
services to acute care institutions, physicians clinics and other
facilities.
4) Acquiring Complementary Businesses. The Company intends to
continue to pursue acquisition of businesses that complement the
Company s existing locations and/or service offerings. Desirable
acquisition targets include Medicare-certified providers of skilled
nursing and related services proximately located to current operating
units. The Company will also continue to focus on existing home care
companies whose service lines can be readily expanded through the
addition of new services, such as skilled service providers that can be
readily expanded through the addition of custodial services.
5) Achievement of Operating Efficiencies. The Company believes
that, as it increases in size and market share, it will be able to
reduce, as a percentage of revenues, corporate overhead and operating
costs including personnel, insurance, computer and communications
systems, legal, accounting, and marketing expenses. By increasing the
Company s revenue base through internal growth and acquisitions, the
Company believes it can achieve certain economies of scale, that will
allow the Company to recoup a larger profit from its services.
Services.
The Company maintains contracts with several state and municipal
agencies to provide custodial services to elderly and disabled clients.
Such custodial services generally entail homemaker services, household
management, and assistance with activities of daily living. The
Company provides in-depth training to its workers who provide such
services to ensure patient safety, consistency of approach and adequacy
of care.
Case managers, engaged by state agencies, generally refer custodial care
clients to the Company after eligibility for service is determined.
Clients are generally assigned to home care companies on a rotating
basis unless a specific home care provider is identified by the client
to be served. In some rural communities, however, the Company enjoys
exclusive status as the only contracted provider of homemaker and
personal care services. Approximately 83% of the Company s revenues in
fiscal 1997 were derived from the delivery of homemaker services.
In addition to custodial services, the Company provides skilled
services to those with an established medical need as determined by a
physician. Skilled home care services include nursing interventions,
physical therapy for improving range of motion and pain reduction,
occupational therapy for enhancement of the patient s ability to perform
r o utine activities of daily living, speech therapy directed at
resolution of swallowing or language difficulties, and medical social
work services to address and help resolve issues related to the psycho-
social aspects of recovery from illness. Through its Medicare certified
home health agencies, the Company also provides medically oriented home
health aide services that are provided under the direct supervision of a
nurse in conjunction with other skilled interventions.
<PAGE>
The Company has indicated its intention to enter into hospice care
through which it will provide in-home care to terminally ill patients.
In-home hospice care offers an alternative to hospice centers or nursing
homes for terminally ill individuals who prefer to live out the
remainder of their lives in their own residences. It is the Company s
intention to provide such services, through licensed and certified
hospice organizations, to Medicare and Medicaid patients. Surveys
required to become a provider of hospice services in Alabama and
Mississippi are pending.
Customers.
The Company's customers include, but are not necessarily limited to,
case management units, third party administrators, physicians, hospital
discharge planners, social workers, third party payers including
Medicare, and other types of health care organizations. Approximately
52% of the Company s revenues during fiscal 1997 were derived from the
Illinois Department on Aging with another 17% attributable to other
homemaker service contracts and 13% attributable to the Medicare
program. Commercial insurance companies, other state funded programs
and individuals provided the remaining 18% of the Company s revenue from
services. The state and federally funded programs through which the
Company derives its revenues require that certain standards for
eligibility and participation are continually met. Billing and payment
arrangements with the Company s customers are specified in payor
contracts that are non-exclusive and which do not obligate the payor to
utilize a certain volume of services over a specified time period. The
Company s customers often use a variety of providers in addition to the
Company, thus necessitating competition among several providers on the
basis of pricing, array of service offerings, availability of caregivers
and/or quality of services.
With regard to the Company's contractual arrangements with the Illinois
Department on Aging (IDOA), the Company must ensure that the direct
costs associated with providing service to IDOA clients (as such costs
are contractually defined) constitute at least 73% of charges. The
C o m p any is required to submit an annual audited cost report
demonstrating its compliance with this requirement. Management believes
the Company is in compliance with the IDOA cost requirements. Should the
C o m pany be unable to maintain its compliance, the contractual
arrangements could be subject to immediate termination.
Regulation.
Custodial services are generally unregulated. The Company must,
however, maintain certain state and/or federal licenses or
certifications in order to offer specific health services. The Company
must also perform criminal background checks on its employees in certain
states to ensure the integrity of its work force.
<PAGE>
With respect to licensure of skilled home health care services, each
state specifies the manner in which home health agencies will operate.
Approximately half of the states, including Alabama and Mississippi,
require that home health agencies possess one or more valid Certificates
of Need (CON) in order to qualify as a provider of Medicare home health
services. Absent a valid CON, a home health agency may be precluded
from providing certain services or expanding its operations into new
geographic areas. Recently, however, several states have initiated a
process through which the requirement may be reconsidered and many
expect that, within the next several years, reliance on CONs as a means
of controlling home health care costs will significantly diminish. In
t h e meantime, however, new Certificates of Need are generally
unavailable, thus limiting the ability of would-be Medicare home health
providers to enter CON markets. The Company possesses a Certificate of
Need in Montgomery County, Alabama through Homemakers of Montgomery,
Inc. and has initiated an action which is pending in the Circuit Court
of Montgomery County Alabama (15th Judicial Circuit) to secure CON
authorization in four additional Alabama counties.
All Medicare home health agencies must also successfully demonstrate, on
an annual basis, compliance with Medicare Conditions of Participation in
order to continue to provide services to Medicare beneficiaries. Such
conditions generally embody established standards for home health agency
management of personnel, adherence to patients rights, supervision of
c a re, financial management and the presence of an independent,
professional advisory group. All of the Company s Medicare provider
units have successfully passed their annual Medicare surveys. Lakeside
Home Health, Inc. (Illinois) passed its initial certification survey in
August, 1997.
As well, the Montgomery branches of the Oxford companies have been
accredited by the Joint Commission on the Accreditation of Healthcare
Organizations (JCAHO). The Company has initiated efforts to bring each
of its operating units providing home health care services into
compliance with JCAHO home care standards and expects to apply for
accreditation within the coming months.
Competition.
The Company competes with other providers of custodial services for
various state and municipal contracts pursuant to a competitive bidding
process. Each company competing for a bid is required to provide
specific information regarding its history, duration and qualifications
as a provider of services.
In the State of Illinois, depending on each bidder s responses to
requested information and the fulfillment of specific evaluative
criteria, points are awarded to each provider with contracts going to
the bidders with the greatest number of accumulated points. The key
competitive factors are the length of time in business and the
geographic areas served by the provider. Pricing of services is
established by the state in advance of the bidding process. As a result
of the Company s long operating history, market penetration and
presence, the Company has been highly successful in obtaining Illinois
contracts for provision of custodial services.
<PAGE>
In the States of Alabama and Mississippi, contracts are periodically
awarded by state, county or regional area agencies on aging based on
c o mpetitive pricing of services, provider qualifications, market
presence and financial stability.
Competition among home health agencies for Medicare and Medicaid
patients is based, in part, on availability of qualified personnel who
can be dispatched to care for a patient in a timely manner. Likewise, a
home health agency s array of service offerings, geographic coverage and
relationships with major referral sources significantly influences
competitive position. In states with applicable CON regulations,
competition may be somewhat restricted due to the smaller number of
providers in any one market. There is limited, if any, price
competition with regard to services provided to Medicare and/or Medicaid
covered recipients.
Employees.
Exclusive of field personnel who work on a per diem basis, the Company
has 163 administrative employees.
The number of caregivers providing services to clients varies from day
to day. These personnel do not, necessarily, work full time shifts; nor
do they exclusively work for the Company. Certain of the Company s
employees in Chicago are represented by a union. Relations with the
union are considered to be good.
The Company has in place a screening process for all of its caregivers
to ensure compliance with laws, generally, and the absence of criminal
c o n victions and/or disciplinary actions that limit professional
activity.
Item 2. Description of Property.
The Company s principal executive offices are located at 223 West
Jackson Blvd., Chicago, IL and consist of approximately 6,000 square
feet of rented space. Similarly, the Company leases office space in
each of its 40 operating locations as follows:
Help at Home, Inc. - Corp. Offices Help at Home, Inc. - Chicago
223 W. Jackson Blvd., Suites 500-520 223 W. Jackson Blvd., Suite 510
Chicago, IL 60606 Chicago, IL 60606
Lease expires November 30, 2000 Lease expires November 30, 2000
Help at Home, Inc. - Alton Help at Home, Inc. - Belleville
707 Berkshire Blvd., Suite 270 213 S. Illinois, Suite 101
Alton, IL 62024 Belleville, IL 62220
Lease expires October 31, 1998 Lease expires April 14, 1999
Help at Home, Inc. - Brentwood Help at Home, Inc. - Danville
8506 Manchester Road 913 North Vermillion St.
Brentwood, MO 63144 Danville, IL 61832
Lease expires June 30, 2000 Lease expires July 31, 2000
Help at Home, Inc. - Fenton Help at Home, Inc. - Mt. Vernon
300 Biltmore, Suite 340 1116 Broadway
Fenton, MO 63026 Mt. Vernon, IL 62864
Lease expires July 31, 1998 Lease expires July 31, 2000
<PAGE>
Help at Home, Inc. - Munster Help at Home, Inc. - Oak Forest
9250 Columbia, Suite D2 15337 S. Cicero Ave., Suite RF
Munster, IN 46321 Oak Forest, IL 60452
Lease expires June 30, 1999 Lease expires May 31, 1998
Help at Home, Inc. - Ottawa Help at Home, Inc. - Rockford
615 W. Main St., Suite A 3929 Broadway, Suite 9
Ottawa, IL 61350 Rockford, IL 61108
Lease expires July 10, 1998 Lease expires July 31, 1999
Help at Home, Inc. - Rock Island Help at Home, Inc. - Skokie
2100 18th Avenue, Suite 5 4872 W. Dempster Avenue
Rock Island, IL 61201 Skokie, IL 60077
Lease expires July 31, 1998 Lease expires April 30, 1999
Help at Home, Inc. - Springfield Help at Home, Inc. - St. Charles
1885 Sangamon Avenue 103 North 11th St., Suite 107
Springfield, IL 62702 St. Charles, IL 60174
Lease expires July 31, 2000 Lease expires March 31, 1999
Help at Home, Inc. - Waukegan Lakeside Home Health Agency,Inc.
2504 Washington St., Suite 101 223 W. Jackson Blvd., Suite 500
Waukegan, IL 60085 Chicago, IL 60606
Lease expires June 30, 1998 Lease expires November 30, 2000
Lakeside Home Health Agency, Inc. Rosewood Home Health Agency,Inc.
300 Biltmore Avenue, Suite 340 707 Berkshire Blvd., Suite 250
Fenton, MO 63026 East Alton, IL 62024
Lease expires July 31, 1998 Lease expires October 31, 1998
Rosewood Home Health Agency, Inc. Statewide Healthcare Svcs.,Inc.
213 S. Illinois, Suite 101 1209-A Snow Street
Belleville, IL 62024 Anniston, AL 36203
Lease expires April 14, 1999 Lease expires November 30, 1997
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
956 Montclair Road 2000 Flint Road, SE, Suite 103
Birmingham, AL 35213 Decatur AL 35601
Lease expires July 31, 1998 Lease expires December 31, 1997
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
188 N. Foster St., Suite 200 1141 Montlimar Drive, Suite 2400
Dothan, AL 36303 Mobile, AL 36609
Lease expires September 30, 1998 Month to month rent
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
444 S. Hull Street 351 Highway 6 West
Montgomery, AL 36104 Batesville, MS 38606
Lease expires August 31, 2002 Lease expires September 30, 1998
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
1707-A Strong Avenue 3227 Highway 82 East
Greenwood, MS 38930 Greenville, MS 38703
Lease expires July 31, 1999 Lease expires August 30, 1999
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
545 East Pass Road 805 W. Pine St., Suite B
Gulfport, MS 39507 Hattiesburg, MS 39401
Lease expires April 30, 2000 Lease expires April 30, 1998
<PAGE>
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
3828 Interstate 55 N 1807 24th Avenue
Jackson, MS 39211 Meridian, MS 39301
Lease expires September May 31,2001 Lease expires May 31, 1999
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
116 Canal Street 444-B Highway 12 West
Natchez, MS 39120 Starkville, MS 39759
Lease expires October 31, 1998 Lease expires August 17, 1998
Statewide Healthcare Svcs., Inc. Statewide Healthcare Svcs., Inc.
101 Industrial Road N. 115B Longwood Drive SE
Tupelo, MS 38801 Huntsville, AL 36104
Lease expires July 31, 1999 Office closed July 31, 1997
HASC Staffing Services, Inc. Preferred Nursing Care, Inc.
3828 Interstate 55 North 200 Flint Road SE, Suite 102
Jackson, MS 39211 Decatur, AL 35601
Lease expires May 31, 2001 Lease expires December 31, 1997
Homemakers of Montgomery, Inc.
444 S. Hull Street
Montgomery, AL 36609
Lease expires August 31, 2002
Office leases are generally for terms of one to five years. The Company
maintains insurance on all of its properties.
Item 3. Legal Proceedings.
The Company is not a party to any legal proceedings which it believes
may have a materially adverse effect on the Company s financial
condition or results of operations.
The Company has been named as a party to a suit filed by the family of
Oxford Health Care s former owner (now deceased) in which the family
seeks to claim, for the decedent s estate, approximately $300,000 in
life insurance proceeds payable under two key-man insurance policies
owned by the Company. The insurance proceeds are being held in escrow
pending resolution of the asserted claim. In the meantime, the Company
has responded with a counter claim in which it seeks to reduce the
amount of a $325,000 note payable to the former owner by approximately
$180,000. The proposed reduction in the principal of the note, which is
due in January, 1998, is the result of bad debts arising from periods
prior to the acquisition date ($140,000), unanticipated balance sheet
adjustments arising from the post-closing audit of the Oxford companies
($25,000) and other extraordinary expenses ($15,000). The transaction
agreement memorializing the acquisition of Oxford by the Company
contemplates each of the proposed adjustments to the principal of the
note. Pending resolution of this matter, and in the interest of
conservatism, the Company has not made entries in its financial
statements to effect either recognition of the insurance proceeds
($300,000) or the proposed reduction of the note ($180,000). The
Company has, however, recorded all entries related to the recognition of
bad debt expense and the miscellaneous expense items noted above in the
fourth quarter of 1997.
<PAGE>
Item 4. Submission of Matters to a Vote of the Security Holders.
There were no matters submitted to a vote of security holders of the
Company during the fourth quarter.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company s Common Stock and Warrants are traded on the NASDAQ
National Market under the symbols HAHI and HAHIW, respectively. The
following table shows the high and low bid price information, as quoted
by NASDAQ. Such quotations reflect inter-dealer prices, without retail
mark-ups, markdowns or commissions, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Common Stock Bid Prices by Fiscal Year
1996 High 1996 Low 1997 High 1997 Low
<S> <C> <C> <C> <C>
HAHI:
First Quarter N/A(1) N/A(1) $8.50 $6.50
Second Quarter $6.00 $5.50 7.25 4.75
Third Quarter 6.19 5.38 6.63 4.88
Fourth Quarter 8.38 5.50 5.38 3.50
HAHIW:
First Quarter N/A(1) N/A(1) 2.88 1.88
Second Quarter $1.25 $ .75 2.13 1.13
Third Quarter 1.63 1.13 1.50 1.00
Fourth Quarter 3.13 1.50 1.81 0.30
<FN>
(1) The Company s Common Stock and Warrants commenced trading on
December 5, 1995.
</TABLE>
There were approximately six holders of record of the Company s Common
Stock as of September 25, 1997 and four holders of record of the
Warrants as of the same date. This number includes shareholders of
record who may hold stock for the benefit of others.
The Company does not expect to pay dividends on its Common Stock in the
foreseeable future. Management intends to retain all available funds
for the development of new business and for use as working capital.
Item 6. Management s Plan of Operation and Discussion and Analysis of
Financial Condition.
Overview.
The Company provides home care services in Illinois, Indiana, Missouri,
Alabama and Mississippi. The Company s fiscal year ends June 30.
Unless otherwise noted, references to 1996 and 1997 relate to the fiscal
years ended June 30, 1996 and 1997.
<PAGE>
The Company's revenues are derived primarily from custodial services.
Additionally, approximately 17% of the Company s revenues during 1997
were attributable to skilled home health care services. The Company
believes that the home care market will continue to experience
significant growth due to aging of the population, continued emphasis on
preventive health care services, early patient discharges from acute
care institutions, and new advances in technology. The Company is
generally well positioned to take advantage of the expected growth in
both the custodial home care and home health care segments of the
market, provided that working capital necessary to sustain such growth
can be secured.
The statements which are not historical facts contained in this Form 10-
KSB are forward looking statements that involve risks and uncertainties,
including, but not limited to, the integration of new acquisitions into
the operations of the Company, the ability of the Company to realize
profit in its start-up operations, the success of the Company in
locating attractive acquisition candidates, the effect of economic
conditions and interest rates, general labor costs, the impact and
pricing of competitive services, regulatory changes and conditions, the
results of financing efforts, the actual closing of contemplated
transactions and agreements, the effect of the Company s accounting
policies, and other risks detailed in the Company s Securities and
Exchange Commission filings. No assurance can be given that the actual
results of operations and financial condition will conform to the
forward looking statements contained herein.
1998 Operating Plan.
The Company's overall strategy continues to focus on providing a
continuum of services to elderly and disabled clients in their homes,
concentrating on geographic areas with favorable demographics and
reimbursement trends. The Company will implement this business strategy
through a combination of growth in existing locations and development of
new locations.
The Company committed significant capital resources to the development
of its corporate infrastructure and establishment of new offices in
Alabama and Mississippi during 1996 and 1997. With this commitment of
resources comes the expectation of significant revenue growth in both
states throughout 1998. Similarly, the Company has established four new
offices in Illinois in recent months. In order to take advantage of
opportunities for expansion of its business, the Company must have
access to additional working capital. Negotiations with lenders for the
purpose of securing financing required to pursue the Company s 1998
operating plan are in their final stages. In the absence of additional
financing, the Company will not be able to realize anticipated growth
and will be forced to reduce corporate overhead and/or scale back
operations in one or more of its locations.
<PAGE>
Factors that May Affect 1998 Operating Results.
The Company is currently engaged in negotiations that may result in
rate increases for several of the contracts pursuant to which it
provides homemaker services in Alabama. Similarly, the Company has
submitted several bid proposals to Mississippi area agencies on aging in
an effort to attract more business as Mississippi significantly expands
the number of its citizens eligible for state funded custodial services.
The Company believes that it will be successful in securing rate
increases and attracting new business and has opened several offices in
recent months in an effort to establish its community presence in
furtherance of this objective. There can be no assurance, however,
that the Company will obtain this business and service volume is not
assured once a contract is approved. As a result, lower than
anticipated sales levels could lead to reduced earnings in the short-
term. With respect to the Company s cash requirements, lower revenue
levels will also diminish the Company s need for outside funding of its
working capital requirements and will, in turn, cause interest expense
to be reduced.
As noted below, Medicare revenue is entirely dependent on costs
a s sociated with delivery of services to Medicare beneficiaries.
Likewise, the Company s ability to allocate corporate overhead to its
Medicare units is based on Medicare s proportionate share of the
Company s overall business. Thus, if non-Medicare services grow at a
rate that exceeds the rate of growth in Medicare reimbursed services,
the Company s ability to allocate its home office costs may be somewhat
diminished.
The Company has opened four new offices in Illinois as a requirement of
new contracts with the Illinois Department on Aging. As in the case of
Alabama and Mississippi, the Company believes that it will secure
sufficient business in these four new locations to maintain current
Illinois profit margin levels; however, this cannot be guaranteed. As
well, on September 1, 1997 the federal minimum wage increased to $5.15.
Most of the homemakers providing services in Illinois are compensated at
the minimum wage rate and many of those residing in Chicago are union
members. While there is some expectation that reimbursement rates will
be increased to correspond with the minimum wage hike, there can be no
guarantee that such a rate increase will be retroactive or will occur in
the 1998 fiscal year. In the event that reimbursement rates are not
increased to offset the increase in the minimum wage, the Company s
gross profit margin would be adversely effected. Additionally, in the
event a rate increase is granted, the present union agreement allows
reopening of wage rate negotiations on behalf of this group of
employees.
<PAGE>
Results of Operations:
The following table sets forth, for fiscal years 1996 and 1997, certain
items from the Company s Consolidated Statement of Operations expressed
as a percentage of net sales.
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
1997 1996
<S> <C> <C>
Net sales 100% 100%
Direct cost of services 66% 69%
Gross margin 34% 31%
Operating expenses 36% 21%
(Loss)income before taxes (1.7%) 11%
Income taxes .5% 5%
Net (loss) income (2%) 6%
</TABLE>
Fiscal 1997 Compared to Fiscal 1996:
Sales.
Revenue from client services grew from $11.9 Million in 1996 to $22.2
Million in 1997, for an overall increase of $10.3 Million, or 87%,
during 1997. Approximately $7.3 Million (71%) of the increase in
revenue stems from the inclusion of the Oxford companies for the full
twelve months of 1997. In addition, the Company s established
operations in Illinois realized $2.9 Million revenue growth in 1997,
accounting for 28% of the overall growth in sales.
The Illinois Department on Aging ( IDOA ) provided revenues of $11.5
Million, representing 52% of the Company s total revenue for the year as
compared with $ 8.7 Million (73%) in 1996. The contractual arrangement
with IDOA requires that, at a minimum, 73% of receipts from IDOA client
services be spent for direct costs of providing care(as defined by IDOA
regulations). The Company s report of its direct costs incurred in the
provision of care to IDOA clients is subject to an annual independent
audit. Management believes the Company is in compliance with the direct
cost requirements imposed by IDOA; however, should direct costs fall
below the required 73% threshold, the Company s contracts with IDOA may
be subject to cancellation. Accounts receivable from IDOA represented
32% of total receivables as of June 30, 1997 as compared with 41% for
the prior year.
The Medicare program provided approximately $3.1 Million of revenue,
representing an increase of $2.2 Million in 1997. Medicare, in 1997,
accounted for 13% of annual revenues as compared with 7% in 1996. The
growth in Medicare services is attributable to Homemakers of Montgomery,
Inc. which, in addition to being included for the full twelve months of
the year, realized a 20% overall growth rate in 1997. Homemakers of
Montgomery comprised 67% of total Medicare revenues in 1997. The
Company recognizes interim Medicare revenues based on the periodic
reimbursement rates established by its various Medicare intermediaries,
adjusted annually to coincide with actual reimbursable costs. As a
result, while the Company anticipates an increase in Medicare units of
service based on need and demand in the communities served by its
Medicare certified home health agencies, there can be no guarantee as to
future Medicare reimbursement levels.
<PAGE>
The Oxford companies also provided the Company with new sources of
revenue in 1997. Revenue derived from home health services delivered to
persons covered by various state Medicaid programs, including pediatric
early intervention services, constituted 2% of total revenues ($482,000)
in 1997. Commercial, private pay and staffing services provided by the
Oxford companies amounted to 12% of 1997 revenues ($2.7 Million). These
categories of services, prior to the June 1996 acquisition of Oxford,
were inconsequential.
Direct Costs of Services.
Direct costs of providing services reached $14.6 Million (66% of
revenues) as compared with $8.2 Million (69% of revenues) in 1996. The
$6.4 Million growth relates directly to the overall growth in services
to clients. The proportionate 3% improvement in direct costs is the
result of the growth in Medicare services which, generally, provide
higher gross margins (47% on average) than custodial home care services.
The gross margin on overall services grew by $3.9 Million (106%)
representing the combined effect of revenue growth and proportionate
reduction of direct costs.
Selling, General and Administrative Expense.
Operating expenses tripled (totaling $2.5 Million in 1996 and $7.9
Million in 1997) and comprised 21% and 36%, respectively, of the
C o mpany s revenues. Virtually all expense categories incurred
significant increases that generally correspond to the growth in
revenues noted above.
The Company recognized approximately $1,037,000 of unusual expense in
the fourth quarter of 1997. The expenses include $240,000 of legal fees
and contingent settlement costs related to pending litigation, $80,000
of expense associated with abandoned acquisitions, $237,000 of start-up
costs associated with establishment of new offices in Mississippi,
$240,000 of goodwill write-offs due to impairment, and $240,000 of pre-
acquisition bad debt in the Oxford companies.
Administrative salaries grew from $1.2 Million in 1996 to $4.1 Million
in 1997 representing an increase of $2.9 Million. Of the increase, 43%
($1.2 Million) is attributable to the Oxford companies which were
included for only one month in 1996's operating results. Illinois
homemaker operations accounted for 28% ($793,000) of the increase. The
acquisition of Preferred Nursing Care, Inc. in October 1996 added 3%
($90,000). Corporate positions accounted for $636,000 (22%) with the
remaining $117,000 (4%) coming from general increases attributable to
growth of the Company s Medicare subsidiaries in Illinois and Missouri.
As a percentage of revenues, administrative salaries constituted 18% of
revenues in 1997 as compared with an industry average of approximately
15%. Steps have been taken to reduce administrative salaries among the
Oxford companies to bring this expense category into line with industry
norms.
Professional fees and insurance expense grew by $463,000 to $741,000
during 1997 and constituted 2% and 3% of revenues in 1996 and 1997,
respectively. The addition of the Oxford companies accounted for
$130,000 of the increase with the remainder of the growth ($333,000)
attributable to routine insurance expense, legal fees and accounting
services. The Company became involved in several legal actions in 1997,
none of which are expected to have an adverse effect on the Company s
financial condition. While none of the actions are material; in the
aggregate, the Company's expenditures for legal fees increased as noted.
<PAGE>
Rent, utilities and maintenance grew from $346,000 to $853,000 for an
increase of $507,000. The majority of the growth in this expense
category is due to the addition of the Oxford companies (59% or
$300,000). Most of the remainder is due to increased costs of occupancy
for the corporate offices ($95,000) and Illinois operating locations
($83,000). Rent, utilities and maintenance expenses represented 3% and
4% of overall revenues in 1996 and 1997, respectively. Rent, as a
percentage of revenue in the Oxford companies, is expected to decrease
in 1998 based on anticipated revenue increases and growth in service
volume.
Administrative expense grew from $197,000 to $1,007,000 for an overall
increase of $810,000 during 1997. Administrative expense doubled as a
percentage of revenue from 1996 to 1997 from 2% to 4%. Approximately
43% of the 1997 growth in this expense category ($345,000) is routine
and due to the addition of the Oxford companies. Write-offs of
unamortized goodwill are included in administrative expense at June 30,
1997 accounting for $236,000 (30% of the increase). The goodwill being
written off is attributable to Preferred Nursing Care, Inc. ($196,000)
and Lakeside Home Health Agency, Inc.($40,000). An additional $75,000
(9% of the increase) represents loss contingencies related to pending
litigation. Approximately $150,000 (18%) of the increase is due to
expansion of the Company s overall business.
Travel expenses grew from $206,000 to $312,000 from 1996 to 1997. The
increase of $106,000 is entirely attributable to efforts to expand the
Company s presence in Alabama and Mississippi during the year. Such
costs are expected to diminish, somewhat, once new operations in Alabama
and Mississippi are more stabilized and mature.
Bad debt grew from $36,800 to $347,000 during the year with $284,000 of
the increase due to write-offs in the Oxford companies. Approximately
$240,000 of this expense relates to periods prior to the date on which
the Company acquired the Oxford companies as noted above. Pursuant to
the terms of the transaction with the previous owner of the Oxford
companies and pending the outcome of current litigation (see Legal
Proceedings), the Company is seeking to offset $140,000 of the $325,000
note payable. The remaining $63,000 of bad debt expense arises from the
routine adjustment of the reserve for bad debts as a percentage of
revenues. In recognition of the changes in its service mix, with
increased emphasis on provision of skilled health services, the Company
has increased, slightly, its reserve for bad debts.
Depreciation and amortization expense grew by $179,000 to $296,000
during 1997 with the majority of the growth ($139,000 or 78%)
attributable to amortization of goodwill in connection with the purchase
of the Oxford companies. The remaining 22% of the growth in this
expense category is due to normal recognition of expense associated with
routine depreciation of fixed assets.
Advertising and promotional expenses grew from $93,000 to $375,000
representing an increase, as a percentage of revenues, from 1% to 2%.
The majority of the growth ($180,000 or 64%) is due to the addition of
the Oxford companies and the promotional expense associated with
expansion of their business in Mississippi and Alabama. Corporate
support of advertising and promotional efforts in the Company s
operating units accounted for an additional $51,000 or 18% of the growth
in this category. General expansion of the Company s business accounted
for the remaining 18% or $52,000 of the increase in this expense
category.
<PAGE>
Interest.
Interest income of $131,000 in 1996 was reduced to $72,000 in 1997 with
the entirety of the decrease attributable to the depletion of cash
reserves.
Earnings.
The net loss in 1997 was $479,000 as contrasted to net income of
$719,000 in 1996. Earnings per share of common stock were $.41 in 1996
and ($.01)in 1997 (fully diluted) based on 2,243,227 and 3,649,375
shares, respectively. The EPS calculation is based on the Modified
Treasury Method of computing earnings. On a fully diluted basis the
Company s 1997 earnings per share represents a decrease of $.42. On an
unadjusted basis, the primary loss per share in 1997 is ($.26) based on
1,869,375 shares of common stock issued and outstanding. The Company has
1,710,000 warrants outstanding as a result of its initial public
offering, 71,250 of which are underwriter s warrants. (See Exhibit
11.1, Computation of Earnings Per Share).
Segment Operations:
Management has elected to identify the Company s reportable segments
based on geographic areas (states): Alabama, Illinois, Missouri and
Mississippi. Revenues in all four segments are derived from the
provision of both skilled services and unskilled, custodial services.
Information related to the Company s reportable segments is as follows
(in thousands):
<TABLE>
<CAPTION>
Alabama Illinois Missouri Mississippi Total
<S> <C> <C> <C> <C> <C>
Revenue $ 5,305 $14,133 $ 425 $ 2,350 $22,213
Direct costs 3,381 9,445 251 1,559 14,636
------- ------- ------- ------- -------
Gross margin 1,924 4,688 174 791 7,577
Operating
expenses 2,542 2,658 261 735 6,196
------ ------- ------- ------- -------
Operating income
(loss) $ (618) $ 2,030 $ (87) $ 56 $ 1,381
======= ======= ======= ======= =======
</TABLE>
A reconciliation of the segments operating income to the consolidated
net loss is as follows (in thousands):
<TABLE>
<S> <C>
Segments operating income: $ 1,381
Less:
Income tax expense 103
Corporate overhead expense 1,757
-------
Consolidated net loss $ (479)
=======
</TABLE>
<PAGE>
Earnings Outlook.
As noted previously, the Company has invested in the establishment of
ten new offices in Mississippi with expectations of securing new clients
on or about October 1, 1997. In addition, in anticipation of new
contract opportunities in Alabama and Illinois, the Company has engaged
in several promotional campaigns aimed at establishing name recognition
for the Company in new communities where it now has offices. As a
result of the increased administrative expenditures associated with
these efforts, the Company expects to post a first quarter loss in 1998.
As second through fourth quarter services increase to offset higher
expenses, the Company expects to realize a moderate profit.
Liquidity and Capital Resources.
The Company s basic cash requirements are for operating expenses,
generally comprised of labor, occupancy and administrative costs. The
Company relied in 1997 on remaining cash proceeds from its initial
public offering and borrowed capital to augment cash flows from
operations for the purpose of expanding its business. The Company s
debt obligations total approximately $1.5 Million as of June 30, 1997,
divided among secured bank debt of $900,000, a $325,000 note arising
from the purchase of the Oxford companies, a $182,000 installment loan
used to finance the purchase of an airplane and $46,000 of notes and/or
leases for autos, office and computer equipment. Long-term debt as of
June 30, 1996 totaled $974,000. Total working capital stood at $2.8
Million as of June 30, 1997 as compared with total working capital of
$3.5 Million as of the same date in 1996.
The Company, as of June 30, 1997, was in technical default relative to
one of two financial ratios enumerated in the loan agreement for its
secured bank debt of $900,000. At June 30, 1997 the loan agreement
required that the Company s current ratio be maintained at a level of at
least 2:1. As of June 30, 1997 the current ratio was 1.8:1. The
Company has received a waiver of this default and subsequent amendment
of the loan covenant to a current ratio requirement of 1.75:1.
Cash provided by operations in 1996 was $1.5 Million as compared to $2.0
Million of cash used in operating activities in 1997. The $3.5 Million
operating cash flow differential relates primarily to growth in accounts
receivable($2.0 Million), cash payments of approximately $900,000 in
1997 for income taxes and the 1997 operating loss of $479,000. The
growth in accounts receivable is due in large measure to expansion among
t h e Oxford companies ($1.0 Million) revenue growth in Illinois
($700,000), the addition of Preferred Nursing Services ($100,000) and
general revenue growth in other locations ($200,000) The Company
repaid $559,000 of indebtedness relating to the Oxford companies in 1997
after which it realized approximately $100,000 of cash from financing
activities. These events yielded a net cash depletion of $1.9 Million
for the year ended June 30, 1997 as contrasted to an increase of $2.7
Million in cash balances during the preceding year.
<PAGE>
The Company had approximately $871,000 cash on hand as of June 30, 1997
as contrasted with $2.7 Million of cash on hand in 1996. Cash flows from
established operations will be insufficient to fund the expansion
contemplated in Alabama and Mississippi during the coming year. As a
result, the Company is in final negotiations to increase its line of
credit and expects to borrow funds sufficient to see it through next
year s significant growth. Although the Company does not anticipate
difficulty in securing a larger line of credit, there can be no
guarantee of success in this regard. In the event that the Company is
unsuccessful in securing the expanded line of credit, it may be forced
to scale back and/or abandon certain business expansion initiatives.
The Company presently has 1,638,750 of Warrants outstanding with an
exercise price of $6.00. The Warrants can be exercised at any time
subsequent to the public offering and can be called anytime after
December 5, 1996 provided the closing price of the Company s Common
Stock is equal to or greater than $9.00 for ten consecutive days. The
Company stands to realize a maximum of approximately $9.8 Million from
the exercise of its Warrants. There can be no assurance, however, that
the closing price of the Company s common stock will reach a level
sufficient to precipitate the exercise of the Warrants.
Management intends to pursue opportunities for internal growth and
d e velopment of its business and will utilize cash from future
indebtedness and any exercise of the Warrants to fund such growth.
Item 7. Financial Statements.
Financial Statements for the Years Ended June 30, 1997 and 1996.
Attached hereto and filed as a part of this Form 10-KSB are the
Consolidated Financial statements of the Company.
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.
T h e re have been no disagreements between the Company and its
accountants, Coopers & Lybrand, LLP, regarding accounting principles or
financial disclosures.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors and Executive Officers.
The following table sets forth certain information concerning each of
the current executive officers and directors of the Company. The
Company s officers and directors are elected to serve in such capacities
until the earlier to occur of the election and qualification of their
respective successors or until their respective deaths, resignations or
r e m oval by the Company s Board of Directors or shareholders,
respectively, from such positions. Directors do not currently receive
compensation for their services as such. One director received shares
of Common Stock in consideration for agreeing to serve as a director.
One director, Marlene Schaffer, resigned from the Board of Directors in
July 1996 and another, Robert Rubin, resigned in July 1997. (See
Certain Relationships and Related Transactions.)
<TABLE>
<CAPTION>
Name Age Positions and Offices
<S> <C> <C>
Louis Goldstein 54 Chairman of the Board, Chief
Executive Officer and Treasurer
Joel Davis 33 Chief Operating Officer,
Secretary and Director
Sharon S. Harder 48 Chief Financial Officer
Dr. Michael J. Morgenstern 57 Director
Steven L. Venit 37 Director
</TABLE>
Louis Goldstein. Mr. Goldstein, the founder of the Company, has served
as the Company s chief executive officer and director since its
inception in 1974.
Joel Davis. Mr. Davis joined the Company in July 1995 as General
Counsel. Mr. Davis was named Chief Operating Officer of the Company in
March 1996. From October 1989 through July 1995, Mr. Davis was an
Associate at the law firm of Hlustik, Huizenga, Williams & Vander Woude,
Ltd. in Chicago.
Sharon S. Harder. Ms. Harder joined the Company in March, 1996 as Chief
Financial Officer. For six years prior to joining the Company, Ms.
Harder was the Chief Operating Officer and Chief Financial Officer of
Child Health Systems, Inc. and Pediatric Homecare of America. The
companies offered a wide range of alternate site health care services
including center-based day health care, skilled home nursing care,
rehabilitative therapies, infusion therapy, home medical equipment and
case management services.
Dr. Michael J. Morgenstern. Dr. Morgenstern became a director of the
Company in January, 1997. He has been a practicing orthopedic surgeon
in the City of Chicago for more than 20 years.
Steven Venit. Mr. Venit has been a sole practitioner with the Law
Offices of Steven L. Venit, Esq. for more than ten years and is licensed
to practice law in the states of Illinois, Nevada and Wisconsin. (See
Certain Relationships and Related Transactions.) Mr. Venit has served
as a director since 1996.
<PAGE>
Section 16 Compliance.
During fiscal 1997, there were no failures to timely report on Forms 3
or 4 pursuant to the provisions of Section 16(a) of the Exchange Act.
Item 10. Executive Compensation.
The following table sets forth the cash compensation, as well as certain
other compensation paid or accrued, by the Company to the Company s
Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer for the fiscal years ended June 30, 1996 and 1997. No other
individuals had total annual compensation exceeding $100,000 during
these fiscal years.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
Name and Position Year Salary Bonus Other Stock Options
<S> <C> <C> <C> <C> <C>
Louis Goldstein
Chairman, CEO,
Director 1997 $206,250 $22,000 $86,852(1) 200,000(4)
1996 192,611 - -(2) -
Joel Davis
Chief Operating
Officer, Dtr. 1997 $100,000 $10,000 -(2) -
1996 - - -(3) -
Sharon S. Harder
Chief Financial
Officer 1997 $123,333 $13,000 -(2) -
1996 - - -(3) -
Marlene Schaffer
President
(former) 1996 $104,654 - -(2) -
<FN>
(1) Pursuant to an action of the Compensation Committee of the Board of
Directors, Mr. Goldstein received certain compensation related to
personal expenses incurred in connection with his continuous travel
schedule. Such compensation totaled approximately $41,000 in 1997. In
addition, the Company paid expenses associated with a leased automobile
for Mr. Goldstein s business and personal use. Auto expenses totaled
approximately $20,000 during fiscal 1997. The Company also assumed
financial responsibility, on Mr. Goldstein s behalf, for certain legal
services in the amount of $25,000.
(2) With respect to each named officer, the aggregate amount of
perquisites was less than either $50,000 or 10% of the salary reported.
(3) Total compensation paid during the fiscal year was less than
$100,000.
(4) Pursuant to an action of the Compensation Committee of the Board of
Directors, Mr. Goldstein received options to purchase 200,000 shares of
the Company s common stock. The options are priced at $4.65 and are
fully vested; however, the market price of the underlying securities was
less than the exercise price as of September 29, 1997.
</TABLE>
<PAGE>
Employment Agreement.
In August 1995, the Company entered into an employment agreement with
Louis Goldstein. Pursuant to the agreement, Mr. Goldstein received a
base annual salary of $175,000 in the first year and $200,000 in the
second year of the agreement, subject to increase in each successive
year of the contract term at the discretion of the Compensation
Committee of the Board of Directors. In addition, the contract provides
that Mr. Goldstein is entitled to receive a benefit allowance in the
amount of 10% of Mr. Goldstein s base salary per year. The agreement
was modified in May 1997 by action of the Compensation Committee to
provide for reimbursement of personal expenses incurred by Mr. Goldstein
in connection with his travel schedule. The agreement is for a period
of five years and is automatically renewable for additional one year
terms unless prior notice is given not less than 90 days prior to the
end of the initial term or any succeeding year. The agreement also
subjects Mr. Goldstein to non-competition provisions.
Stock Option Plan.
The Company adopted a Stock Option Plan in August, 1995. The plan is
administered by the Board of Directors through its Compensation
Committee. In January 1997 the Company s shareholders approved an
amendment to the plan to increase, by 1,500,000, the aggregate number of
shares of Common Stock available for which options may be granted.
Pursuant to the plan, options to acquire an aggregate of 1,764,375
shares of Common Stock may be granted, 220,000 of which have been
granted to date, at exercise prices ranging from $4.65(200,000 options)
to $5.88 (20,000 options). The plan provides for grants to employees,
consultants and directors of the Company.
The 1995 Stock Option Plan authorizes the Board to issue incentive stock
options (ISOs) as defined in Section 422 A of the Internal Revenue Code
of 1986, as amended (the Code), as well as stock options that do not
conform to the requirements of the Code section (Non-ISOs). Consultants
and directors who are not also employees of the Company could be granted
only Non-ISOs. The exercise price of each ISO may not be less than 100%
of the fair market value of the Common Stock at the time of grant,
except that in the case of a grant to an employee who owns 10% or more
of the outstanding stock of the Company or a subsidiary or parent of the
company (a 10% Stockholder), the exercise price may not be less than
110% of the fair market value on the date of the grant. The exercise
price of each Non-ISO shall be determined by the Board of Directors in
its discretion and may be less than the fair market value of the Common
Stock (but not less than 85%) on the date of grant. Notwithstanding the
foregoing, the exercise price of any option granted on or after the
effective date of the registration of any class of equity security of
the Company pursuant to Section 12 of the Securities Exchange Act of
1934, and prior to six months after the termination of such registration
may be no less than 100% of the fair market value per share on the date
of the grant. ISOs may not be exercised after the tenth anniversary
(fifth anniversary in the case of any option granted to a 10%
Stockholder) of their grant. Non-ISOs may not be exercised after the
tenth anniversary of the date of grant. Options may not be transferred
during the lifetime of an option holder. No stock options could be
granted under the plan after August 15, 2005.
<PAGE>
Subject to the provisions of the Plan, the Board has the authority to
determine the individuals to whom the stock options are to be granted,
the number of shares to be covered by each option, the exercise price,
the type of option, the option period, the restrictions, if any, on the
exercise of the option, the terms for the payment of the option price
and other terms and conditions. Payments by option holders upon
exercise of an option may be made (as determined by the Board) in cash
or such other form of payment as may be permitted under the plan,
including without limitation, by promissory note or by shares of Common
Stock.
Indemnification of Officers and Directors.
The Articles of Incorporation and Bylaws of the Company provide for
indemnification of each director and officer or former director or
officer or any person who may have served at the request of the Company
as a director or officer of another corporation in which the Company
owns shares of capital stock or is a creditor. The Company will
indemnify against reasonable costs and expenses incurred in connection
with any action, suit or proceeding to which any of the individuals
described herein were made a party by reason of his/her or their being
or having been such a director or officer, unless such director has been
adjudicated to have been liable for negligence or misconduct in his or
her corporate duties. As of the date of this filing, the Company is
unaware of any existing, threatened or pending litigation involving a
former or current director that will require the indemnification of the
Company.
N o t withstanding the foregoing indemnification provisions of the
Company s Articles of Incorporation and Bylaws, the Company has been
informed that, in the opinion of the Commission, indemnification for
liabilities arising under the Securities Act is against public policy
and is, therefore, unenforceable.
Item 11. S e c u r ity Ownership of Certain Beneficial Owners and
Management.
The following tables set forth, as of the date of this filing, certain
information with respect to stock ownership of (i) all persons known by
the Company to be beneficial owners of 5% or more of its outstanding
shares of Common Stock, Warrants and/or options; (ii) all directors and
officers individually and as a group, together with their respective
percentage ownership of such shares.
<TABLE>
<CAPTION>
Name Shares Owned Percentage Owned
<S> <C> <C>
Robertson Stephens & Co., Inc.(1) 770,035 20.3%(3)
Herbard, Ltd. (2) 217,000 5.7%(3)
<FN>
(1) The address for Robertson Stephens & Co., Inc. is 555 California
Street, Suite 2600, San Francisco, CA 94104.
(2) The address for Herbard, Ltd. Is P.O. Box 438, Road Town Tortola
British Virgin Islands, Tortola, D9.
(3) Based on fully diluted, weighted average number of shares at June
30, 1997. Includes Common Stock and Warrants. This information is
taken from various filings and, to the best of management s knowledge,
is correct as of September 25, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Shares Options Percentage Owned
<S> <C> <C> <C>
Louis Goldstein (1) 962,500 200,000 31.9%(2)
Joel Davis (1) - 10,000 .2%(2)
Sharon Harder (1) - - -
Dr. Michael Morgenstern (1) - - -
Steven Venit (1) - - -
Officers and Directors as a Group 962,500 210,000 32.1%(2)
<FN>
(1) The address for the named individual is 223 West Jackson Blvd.,
Chicago, IL 60606.
(2) Based on fully diluted, weighted average number of shares at June
30, 1997. Mr. Goldstein s percentage of common shares actually issued
and outstanding at June 30, 1997 is approximately 51%.
</TABLE>
Item 12. Certain Relationships and Related Transactions.
In connection with the formation of the Company, on August 7, 1995, the
Company issued to Louis Goldstein 962,500 shares of Common Stock in
exchange for 2,750 shares of common stock of Help at Home, Inc., an
Illinois corporation (Help at Home, IL). Mr. Goldstein was awarded
200,000 options to purchase shares of the Company s common stock in
April 1997. The options are exercisable at a price of $4.65 per share.
In 1992, 1993 and 1994 Help Illinois loaned to Mr. Goldstein $135,470,
$101,135 and $92,721, respectively. The loans bear interest at nine
percent per year and are due on July 31, 1998. The balance of such
loans at June 30, 1997 was approximately $122,000. The balance of the
shareholder loan decreased by approximately $6,000 during the year.
During 1997, the Company paid an aggregate of approximately $27,000
(including accrued fees from a prior year) to Steven Venit, a director,
for certain routine legal services.
The Company, acting as a subcontractor, billed $112,000 and $183,000 in
service fees for 1997 and 1996, respectively, to a not-for-profit
organization in which Mr. Goldstein is an officer.
The Company has adopted a policy that all future transactions, including
loans between the Company and its officers, directors, principal
stockholders and their affiliates must be approved by a majority of the
Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Except as otherwise noted, the Exhibit listed below has previously
been filed as an exhibit to the Company s Registration Statement on
Form SB-2 Registration No.33-97034 (the Registration Statement) and/or
the Post Effective Amendment No. 1 thereto (the Amendment), and is
incorporated herein by reference.
3.1 Articles of Incorporation of Help at Home of Evanston, Inc., an
Illinois corporation, dated February 27,1975 as amended on June
17,1982 changing its name to Help at Home, Inc.
3.2 Certificate of Incorporation of Help at Home, Inc., a Delaware
corporation, dated August 7, 1995.
3.3 Certificate of Incorporation of Lakeside Home Health Agency, Inc.,
a Missouri corporation, dated April 20, 1993.
3.4 Certificate of Incorporation of Rosewood Home Health, Inc., an
Illinois corporation, dated March 4, 1994.
3.5 Certificate of Incorporation of HASC Staffing Services, Inc., a
Mississippi corporation, dated March 23,1986.
3.6 Certificate of Incorporation of Homemakers of Montgomery, Inc., an
Alabama corporation, dated March 27, 1985.
3.7 Certificate of Incorporation of Statewide Healthcare Services,
Inc.,a Mississippi corporation, dated January 10, 1974.
3.8 Help at Home, Inc. Bylaws.
4.1 Specimen Common Stock Certificate.
4.2 Specimen Redeemable Common Stock Purchase Warrant.
4.3 Form of Warrant Agreement.
4.4 Form of Underwriter s Warrant.
10.1 Employment Agreement with Louis Goldstein.
10.2 Form of contract with the Illinois Department on Aging.
10.3 1995 Stock Option Plan.
11.1 Computation of Earnings Per Share.*
21.1 Subsidiaries.
27.1 Financial Data Schedule.
* Filed as an Exhibit hereto.
(b) Reports filed on or in conjunction with Form 8-K.
There were no reports filed on Form 8-K during fiscal 1997.
<PAGE>
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.
Dated September 30, 1996 HELP AT HOME, INC.
By:_______________________________
/s/ Louis Goldstein
Chairman and Chief Executive Officer
By:_______________________________
/s/ Sharon S. Harder
Chief Financial Officer
By:_______________________________
/s/ Joel Davis
Chief Operating Officer
By:_______________________________
/s/ Steven L. Venit
Director
By:_______________________________
/s/ Dr. Michael J. Morgenstern
Director
<PAGE>
<TABLE>
HELP AT HOME, INC. AND SUBSIDIARIES
INDEPENDENT ACCOUNTANTS REPORT
TABLE OF CONTENTS
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . 26
Consolidated Financial Statements
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . 27
Consolidated Statements of Operations. . . . . . . . . . . . 28
Consolidated Statements of Stockholders Equity. . . . . . . 29
Consolidated Statements of Cash Flows. . . . . . . . . . . . 30
Notes to Consolidated Financial Statements. . . . . . . . . . . . 31
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Help At Home, Inc.
Chicago, Illinois
We have audited the consolidated balance sheets of Help at Home, Inc.
and its subsidiaries (collectively, the Company ) as of June 30, 1997
and 1996, and the related consolidated statements of operations, changes
in stockholders equity and cash flows for the years then ended. These
c o nsolidated financial statements are the responsibility of the
Company s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Help at Home, Inc. and its subsidiaries as of June 30, 1997
and 1996, and their consolidated results of operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
Coopers & Lybrand, LLP
Chicago, Illinois
September 29, 1997
<PAGE>
<TABLE>
HELP AT HOME, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
June 30,1997 June 30,1996
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 870,634 $2,734,705
Accounts receivable (net of allowance
for doubtful accounts of $167,000
and $131,000 respectively) 5,055,469 3,002,415
Prepaid expenses and other 154,774 168,053
Federal income tax receivable 281,052
Deferred income taxes -- current 119,000
---------- ----------
Total Current Assets 6,480,929 5,905,173
Furniture and equipment, net 474,979 309,017
Due from officer 121,564 128,007
Restricted cash 149,200
Goodwill (net of amortization of
$154,000 and $23,000 respectively) 2,401,816 2,586,857
Other assets 88,275 94,025
---------- ---------
Total Assets $9,567,563 $9,172,279
========== ==========
Liabilities
Current Liabilities:
Accounts payable $ 685,466 $ 279,654
Accrued expenses 1,142,735 659,072
Due to third-party payors 239,436 99,244
Current maturities of long-term debt 1,290,485 585,417
Current income taxes payable 151,337 644,000
Deferred income taxes - current 146,000 146,000
---------- ---------
Total Current Liabilities 3,655,459 2,413,387
Deferred income taxes - noncurrent 242,000 383,000
Long-term debt, less current portion 162,475 389,073
---------- ---------
Total Liabilities 4,059,934 3,185,460
Stockholders Equity
Preferred stock, par value $.01 per share;
1,000,000 shares authorized, none outstanding
Common stock, par value $.02 per share;
14,000,000 shares authorized, 1,869,375
issued and outstanding 37,388 37,388
Additional paid in capital 3,694,406 3,694,406
Retained earnings 1,775,835 2,255,025
---------- ----------
Total Stockholders Equity 5,507,629 5,986,819
---------- ----------
Total Liabilities and Stockholders Equity $9,567,563 $9,172,279
========== ==========
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part hereof.
<PAGE>
<TABLE>
HELP AT HOME, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended June 30, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Revenues $22,213,119 $11,885,712
Direct costs of services 14,636,643 8,204,259
----------- -----------
Gross margin 7,576,476 3,681,453
Selling, general and
administrative expense 8,024,564 2,525,442
----------- -----------
(Loss) income from operations (448,088) 1,156,011
Interest income 71,898 130,834
----------- -----------
(Loss) income before income taxes (376,190) 1,286,845
Provision for income taxes 103,000 568,000
----------- -----------
Net (loss) income $ (479,190) $ 718,845
=========== ===========
Earnings per common share:
Primary $ (.26) $ .48
Fully diluted $ (.01) $ .41
Weighted average number
of common shares:
Unadjusted 1,869,375 1,503,391
Fully diluted 3,649,375 2,243,227
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part hereof.
<PAGE>
<TABLE>
HELP AT HOME, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders Equity
For the Years Ended June 30, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Common Stock Shares:
Balance, beginning of year 1,869,375 1,050,000
Stock issued 819,375
---------- ---------
Balance, end of year 1,869,375 1,869,375
========== =========
Common Stock:
Balance, beginning of year $ 37,388 $ 21,000
Stock issued 16,388
---------- ----------
Balance, end of year $ 37,388 $ 37,388
========== ===========
Additional Paid in Capital:
Balance, beginning of year $3,694,406
Stock issued $3,694,406
---------- ----------
Balance, end of year $3,694,406 $3,694,406
========== ===========
Retained Earnings:
Balance, beginning of year $2,255,025 $1,536,180
Net (loss) income for year ended
June 30 (479,190) 718,845
---------- ----------
Balance, end of year $1,775,835 $2,255,025
========== ===========
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part hereof.
<PAGE>
<TABLE>
HELP AT HOME, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1997 and 1996
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (479,190) $ 718,845
Noncash changes in net (loss) income:
Depreciation 136,648 93,551
Amortization 159,060 23,434
Loss on sale of fixed assets 3,880
Write-off of impaired goodwill 235,972
Deferred tax benefit (260,000) (99,000)
Changes in:
Accounts receivable (2,016,192) 228,927
Prepaid expenses and other 13,280 (69,251)
Accounts payable 403,269 33,295
Other current liabilities 463,632 (138,611)
Due to third-party payors 140,192 99,244
Current income taxes (773,715) 644,000
Net cash (used in) provided by operating
activities (1,973,164) 1,534,434
Cash flows from investing activities:
Acquisition of property (329,962) (133,399)
Proceeds from sale of property 45,000
Acquisition of subsidiaries (161,125) (2,172,564)
Decrease in due from officer 6,443 15,113
Other 154,950 (179,580)
Net cash used in investing activities (329,694) (2,425,430)
Cash flows from financing activities:
Proceeds from long-term debt 1,231,855
Proceeds from common stock issued 5,162,068
Financing costs for common stock issued (1,451,274)
Repayment of long-term debt (793,068) (110,087)
Net cash provided by financing activities 438,787 3,600,707
NET (DECREASE) INCREASE IN CASH (1,864,071) 2,734,705
Cash and cash equivalents:
Beginning of year 2,734,705 24,994
End of year $ 870,634 $ 2,709,705
=========== ==========
Supplemental disclosure of cash flow information:
Cash payments for:
Income taxes $ 934,068 $ 81,435
Interest 32,369 10,645
Supplemental disclosures of non-cash investing and financing activities:
Execution of capital leases $ 61,300
Assumption of debt 582,000
Transfer of leased vehicle for assumption
of lease obligation $ 31,008
</TABLE>
The accompanying notes to these consolidated financial statements
are an integral part hereof.
<PAGE>
HELP AT HOME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
Note 1 - Organization and Business
Help at Home, Inc., a Delaware corporation ("Help (Delaware)" or the
"Company"), was incorporated on August 7, 1995. In connection with the
formation of the Company, 2,100,000 shares of Common Stock were issued to
the shareholders of Help at Home, Inc., an Illinois corporation ("Help
(Illinois)") in exchange for all the common stock of Help (Illinois). In
November 1995, the Company effected a one-for-two reverse stock split. The
accompanying financial statements give retroactive effect to this reverse
stock split.
The consolidated financial statements presented include the accounts of
Help (Delaware) and its wholly owned subsidiaries: Help (Illinois),
Rosewood Home Health, Inc. ("Rosewood"), Lakeside Home Health Agency, Inc.,
a Missouri corporation ("Lakeside (Missouri)"), the Oxford group (see Note
3), Lakeside Home Health Agency, Inc., an Illinois corporation ( Lakeside
(Illinois) ), Preferred Nursing Care ( Preferred ) and HAH Aviation
( Aviation ).
The Company, through its Help (Illinois) subsidiary, provides homemaker and
general housekeeping services to elderly and disabled persons within their
homes in the mid-west region of the United States. The vast majority of
clients are obtained and served through 15 regional contracts with various
state and municipal agencies. In addition, the Company provides homemaker
and respite services to elderly and disabled persons in Alabama under the
terms of 16 contracts with various state and regional area agencies on
aging. These agencies receive their funding from the Alabama Medicaid
Waiver block grants.
T h e Company, through its Lakeside (Missouri), Lakeside (Illinois),
Rosewood, Oxford and Preferred subsidiaries, provides in-house skilled
nursing services. Lakeside (Missouri) and Rosewood operate in the
metropolitan St. Louis area; Oxford and Preferred operate in the south
central United States; Lakeside (Illinois) operates in the Chicagoland
area. Lakeside (Missouri), Lakeside (Illinois), Rosewood and Homemakers of
Montgomery, Inc. ( Homemakers , part of the Oxford group) are certified in
their respective states to receive Medicare reimbursement.
Note 2 - Summary of Significant Accounting Policies
[1] Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all wholly owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
<PAGE>
[2] Revenue recognition
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates.
Payment arrangements include reimbursed costs, discounted charges and per
diem payments. Revenue is reported at the estimated net realizable amounts
from clients, third-party payors and others for services rendered. Revenue
under certain third-party payor agreements is subject to audit and
retroactive adjustment. Provisions for estimated third-party payor
settlements are provided in the period the related services are rendered.
Differences between the estimated amounts accrued and interim and final
settlements are reported in operations in the year of settlement.
[3] Goodwill
Goodwill has been recognized for the excess of the purchase price paid
over the fair value of the net assets acquired and is being amortized on a
straight-line basis over periods of ten to twenty years (see Note 3).
M a nagement calculates expected undiscounted future cash flows from
operations to evaluate recoverability whenever events or changes in
circumstances indicate a possible impairment.
[4] Accounts Receivable
Accounts receivable are stated at estimated net realizable value. The
allowance for doubtful accounts is based on management's estimate of
collectibility, which considers outstanding accounts receivable, historical
experience and current economic conditions.
[5] Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
accelerated and straight-line methods over the estimated useful lives of
the assets. Amortization of capitalized lease costs is included in
depreciation expense. The estimated useful lives of property and equipment
are as follows:
<TABLE>
<S> <C>
Software 3 years
Computers, autos, office and medical equipment 5 years
Furniture and fixtures 7 years
Aircraft 10 years
Leasehold improvements Lease term
</TABLE>
[6] Earnings per share
Earnings per common share is based on the weighted average number of common
shares and common share equivalents outstanding during the period. Common
stock equivalents consist of stock options and warrants. Earnings per
share have been stated on a fully diluted basis using the modified treasury
method.
[7] Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less are
considered to be cash equivalents.
<PAGE>
[8] Income Taxes
Deferred taxes are recognized for the temporary differences between the
bases of assets and liabilities for financial and tax reporting purposes.
Deferred income taxes are provided for certain transactions which are
reported in different periods for financial reporting than for income
taxes. Such differences relate primarily to the previous reporting of
income and expenses of Help (Illinois) on the cash basis of accounting for
income tax purposes and on the accrual method of accounting for financial
reporting purposes.
The Company was required to change to the accrual method for reporting its
income for tax reporting purposes for years ending June 30, 1997 and
thereafter. Such change requires that the Company include in its taxable
income, starting with the year ended June 30, 1997, the cumulative
difference between the cash and accrual methods, as of June 30, 1996, over
a period not to exceed four years. This change is not expected to have a
material effect on net income or earnings per share.
[9] Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Significant estimates
include allowances, accruals, third-party settlements and deferred taxes.
The actual results will differ from those estimates and the differences
could be material.
[10] Reclassifications
Certain prior year balances have been reclassified to conform with the
current year financial statement presentation.
Note 3 - Acquisitions
On July 21, 1995, Help (Illinois) purchased all the stock of Lakeside
(Missouri) for $100,000. Goodwill in the amount of $66,000 was recognized
based on an allocation of cost to the fair value of the assets acquired.
The goodwill was being amortized on a straight-line basis over a ten year
period. During fiscal year 1997, management determined there was an
impairment of this goodwill due to the continuing decline of operating
results and the excess of direct costs over reimbursable limits and, as a
result, wrote off remaining net goodwill of $40,000. The write-off of
goodwill is included in Administrative Expenses.
On January 30, 1996, the Company purchased all of the stock of Rosewood for
$20,000. The Company recognized goodwill in the amount of $171,000 based
on an allocation of cost to the fair value of the assets acquired. The
goodwill is being amortized over a ten year period.
<PAGE>
On May 31, 1996, the Company purchased all of the stock of Statewide
Healthcare Services, Inc. ( Statewide ), Homemakers, and HASC Staffing
Systems, Inc. ( HASC ), collectively referred to as the Oxford group, for
$2,150,000. The agreement allows for the purchase price to be adjusted
based on book value of Oxford's consolidated assets on the purchase date.
The Company recognized goodwill in the amount of $2,384,000 based on an
allocation of cost to the fair value of the assets acquired. The goodwill
is being amortized over a twenty year period. The following table presents
proforma results of operations had the Oxford group acquisition occurred
at July 1, 1995:
<TABLE>
<CAPTION>
For the year ended
June 30, 1996
<S> <C>
Revenues $ 16,829,784
Other income 127,262
Cost of sales (10,549,639)
Operating expenses (5,093,087)
Income before income taxes 1,314,320
Income tax expense (578,990)
------------
Net income $ 735,330
============
</TABLE>
In May, 1996, the Company entered into an agreement to acquire certain
a s sets of a home health care provider. The purchase price was
approximately $149,000, which was placed in escrow. The agreement was
terminated during fiscal 1997 and the escrow funds were returned to the
Company.
On October 1, 1996, the Company purchased all the stock of Preferred for
$175,012. The Company recognized goodwill in the amount of $210,000 based
on an allocation of cost to the fair value of the assets acquired. The
goodwill was being amortized on a straight-line basis over a ten year
period. During fiscal year 1997, management determined there was an
impairment of this goodwill due to a continuing decline in the operating
results of Preferred and, as a result, wrote off remaining net goodwill of
$196,000. The write-off of goodwill is included in Administrative
Expenses.
The results of operations of these acquisitions, all of which were
accounted for using the purchase method, are reported in the consolidated
results of operations from the date of acquisition.
<PAGE>
Note 4 - Concentrations of Risk
The Company grants credit without collateral to its clients, most of whom
are local residents and are covered under third-party payor agreements.
The mix of receivables from patients and third-party payors at June 30,
1997 and 1996, was as follows:
<TABLE>
<CAPTION>
June 30
1997 1996
<S> <C> <C>
IDOA 32% 41%
Alabama Medicaid waiver 10
Medicare 19 13
Medicaid 13 3
Other third-party payors 17 31
Clients 9 12
------- -------
100% 100%
======= =======
</TABLE>
Medicare and Medicaid programs are highly regulated and subject to
budgetary, statutory and other constraints. In recent years, several
proposals have been introduced in Congress which could limit the growth of
federal spending under Medicare and Medicaid programs; however no specific
proposals are pending that would, in management's opinion, materially
change Medicare or Medicaid reimbursement to the Company in the foreseeable
future.
Note 5 - Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30
1997 1996
<S> <C> <C>
Furniture and fixtures $ 272,892 $ 87,508
Office, computer and medical equipment 414,710 315,944
Autos 30,593 73,088
Aircraft 216,478
--------- ---------
934,673 476,540
Less accumulated depreciation (459,694) (167,523)
--------- ---------
$ 474,979 $ 309,017
========= =========
</TABLE>
The total amount of equipment recorded under capitalized leases included
above was $102,600 and $61,300 at June 30, 1997 and 1996, respectively.
Accumulated amortization on capital leases was $70,800 and $37,700 at June
30, 1997 and 1996, respectively.
<PAGE>
Note 6 - Accrued Expenses
Accrued expenses consist of the following
<TABLE>
<CAPTION>
June 30
1997 1996
<S> <C> <C>
Accrued wages $ 541,998 $ 339,664
Accrued workers compensation premium 225,058 40,237
Payroll taxes accrued and withheld 231,658 108,198
Other 144,021 170,973
----------- ---------
$1,142,735 $ 659,072
</TABLE> ========== =========
Note 7 - Income Taxes
The provision for federal and state income taxes consists of the following:
<TABLE>
<CAPTION>
Year ended June 30
1997 1996
<S> <C> <C>
Current:
Federal $320,000 $563,000
State 43,000 104,000
Deferred:
Federal (221,000) (94,000)
State (39,000) 5,000)
-------- -------
$103,000 $568,000
======== ========
</TABLE>
A reconciliation of income tax expense with federal income taxes at the
statutory rate follows:
<TABLE>
<CAPTION>
Year ended June 30
1997 1996
<S> <C> <C>
Federal income taxes at the statutory rate (34.0%) 34.0%
Increase (Decrease) in taxes resulting from:
State income tax, net of federal benefit (5.5) 6.1
Nondeductible items 3.4 1.6
Amortization of nondeductible goodwill 42.8
Other 25.9 2.4
---- ----
Income tax expense provided 32.6% 44.1%
==== ====
</TABLE>
<PAGE>
The income tax effects of temporary differences that give rise to the net
deferred tax liability are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current deferred tax liabilities (assets):
Cash to accrual basis adjustment $146,000 $146,000
Other liabilities (assets) 119,000
-------- --------
(27,000) 146,000
Noncurrent deferred tax liabilities (assets):
Cash to accrual basis adjustment 292,000 438,000
Jobs tax credit carryforward (55,000) (55,000)
Depreciation 5,000
--------- --------
Noncurrent deferred tax liabilities 242,000 383,000
--------- --------
Net deferred tax liability $269,000 $529,000
======== ========
</TABLE>
The Company has job tax credits of approximately $55,000 at June 30, 1997.
These job credits expire in 2008. It is management s judgment that there
will more likely than not be sufficient future taxable income to absorb
these credits, therefore, no valuation allowance has been estimated as of
June 30, 1997.
<PAGE>
Note 8 - Long Term Debt
The following schedule details long-term debt outstanding as of June 30:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
A revolving loan due August 5, 1997,
in the aggregate principal amount
of $1,000,000. Interest is payable
monthly at the prime rate. Loan $ 900,000 $
is unsecured. (See Note 16).
A note due January 2, 1998, used
to finance the purchase of the
Oxford group (see Note 3).
Interest is payable quarterly at
the prime rate plus 1%. 325,000 325,000
An installment note due February 13,
2002, used to finance the purchase
of an airplane. Interest is payable
monthly at the prime rate. Note is 182,000
secured by the airplane.
Notes secured by Company automobiles
and various capital leases for office
and computer equipment (see Note 5).
The notes are payable in equal monthly
installments and bear interest at
various rates between 9% and 18%. 45,960 100,667
Revolving credit note payable secured
by accounts receivable of two of the
Company s subsidiaries. Interest
incurred at 10%. 320,000
Note payable due May 1997 collateralized
by the cash balances and commercial
paper of two of the Company s sub-
sidiaries. Interest incurred at 8.5%. 228,823
-------- ---------
Total long-term debt $1,452,960 $ 974,490
Less current portion 1,290,485 585,417
---------- ---------
Noncurrent portion of long-
term debt $ 162,475 $ 389,073
========== =========
</TABLE>
<PAGE>
The repayment schedule for long term debt as of June 30, 1997 is as
follows:
<TABLE>
<CAPTION>
Amount due
<S> <C>
1998 $1,290,485
1999 55,681
2000 41,794
2001 39,000
2002 26,000
</TABLE>
Interest expense included in the results of operations for the years ended
June 30, 1997 and 1996, respectively was $78,022 and $10,645.
The Company, as of June 30, 1997, was in technical default relative to one
of two financial ratios enumerated in the loan agreement for its secured
bank debt of $900,000. The loan agreement required that the Company s
current ratio be maintained at a level of at least 2:1. As of June 30,
1997 the current ratio was 1.8:1. The Company has received a waiver of
this default (see Note 16).
Note 9 - Commitments and Contingencies
[1] Leases
The Company has operating lease commitments for office space and equipment
which have various expirations through 2002 (See Note 8 for capital lease
information). Operating leases for office space include escalation clauses
for increases in real estate taxes and certain operating expenses. Future
minimum lease payments under operating leases as of June 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Ending June 30,
<S> <C>
1998 $ 464,731
1999 351,703
2000 252,698
2001 132,790
2002 6,640
----------
$1,208,562
==========
</TABLE>
Rental expense under operating leases was $585,000 and $175,000 for the
years ended June 30, 1997 and 1996, respectively.
[2] Litigation
The Company has been named in several legal proceedings in connection with
matters that arose during the normal course of its business and related to
certain acquisitions. While the ultimate result of the litigation or
claims cannot be determined, it is management's opinion, based upon
information it presently possesses, that it has adequately provided for
losses that may be incurred related to these claims. It is management s
opinion that losses, if any, in excess of amounts provided for in the
financial statements will not have a material effect on the Company.
<PAGE>
Note 10 - Major Customer
Fees billed to one major customer, the Illinois Department on Aging
( IDOA ), accounted for $11,532,000 (52%) and $8,674,000 (73%)of total
revenues for the years ended June 30, 1997 and 1996, respectively The
amounts due under such contracts totaled $1,667,000 and $1,281,000 at June
30, 1997 and 1996, respectively.
The Company is subject to the IDOA s requirement whereby 73% of the total
service fees received from the department must be expended on direct
service worker costs, as defined. As a participant with the IDOA, the
Company is subject to an audit of its systems and procedures to determine
whether the Company is in compliance with the rules and regulations of the
contract. As of June 30, 1997, management believes the Company is in
compliance with the contract. Should the Company be unable to maintain its
compliance in this regard, the contractual arrangement could be subject to
immediate termination.
Note 11 - Related Party Transactions
Approximately 54% of the Company s stock is held by Company officers or
directors.
The Company has a loan outstanding to its majority shareholder in the
amount of $121,564 and $128,007, including accrued interest thereon, as of
June 30, 1997 and 1996 respectively. The loan bears interest at 9% per
year. The principal plus accrued interest is due on July 31, 1998.
The Company entered into an employment agreement with the Chairman/Chief
Executive Officer, a major stockholder, effective in December, 1995.
Pursuant to the agreement, the stockholder s base salary for years one and
two of the contract are set and subsequent years increases are at the
discretion of the Compensation Committee of the Board of Directors. In
addition, the stockholder is entitled to receive a benefit allowance equal
to 10% of the stockholder s base salary per year. The agreement is for a
period of five years and is automatically renewable for additional one year
terms unless prior notice is given not less than 90 days prior to the end
of the initial term or any succeeding year. The agreement also subjects
the stockholder to non-competition provisions. In May, 1997, this
employment agreement was modified to include the reimbursement of certain
personal expenses incurred by the Chairman due to his continuous travel on
the Company s behalf. Total compensation under this contract for the years
ended June 30, 1997 and 1996 totaled $294,773 and $192,611 respectively.
In April, 1997, the Chairman was granted 200,000 incentive stock options at
an option price of $4.95. (See Note 12).
The Company, acting as a subcontractor, billed $112,000 and $183,000 in
service fees for the years ended June 30, 1997 and 1996, respectively, to a
not-for-profit organization in which the majority stockholder is an
officer. The amounts due from this organization were $34,000 and $119,000
at June 30, 1997 and 1996, respectively. The organization is provided
certain space in the Company's leased facilities without charge.
A director of Help (Illinois) received payments totaling $73,000 and
$20,400 for the years ended June 30, 1997 and 1996, respectively, for the
provision of consulting services related to Medicare cost reimbursement and
due diligence for potential acquisitions to the Company.
<PAGE>
A director of the Company received payments totaling $27,700 and $19,300
for the years ended June 30, 1997 and 1996, respectively, for the provision
of legal services to the Company.
Note 12 - Stock Options
In October 1995, the Financial Accounting Standards Board ( FASB ) issued
Statement on Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation. SFAS No. 123 was effective for the Company s 1996
fiscal year. SFAS No. 123 introduced a preferable fair value based method
of accounting for stock-based compensation. SFAS No. 123 encourages, but
does not require, companies to recognize compensation for grants of stock,
stock options, and other equity instruments to employees based on the new
fair value accounting rules. The Company intends to continue applying the
existing accounting rules contained in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and disclose net income
and earnings per share on a pro forma basis, based on the new fair value
methodology.
In August 1995, the Company adopted the 1995 Stock Option Plan (the
Plan ). Under the Plan, incentive stock options and nonqualified stock
options may be granted, at the discretion of the Board, to purchase up to
264,375 shares of the Company common stock through the year 2005. In
January, 1997, the shareholders approved an increase of 1,500,000 shares to
the number of options available for which options may be granted.
Incentive stock options are to be granted at a price not less than the fair
market value of the Company's Common Stock at the date of the grant. The
exercise price may not be less than 110% of the fair market value of the
Company's Common Stock at the date of the grant if the shareholder owns 10%
or more of the Company's outstanding stock. Options may be granted to
employees, consultants, and directors of the Company and must be exercised
within ten years of the date of the grant. Incentive options for a total
of 200,000 shares were granted to the Chairman, the majority shareholder,
at a price of $4.95 per share in April, 1997. Incentive options for a
total of 20,000 shares were granted at a price of $6.875 per share to two
employees in April, 1996. No compensation expense has been recognized, nor
would any compensation expense be recognized under the requirements of SFAS
No. 123, as the exercise prices of all outstanding options do not exceed
the fair market value of the stock.
Nonqualified stock options are exercised at a price to be determined by the
Board of Directors for a period of ten years after the grant date. No
nonqualified options have been granted under the Plan.
<PAGE>
Note 13 - Stock Warrants Outstanding
The Company has 1,638,750 issued and outstanding stock purchase warrants as
of June 30, 1997. Each warrant entitles the holder to purchase one share
of Common Stock at an exercise price of $6.00 per share at any time until
December 4, 2000. The exercise price of the warrants is subject to
adjustment in certain events pursuant to the anti-dilution provisions
thereof. The warrants are redeemable, in whole or in part, at a price of
$.10 per warrant commencing December 5, 1996, or sooner, with the sole
consent of the lead underwriter, provided that (a) the Company gives 30
days prior written notice to the registered holders of the warrants, and
(b) the closing high bid price or sale price per share of the Common Stock
(if the Common Stock is then traded on NASDAQ or a national securities
exchange) for a period of 10 consecutive trading days, ending on the third
business day prior to the date of any redemption notice, equals or exceeds
at least $9.00. The warrants shall be exercisable until the close of the
business day preceding the date fixed for redemption.
The Company has also issued to the underwriters, for nominal consideration,
the Underwriters' Warrant to purchase from the Company up to 71,250 Units.
The Underwriters' Warrant is exercisable at a price of $10.08 per Unit for
a period of four years commencing December 5, 1996. These Units will
consist of one share of Common Stock and two redeemable common stock
purchase warrants. Each warrant entitles the holder to purchase one share
of Common Stock under terms identical to the warrants described in the
preceding paragraph.
Note 14 - Reportable Segments
In June 1997, the FASB issued Statements on Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. Management has elected the early adoption of this
pronouncement.
SFAS No. 131 requires that public enterprises report certain information
about reporting segments in financial statements. It also requires the
disclosure of certain information regarding services provided, geographic
areas of operation and major customers.
Management has elected to identify the Company s reportable segments based
on geographic areas (states): Alabama, Illinois, Missouri and Mississippi.
Revenues in all four segments are derived from the provision of both
skilled nursing services and unskilled homemaker/respite services.
<PAGE>
Information related to the Company s reportable segments is as follows (in
thousands):
<TABLE>
<CAPTION>
Alabama Illinois Missouri Mississippi Total
<S> <C> <C> <C> <C> <C>
Revenues $5,305 $14,133 $ 425 $ 2,350 $22,213
Direct costs 3,381 9,445 251 1,559 14,636
Gross margin 1,924 4,688 174 791 7,577
Operating
expenses 2,542 2,658 261 735 6,196
------ -------- ------- ------- -------
Operating
inc(loss) $ (618) $ 2,030 $ (87) $ 56 $ 1,381
====== ======= ======= ======= =======
Total assets $2,928 $ 3,772 $ 298 $ 1,628 $ 8,626
====== ======= ======= ======= =======
</TABLE>
A reconciliation of the segments operating income to the consolidated net
loss is as follows (in thousands):
<TABLE>
<S> <C>
Segments operating income $1,381
Less:
Income tax expense 103
Corporate overhead expense 1,757
------
Consolidated net loss $ (479)
======
</TABLE>
A reconciliation of the segments net assets to consolidated net assets is
as follows (in thousands):
<TABLE>
<S> <C>
Segments total assets $8,626
Plus:
Corporate/support entities
total assets 942
------
Consolidated total assets $9,568
======
</TABLE>
<PAGE>
Note 15 - Recently Issued Accounting Standard
In February, 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128, Earnings per Share
( SFAS 128"). SFAS 128 changes the computational guidelines for earnings
per share information and is effective for both interim and annual
reporting periods ending after December 15, 1997. Earlier application is
not permitted. SFAS 128 will eliminate the presentation of primary
earnings per share and replace it with basic earnings per share. Basic
earnings per share differs from primary earnings per share because common
stock equivalents are not considered in computing basic earnings per share.
Fully diluted earnings per share will be replaced with diluted earnings per
share. Diluted earnings per share is similar to fully diluted earnings per
share, except in determining the number of dilutive shares outstanding for
options and warrants, the proceeds that would be received upon the
conversion of all dilutive options and warrants are assumed to be used to
repurchase the Company s common shares at the average market price of such
stock during the period. For fully diluted earnings per share, the higher
of the average market price or ending market price is used.
Note 16 - Subsequent Events
In August 1997, the due date of the revolving loan originally payable on
August 5, 1997 was extended for 60 days. The lender, in connection with the
extension of the loan s due date, took a security interest in the assets
and capital stock of Help (Illinois). On September 29, 1997 the Company
received a commitment from the lender to further extend the due date of the
loan to September 30, 1998. The loan covenant regarding maintenance of the
Company s current ratio was also amended to require a current ratio of
1.75:1.
In August 1997, Lakeside (Illinois) was certified as a Medicare provider.
<PAGE>
<TABLE>
HELP AT HOME, INC.
Computation of Earnings Per Share
Schedule 11.1
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net (loss) income [A] $ (479,190) $ 718,845
Interest adjustment 454,241 211,532
-------- --------
Adjusted net (loss) income [B] (24,949) 930,377
======== ========
Weighted average number of shares
of Common Stock outstanding[C] 1,869,375 1,503,391
Weighted average number of Common
Stock Equivalents outstanding (1) 1,780,000 739,836
--------- ---------
Weighted average number of shares
for fully diluted computation [D] 3,649,375 2,243,277
========= =========
Net (loss) income per share:
Primary (unadjusted) [A/C] $ (.26) $ .48
Fully diluted [B/D] $ (.01) $ .41
- - ----------------------
<FN>
(1) Unexercised Warrants and/or options issued in connection with the
Company s initial public offering and awards of compensatory stock
options as of June 30, 1997 and 1996, on a weighted average basis.
Total Warrants issued in connection with the Company s initial public
offering are 1,710,000, including 71,250 Underwriters Warrants.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 871
<SECURITIES> 0
<RECEIVABLES> 5055
<ALLOWANCES> 167
<INVENTORY> 0
<CURRENT-ASSETS> 6481
<PP&E> 612
<DEPRECIATION> 137
<TOTAL-ASSETS> 9568
<CURRENT-LIABILITIES> 3655
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9568
<SALES> 22213
<TOTAL-REVENUES> 22213
<CGS> 14637
<TOTAL-COSTS> 22480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109
<INCOME-PRETAX> (376)
<INCOME-TAX> 103
<INCOME-CONTINUING> (479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (479)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.01)
</TABLE>
