As filed with the Securities and Exchange Commission on August 29, 1996.
Registration No. 333-8155
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NEW YORK HEALTH CARE, INC.
(Name of small business issuer in its charter)
New York 7373 11-2636089
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1667 Flatbush Avenue, Brooklyn, NY 11210 (718) 421-0500
(Address and telephone number of principal executive offices)
1667 Flatbush Avenue, Brooklyn, NY 11210 (718) 421-0500
(Address of principal place of business or intended place of business)
JERRY BRAUN, PRESIDENT
New York Health Care, Inc.
1667 Flatbush Avenue
Brooklyn, NY 11210
Telephone: (718) 421-0500
Facsimile: (718) 421-4365
(Name, address and telephone number of agent for service)
Copies to:
WILLIAM J. DAVIS, ESQ. FRAN M. STOLLER, ESQ.
Scheichet & Davis, P.C. Bachner, Tally, Polevoy &
505 Park Avenue, 20th Floor Misher LLP
New York, NY 10022 380 Madison Avenue
(212) 688-3200 New York, NY 10017
(212) 687-7000
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
<PAGE>
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
<PAGE>
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996
PROSPECTUS
NEW YORK HEALTH CARE, INC.
1,050,000 Shares of Common Stock and
1,050,000 Redeemable Warrants
New York Health Care, Inc., (the "Company") hereby offers 1,050,000 shares
(the "Shares") of Common Stock, $.01 par value (the "Common Stock") and
1,050,000 redeemable warrants (the "Warrants"). The Shares and the Warrants
(collectively, the "Securities") may only be purchased together on the basis of
one Share and one Warrant until completion of the initial distribution of the
Securities and will be separately tradeable immediately thereafter. It is
currently anticipated that the initial public offering prices of the Securities
will be $5.00 per Share and $.10 per Warrant. Each Warrant entitles the
registered holder thereof to purchase one (1) share of Common Stock at an
exercise price of $6.00 per share, subject to adjustment, commencing on the
first anniversary of the date of this Prospectus through the fifth anniversary
of the date of this Prospectus. The Warrants are redeemable by the Company at
any time commencing _____________, 1998, at a redemption price of $.05 per
Warrant, provided that the average closing bid price of the Common Stock shall
equal or exceed $7.50 per share for 20 consecutive trading days ending on the
tenth day prior to the date of the notice of redemption. See "Description of
Securities - Redeemable Warrants."
(cover continued on next page)
----------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS"
COMMENCING ON PAGE 9 AND "DILUTION."
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Price to Public Underwriting Discounts Proceeds to Company (2)
and Commissions (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ........................ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Per Redeemable Warrant ........... $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Total (3) ....................... $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(footnotes on following page)
The Securities are being offered by the Underwriters subject to prior sale
when, as and if delivered to and accepted by the Underwriters and subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this offering and to reject any order in whole or in part. It is expected that
delivery of the certificates representing the Shares and Warrants will be made
against payment at the offices of the Representative, RAS Securities Corp., 2
Broadway, New York, New York 10004-2801, on or about _______________, 1996.
RAS SECURITIES CORP.
The date of this Prospectus is __________________ , 1996
<PAGE>
(cover continued from previous page)
(1) Does not include additional compensation to RAS Securities Corp., acting as
representative (the "Representative") of the several underwriters (the
"Underwriters") in the form of a (i) non-accountable expense allowance
equal to 3% of the gross proceeds of this offering; and (ii) warrants (the
"Representative's Warrants") to purchase up to 105,000 shares of Common
Stock and/or 105,000 Warrants. In addition, the Company has agreed to
indemnify the Underwriters against certain liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of approximately $__________ payable by
the Company, including the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus to purchase up to an additional
157,500 shares of Common Stock and/or up to an additional 157,500 Warrants
upon the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ __________ , $ __________ and $ __________ ,
respectively. See "Underwriting."
Prior to this offering, there has been no public market for the Securities
and there can be no assurance that such a market will develop after the
completion of this offering or, if a market develops, that it will be sustained.
The initial public offering prices of the Securities and the exercise price and
other terms of the Warrants have been arbitrarily determined by negotiations
between the Company and the Representative and do not necessarily bear any
relationship to the Company's asset value, book value, net worth or any other
recognized criterion of value. See "Risk Factors -- Arbitrary Determination of
Offering Prices; Possible Volatility of Common Stock and Warrant Prices" and
"Underwriting." Application has been made for quotation of the Common Stock and
the Warrants on the Nasdaq SmallCap Market ("Nasdaq") and the Boston Stock
Exchange under the symbols NYHC and NYHW, and NYH and NYW, respectively.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish the holders of the Common Stock and the
Warrants, annual reports containing audited consolidated financial statements
with a report thereon by independent certified public accountants and quarterly
reports containing unaudited consolidated financial information for the first
three quarters of each fiscal year.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless the context otherwise requires, all share and per share information in
this Prospectus gives effect to a 56,625-for-1 stock split effected on March 26,
1996, but does not give effect to the exercise of (i) the Underwriters'
over-allotment option to purchase up to 157,500 shares of Common Stock and/or
157,500 Warrants; (ii) the Representative's Warrant to purchase up to 105,000
shares of Common Stock and/or 105,000 Redeemable Warrants; (iii) options to
purchase up to 210,000 shares of Common Stock reserved for issuance pursuant to
the Company's Stock Option Plan; or (iv) an option to purchase 75,000 shares
outstanding on the date hereof. See "Management - Savings and Stock Option
Plans" and "Underwriting."
The Company
New York Health Care, Inc. (the "Company") is a licensed home health care
agency engaged primarily in supplying the services of paraprofessionals who
provide a broad range of health care support services to patients' in their
homes. The Company operates in all five boroughs of New York City and the
counties of Nassau, Westchester, Rockland, Orange, Duchess, Ulster, Putnam and
Sullivan, in the State of New York. The Company's services are supplied
principally pursuant to contracts with health care institutions and agencies
such as the Mt. Sinai Medical Center in Manhattan, New York Methodist Hospital
in Brooklyn, Beth Abraham Health Services in the Bronx and Westchester County
and the New York State Department of Social Services.
The Company operates 24 hours a day, seven days a week to receive referrals
and coordinate services with physicians, case managers, patients and their
families. It offers a broad range of support services, including assistance with
personal hygiene, dressing and feeding; meal preparation, light housekeeping and
shopping; and, to a limited extent, standard skilled nursing services such as
the changing of dressings, injections, catheterizations and administration of
medications and physical therapy. The Company's personnel also train patients in
their own care, monitor patient compliance with treatment plans, make reports to
the physicians and process reimbursement claims to third-party payors. Among the
paraprofessionals and nurses supplied by the Company are those fluent in
Spanish, Yiddish and Russian as well as personnel knowledgeable in the
requirements and practices of Kosher homes.
In August 1993, the Company established a maternal/child care division,
called "Special Deliveries," which presently accounts for approximately 5% of
the Company's business and which supplies comprehensive nursing services for
women during pregnancy, and for them and their newborn children after
childbirth. The Company provides its skilled nursing staff with special
additional training in this division, which offers a wide range of quality
health services to patients at home through the provision of Registered Nurses,
including those with at least two years of experience in maternal child care,
Neonatal Intensive Care Unit ("NICU") Nurses, Maternal/Newborn Registered
Nurses, Certified Childbirth Educators and Certified Lactation Consultants.
Referral services are also available for support programs providing social
workers, bereavement counselors and
3
<PAGE>
nutritionists. Each patient's individual treatment plan and insurance coverage
is reviewed prior to commencement of services being rendered, except for
childbirth education, which is privately contracted.
High quality service is emphasized throughout the various divisions of the
Company, both in hiring, Company training and testing of its personnel and in
the manner in which services are delivered. The Company is approved by the New
York Department of Health and the New York Department of Social Services to
train its paraprofessional Home Health Aides and Personal Care Aides,
respectively. Training and quality assurance programs are regularly reviewed and
directed by management and corporate support staff consisting of experienced
health care professionals. The Company received "Accreditation with
Commendation" from the Joint Commission on Accreditation of Health Care
Organizations ("JCAHO") after its initial and only review, in 1994, and, in
February 1996, was selected by the University of Colorado Health Sciences Center
as one of only 22 home health care agencies participating in a two to three year
study known as the Outcome-Based Quality Improvement in Home Care New York State
Demonstration Project being funded by the New York State Department of Health,
by reason of the Company's commitment to both quality assurance and improvement.
The Company believes that its reputation for quality patient care has been and
will continue to be a significant factor in its success.
The Company believes that cost containment pressures in the health care
industry, together with the development of new technology, have increasingly
shifted the provision of many health care services from institutions, such as
hospitals and nursing homes, to home care. As a result of the continuing
pressure to restrain costs, the structure of health care payments has been
shifting from the traditional fee-for-service reimbursement model to the
contract care reimbursement model, and this has resulted in patients being
released from hospitals earlier and, often, sicker. The earlier detection of
cancer and the incidence of AIDS, together with the general aging of the
American population, have increased the opportunities for home treatment, as
opposed to institutionalization, resulting in growth in the home health care
industry.
The Company's primary objective is to enhance its position in the home
health care market by increasing the promotion of its full service and specialty
health care capabilities to existing and new referral sources; expand its
markets and enter new markets by establishing additional branch offices and
acquiring other related health care businesses; expand its provision of skilled
nursing services, principally infusion therapy and the care of women during
pregnancy and their newborn children; and develope complimentary home health
care products and services, as well as maintaining its regular training and
testing programs, and recruitment activities.
The Company has been treated as an "S Corporation" under Subchapter S of
the Internal Revenue Code since its inception. As a result, the Company was
exempt from federal and certain state income taxes attributable to its earnings
and such income taxes were instead the obligation of the Company's stockholders.
The Company is terminating its S Corporation status prior to the completion of
this offering. As a result of the termination, the Company will be subject to
federal income taxes at rates of up to 35 percent and may, in certain
circumstances, become subject to the federal alternative minimum tax imposed on
corporations. The Company is also subject to state and local income taxes.
4
<PAGE>
The Company was incorporated under the laws of the State of New York in
February 1983 and maintains its principal offices at 1667 Flatbush Avenue,
Brooklyn, NY 11210, telephone (718) 421-0500.
5
<PAGE>
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The Offering
Securities Offered by the Company ... 1,050,000 shares of Common Stock and
1,050,000 Warrants.
Terms of the Redeemable Warrants .... Each Warrant entitles the holder thereof
to purchase one share of Common Stock at
a price of $6.00 per share, subject to
adjustment, at any time commencing ____,
1997 through ____, 2001. See
"Description of Securities."
Common Stock Outstanding
Before the Offering (1) .......... 2,340,000 shares
Common Stock Outstanding
After the Offering(1) (2) ........ 3,390,000 shares
Use of Proceeds ..................... Acquisitions, establishment of
additional branch offices and new
principal office, funding of infusion
therapy and pediatric service divisions,
upgrading of facilities and computer
systems, sales and marketing and
working capital. See "Use of Proceeds."
Risk Factors ........................ The Securities offered hereby involve a
high degree of risk and immediate
substantial dilution. See "Risk Factors"
and "Dilution."
Proposed Nasdaq and Boston Stock
Exchange Symbols:
Nasdaq
Common Stock ............... NYHC
Warrants ................... NYHW
Boston Stock Exchange
Common Stock ............... NYH
Warrants ................... NYW
- ----------
(1) Includes 75,000 shares of Common Stock issuable upon exercise of an
outstanding option, exercisable at $3.75 per share, held by the Company's
President. See "Capitalization," "Management - Savings and Stock Option
Plans, "Principal Stockholders" and "Certain Transactions."
(2) Excludes 1,050,000 shares issuable upon the exercise of the Warrants.
6
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<PAGE>
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<TABLE>
<CAPTION>
Summary Financial Information
Years Ended December 31, Six Months Ended June 30,
---------------------------- -----------------------------
1994 1995 1995 1996
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Income Data:
Net patient service revenue $ 8,981 $ 11,810 $ 5,465 $ 6,147
-------- -------- -------- --------
Professional care of patients 6,301 8,128 3,708 4,185
General and administrative
expenses 1,793 2,391 1,178 1,379
-------- -------- -------- --------
Income from operations 887 1,291 579 583
Interest expense, net (85) (82) (41) (58)
Other income 6 -- -- 7
Provision for income taxes(1) (37) (81) (46) (22)
-------- -------- -------- --------
Net income $ 771 $ 1,128 $ 492 $ 510
======== ======== ======== ========
Pro Forma Data:(2)(3)
Income before provision
for income taxes $ 808 $ 1,209 $ 538 $ 532
Pro forma provision for
income taxes 353 520 232 230
-------- -------- -------- --------
Pro forma net income $ 455 $ 689 $ 306 $ 302
======== ======== ======== ========
Pro forma net income per common
share and common share
equivalents(1)(3) $ .23 $ .10
======== --------
Pro forma weighted average number of
common shares and common
share equivalents(2) 2,984 2,984
======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 At June 30, 1996 Pro forma at June 30, 1996(3)(4)
-------------------- ----------------- --------------------------------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $2,775 $2,103 $ (97)
Total assets 4,840 4,402 4,402
Total liabilities 1,799 1,877 4,077
Retained earnings 3,011 2,495 295
Stockholders' equity 3,041 2,525 325
</TABLE>
7
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<PAGE>
- --------------------------------------------------------------------------------
- ----------
(1) The Company has been an S Corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue code") for U.S.
federal and New York State income tax purposes since its inception. As an S
Corporation, the Company was not subject to federal income tax, but
remained subject to a reduced New York State income tax. The Company will
terminate its S Corporation status prior to the completion of this
offering. See "The Company." Pro forma amounts give effect to additional
income taxes that would have been reported assuming that the Company was a
C Corporation for years ended December 31, 1994 and 1995 and the six months
ended June 30, 1995 and 1996. See "Former S Corporation Tax Treatment" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Pro forma weighted average number of common share equivalents outstanding
includes 700,521 shares whose proceeds would be necessary to pay the S
Corporation distribution and 18,750 shares relating to the dilutive effect
of a stock option grant. See "Former S Corporation Tax Treatment,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Principal Stockholders," "Certain Transactions" and Financial Statements.
(3) Pro forma summary financial information includes $2,200,000 of bank debt to
be incurred by the Company after June 30, 1996 to fund the payment of
undistributed S Corporation earnings to current shareholders prior to this
offering. See "Former S Corporation Tax Treatment," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity," "Principal Stockholders" and "Certain
Transactions."
(4) Pro forma retained earnings does not reflect any adjustment for a loss on
the sale of $3,500,000 of accounts receivable in the third quarter ended
September 30, 1996 to 1667 Flatbush, a company owned by the Company's
current stockholders. See "Former S Corporation Tax Treatment,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources," "Business - Properties,"
"Certain Transactions" and Note 14 to Financial Statements.
- --------------------------------------------------------------------------------
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk and prospective investors, prior to making an investment in the Securities,
should carefully consider the following risk factors relating to the Company and
this offering.
Indirect Dependence Upon Reimbursement by Third-Party Payors; Potential for
Pricing Pressure from Health Care Reform. More than 90% of the revenues of the
Company are paid by Certified Home Health Agencies ("CHHA's") and Long-Term Home
Health Care Programs ("LTHHCP's"), as well as other clients who receive their
payments from "third-party payors," such as private insurance companies,
self-insured employers, HMOs and governmental payors under the Medicare and
Medicaid programs. The levels of revenues and profitability of the Company, like
those of other health care companies, are affected by the continuing efforts of
third-party payors to contain or reduce the costs of health care by lowering
reimbursement or payment rates, increasing case management review of services
and negotiating reduced contract pricing. Because home care is generally less
costly to third-party payors than hospital-based care, home nursing and home
care providers have benefited from cost containment initiatives aimed at
reducing the costs of medical care. However, as expenditures in the home health
care market continue to grow, cost containment initiatives aimed at reducing the
costs of delivering services at non-hospital sites are likely to increase. A
significant reduction in coverage or payment rates of public or private
third-party payors would have a material adverse effect on the Company's
revenues and profit margins. While the Company is not aware of any substantive
changes in the Medicare or Medicaid reimbursement systems for home health care
which are about to be implemented, a number of proposals have been made
including, but not limited to, revised budget plans of New York State Governor
George Pataki and in President Bill Clinton's federal budget proposal for fiscal
year 1996-1997, which could result in significant limitations or reductions in
the reimbursement of home care costs and in the imposition of limitations on the
provision of services which will be reimbursed. As a result, there can be no
assurance that government regulations concerning Medicare or Medicaid will not
change in the future in a manner detrimental to the Company. Under certain
circumstances, third party payors, particularly private insurance companies, may
negotiate fee discounts and reimbursement caps for services which the Company
provided. At this time, the Company can neither estimate the frequency or rates
of the negotiated discounts or the maximum reimbursement amounts nor predict
whether the Company's revenues will be thereby materially adversely affected.
Recently, attention has also been focused on reform of the health care system in
the United States. However, until specific legislation is proposed to the
Congress, the Company cannot accurately predict what additional legislation, if
any, may be adopted relating to the Company's business or the health care
industry. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business - Third-Party Reimbursement" and "Business -
Government Regulation."
Possible Working Capital Shortages Resulting from Delays in Reimbursement;
Bad Debts. The Company generally collects payments from its contractors within
one to six months after services are rendered, but pays its accounts payable and
employees currently. This timing delay may cause working capital shortages from
time to time. In the past, the Company has been able to obtain financing to
cover these shortages through bank
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<PAGE>
borrowings guaranteed by the current stockholders. There can be no assurance
that bank borrowings or other methods of financing will be available when needed
or, if available, will be on terms acceptable to the Company. The Company has
established a bad debt reserve for uncollectible accounts. Any significant
increase in bad debts may adversely affect the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business - Third-Party Reimbursement," "Certain Transactions" and Financial
Statements.
Adequacy and Availability of Professional Liability Insurance. The
administration of home care and therapy and the provision of nursing services
entails certain liability risks. The Company maintains professional liability
insurance coverage with limits of $1,000,000 per claim and $3,000,000 annual
aggregate, with an umbrella policy providing an additional $5,000,000 of
coverage. Although the Company believes the insurance it maintains is sufficient
for its present operations, professional liability insurance is expensive and
becoming increasingly difficult to obtain. There can be no assurance that the
Company's present coverage will continue to be adequate or that the Company will
be able to maintain the current levels of such insurance in the future or secure
additional insurance on terms satisfactory to the Company or at all. A
successful claim against the Company in excess of, or not covered by, the
Company's insurance coverage could have a material adverse effect on the
Company's business and financial condition. Claims against the Company,
regardless of their merit or eventual outcome, also could have a material
adverse effect on the Company's reputation and business. See "Business -
Insurance."
State and Federal Regulation Affecting Costs and Control. The Company's
operations are subject to substantial regulation at the state level and also
under the federal Medicare and Medicaid laws. In particular, the Company is
subject to state laws governing home care, nursing services, health planning and
professional ethics, as well as state and federal laws regarding fraud and abuse
in government funded health programs. Changes in the law or new interpretations
for existing laws can have a material adverse effect on permissible activities,
the relative costs of doing business and the amount of reimbursement by
government and private third-party payors. The establishment of additional
branch offices by the Company and any future acquisitions will be subject to
compliance with all applicable laws, rules and regulations. If any person should
become the owner or holder, or acquire control of or the right to vote ten (10%)
percent or more of the issued and outstanding Common Stock of the Company, such
person could not exercise control of the Company until an application for
approval of such ownership, control or holding has been submitted to the New
York State Public Health Council and approved. In the event such an application
is not approved, such owner or holder may be required to reduce their ownership
or holding to less than 10% of the Company's issued and outstanding Common
Stock. Although the Company has not experienced any difficulties to date
complying with any of such laws, rules or regulations, the failure of the
Company to obtain, renew or maintain any required regulatory approvals or
licenses could adversely affect the Company and could prevent it from offering
its existing services to patients or from further expansion.
Increasing Competition. The home health care industry is highly
competitive. The Company competes with hospitals, nursing homes and other
businesses that provide home health care services, most of which are larger and
more established companies with significantly greater resources and access to
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<PAGE>
capital and greater name recognition than the Company. Among the national
companies with which the Company competes are Olsten Kimberly Quality Care,
Inc., Staff Builders Inc., Coram Health Care Corp., Interim Personnel, Inc.,
Transworld Home Health Care, Inc. and Health Force, Inc. Additionally, as a
regional rather than a national provider of home health care services,
competition in the Company's markets as well as general economic conditions may
be more acutely felt than if the Company's operations were spread over a larger
market area. Among the Company's competitors in the New York metropolitan area
are U.S. Home Care, Inc., Star Multicare, Inc., VIP Home Health Care, Inc.,
Patient Care, Inc., Plaza Nurses Agency, Inc. and Personal Touch Home Care
Services, Inc. Moreover, other companies, hospitals and health care
organizations may elect to enter the home care and home nursing markets, and
existing and future competitors can be expected to expand the varieties of
therapies and nursing services that they offer. See "Business - Competition."
Dependence Upon Relationships with Referral Sources and Major Customers.
The development and growth of the Company's home care and nursing businesses
depends to a significant extent on its ability to establish close working
relationships with hospitals, clinics, nursing homes, physician groups, HMO's,
governmental health care agencies and other health care providers. There can be
no assurance that existing relationships can be successfully maintained or that
additional relationships can be successfully developed and maintained in
existing and any future markets. The Company's ten largest customers accounted
for approximately 76% and 74% of revenues during the years ended December 31,
1994 and 1995, respectively. One referral source, the New York State Department
of Social Services, was responsible for approximately 36% and 27% of the
Company's gross revenues for the years ended December 31, 1994 and 1995,
respectively. Another referral source, Beth Abraham Medical Center, was
responsible for approximately 18% and 13% of gross revenues for the years ended
December 31, 1994 and 1995, respectively. The loss of or a significant reduction
in referrals by either of such sources, as well as certain other key sources,
could have a material adverse effect on the Company's results of operations.
Many of the Company's contractual arrangements with its customers are renewable
annually. See "Business."
Continuing Control by Officers and Directors; Potential Conflicts of
Interest; Intercompany Arrangements. Upon completion of this offering, the
officers and directors of the Company will control the vote of approximately 68%
of the outstanding shares of Common Stock. The Company's stock option plan
provides 210,000 shares of Common Stock regarding which options may be granted
to key employees of the Company. Moreover, the Company's Board of Directors has
approved a resolution which proposes to provide for an increase in the number of
shares of Common Stock available for options under the Company's Stock Option
Plan equal to an additional 210,000 shares for each of two additional years,
subject to approval by the Company's shareholders at the first annual meeting of
shareholders which is held after the completion of this offering. As a result,
the officers and directors of the Company, alone or together with a limited
number of other shareholders, will control the election of the Company's
Directors and will have the ability to control the affairs of the Company.
Furthermore, such persons will, by virtue of such vote, have significant
influence over, among other things, the ability to amend the Company's Restated
Certificate of Incorporation and By-Laws or effect or preclude fundamental
corporate transactions involving the Company, including the acceptance or
rejection of any proposals relating
11
<PAGE>
to a merger of the Company or an acquisition of the Company by another entity.
See "Management" and "Principal Stockholders."
The Company's current stockholders are also the sole stockholders of 1667
Flatbush Avenue LLC ("1667 Flatbush"), a limited liability company organized
under New York law, and Heart to Heart Health Care Services, Inc. ("Heart to
Heart"), a corporation organized under New Jersey law. In November, 1995, the
Company transferred the land and building located at 1667 Flatbush Avenue,
Brooklyn, New York, which houses its principal offices, to 1667 Flatbush as a
non-cash distribution to the current stockholders of S Corporation earnings in
the aggregate sum of $144,927. The Company now leases its principal offices from
1667 Flatbush. In July, 1996, 1667 Flatbush purchased $3,500,000 of the
Company's accounts receivable for a purchase price of $3,150,000, of which
$1,100,000, was paid on August 1, 1996, $1,100,000 was prepaid on August 23,
1996 and $950,000 is due to be paid no later than the earlier of October 1, 1996
or the date of this Prospectus. All of the payments are made together with
accrued interest at the rate of 12% per annum.
Heart to Heart, which does not operate in New York, has engaged in the home
health care business in northern New Jersey since 1995. The Company and Heart to
Heart are parties to a Service Agreement pursuant to which the Company provides
administrative services for a term ending June 30,1997 for which it is
reimbursed for all expenses attributable to such operations, presently totaling
approximately $ 15,000 per year.
The transactions described above involve actual or potential conflicts of
interest between the Company and its officers or directors. It is the Company's
policy not to enter into transactions with officers, directors or other
affiliates unless the terms of the transaction are at least as favorable to the
Company as those which would have been obtainable from an unaffiliated source.
As of the date of this Prospectus, the Company has no plans to enter into any
additional transactions which involve actual or potential conflicts of interest
between the Company and its officers or directors and will not enter into any
such transactions in the future without first obtaining an independent opinion
with regard to the fairness to the Company of the terms and conditions of any
such transaction. See "Former S Corporation Tax Treatment," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Business -- Properties," and "Certain
Transactions."
Broad Discretion by Management in Use of Proceeds. Approximately 63% of the
estimated net proceeds of this offering will be applied to the acquisition of
businesses and working capital. Accordingly, the Company's management will have
broad discretion as to the application of such proceeds. Moreover, the Company
has afforded itself broad discretion with respect to redirecting the application
and allocation of the net proceeds of the offering, in light of the changes in
circumstances and the availability of certain growth opportunities. Any such
redirection can be made by management of the Company with the prior approval of
the Board of Directors of the Company. As a result of the foregoing, investors
will be substantially dependent upon the discretion and judgment of the
Company's management with respect to the application and allocation of the net
proceeds of the offering. Pending their use for the purposes described above,
the net proceeds of the offering will be invested by the Company in short-term,
investment-grade securities. See "Use of Proceeds."
Dependence on Key Personnel. The Company's success will, to a large extent,
depend upon the continued services of Jerry Braun, the Company's President and
Chief Executive Officer, and Jacob Rosenberg, the Company's Vice President and
Chief Operating Officer. Although the Company has employment agreements with
Messrs. Braun and Rosenberg expiring in 1999 and is the sole beneficiary of a
$2,000,000 life insurance policy covering Mr. Braun and a $1,000,000 life
insurance policy covering Mr. Rosenberg, the loss of the services of either
executive officer could have a materially adverse effect upon the Company. The
success of the Company will also depend, in part, upon its ability in the future
to attract and retain additional qualified licensed health care, operating,
marketing and financial personnel. Competition in the home health care industry
for such qualified personnel is often intense and there can be no assurance that
the Company will be able to retain or hire the necessary personnel. See
"Business - Government Regulation" and "Management."
Limited Information on Acquisition and Expansion Strategy. The Company has
allocated $2,600,000 of the net proceeds of this offering for expansion through
the acquisition of health care related businesses and opening of additional
branch offices. The Company's ability to expand its operations depends on a
number of factors, including the availability of desirable locations for
additional facilities, the availability of acquisition candidates and the
ability of the Company to finance such expansion. To date, the Company has not
determined the specific location of any additional branch offices. Although the
Company continually explores acquisition possibilities, it is not currently
negotiating any acquisitions and has no agreements, arrangements or
understandings regarding acquisitions. There can be no assurance that the
Company will open any additional branch offices, or, if opened, that the Company
can profitably manage such offices or that the Company will make any
acquisitions or, if made, that such acquisitions will be successful. The
establishment of additional branch offices and any future acquisitions by the
Company may involve the use of cash, debt or equity securities, or a combination
thereof. A Company decision to utilize a substantial portion of the net proceeds
of this offering for acquisitions reduces the resources available to complete
its other expansion and growth objectives. In such event, the Company may be
required to obtain additional financing to achieve such objectives. There can be
no assurance that such financing will be available, or, if available, will be on
terms acceptable to the Company. In addition, the Company may explore the
potential for expanding its operations into health care businesses not related
to the Company's current operations on an opportunistic basis, and if the
Company's management deems it appropriate, a portion of the net proceeds of this
offering may be used for such purposes. The Company is not experienced in
operating any health care business unrelated to its current businesses and,
accordingly, no assurance can be given that the Company could successfully
operate any such unrelated health care business. Thus, purchasers of the
securities will be entrusting their funds to the Company's management, upon
whose judgment the investors must depend, with only limited information
concerning management's specific intentions. Depending on the form of the
transaction, certain acquisitions could be effected without stockholders having
the opportunity to vote thereon or to review the financial statements of the
potential acquiree. See "Use of Proceeds" and "Business -- Expansion Strategy."
12
<PAGE>
Charge to Earnings Resulting from Sale of Accounts Receivable. By reason of
an agreement entered into by the Company on July 8, 1996 with 1667 Flatbush,
pursuant to which the Company sold $3,500,000 of its accounts receivable for a
purchase price of $3,150,000, the Company expects to record a net charge to its
earnings for the third quarter ended September 30, 1996 in the amount of
$170,000. The recognition of such a charge will substantially reduce net income
during such period and may have a depressive effect on the market price of the
Company's securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources,"
"Principal Stockholders" and "Certain Transactions."
Dilution. Purchasers of the Shares offered hereby will incur immediate
dilution of approximately $3.65 (or 73%) in the net tangible book value per
share of Common Stock. See "Dilution."
Arbitrary Determination of Public Offering Prices; Possible Volatility of
Common Stock and Warrant Prices. The initial public offering prices of the
Shares and Warrants and the exercise price and other terms of the Warrants were
arbitrarily determined by negotiations between the Company and the
Representative and do not necessarily bear any relationship to the Company's
asset value, book value, net worth or any other recognized criteria of value.
The trading price of the Common Stock or Warrants could also be subject to
significant fluctuations in response to variations in quarterly results of
operations, announcements of new contracts or services by the Company or its
competitors, governmental regulatory action, general trends in the industry and
other factors, including extreme price and volume fluctuations which have been
experienced by the securities markets from time to time in recent years. See
"Underwriting."
No Assurance of Public Trading Market or Continued Nasdaq Inclusion; Risk
of Low- Priced Securities. Prior to the offering, there has been no public
market for the Securities and there can be no assurance that an active public
market will develop or, if developed, be sustained. The Company anticipates that
the Securities will be eligible for listing on Nasdaq. In order to qualify for
continued listing on Nasdaq, however, a company, among other things, must have
$2,000,000 in total assets, $ 1,000,000 in capital and surplus, $200,000 in
market value of the public float, a minimum bid price of $1.00 per share and a
minimum of 300 shareholders. If the Company is unable to satisfy the maintenance
requirements for quotation on Nasdaq, of which there can be no assurance, it is
anticipated that the Securities would be quoted in the over-the-counter market
National Quotation Bureau ("NQB") "pink sheets" or on the NASD OTC Electronic
Bulletin Board. As a result, the liquidity of the Securities could be impaired,
not only in the number of securities which could be bought and sold, but also
through delays in the timing of transactions, reduction in security analyst's
and news media's coverage of the Company and lower prices for the Company's
securities than might otherwise be attained. In addition, if the Securities are
delisted from Nasdaq they might be subject to the low-priced security or
so-called "penny stock" rules that impose additional sales practice requirements
on broker-dealers who sell such securities. For any transaction involving a
penny stock the rules require, among other things, the delivery, prior to the
transaction, of a disclosure schedule required by the Securities and Exchange
Commission (the "Commission") relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative
13
<PAGE>
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks held in the
customer's account.
In the event the Securities subsequently become characterized as a penny
stock, the market liquidity for the Securities could be severely affected. In
such an event, the regulations relating to penny stocks could limit the ability
of broker-dealers to sell the Securities and, thus, the ability of purchasers in
this offering to sell their Securities in the secondary market.
Current Prospectus and State Registration Required To Exercise Warrants.
The Warrants are not exercisable unless, at the time of exercise, the Company
has a current prospectus covering the shares of Common Stock issuable upon
exercise of the Warrants and such shares have been registered, qualified or
deemed to be exempt under the securities or "blue sky" laws of the state of
residence of the exercising holder of the Warrants. Although the Company has
undertaken to use its best efforts to have all of the shares of Common Stock
issuable upon exercise of the Warrants registered or qualified on or before the
exercise date and to maintain a current prospectus relating thereto until the
expiration of the Warrants, there is no assurance that it will be able to do so.
The value of the Warrants may be greatly reduced if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Warrants then reside. The Warrants
will be separately tradeable immediately upon issuance and may be purchased
separately from the Common Stock. Although the Securities will not knowingly be
sold to purchasers in jurisdictions in which the Securities are not registered
or otherwise qualified for sale, investors may purchase the Warrants in the
secondary market or may move to jurisdictions in which the shares underlying the
Warrants are not registered or qualified during the period that the Warrants are
exercisable. In such event, the Company will be unable to issue shares to those
persons desiring to exercise their Warrants unless and until the shares are
qualified for sale in jurisdictions in which such purchasers reside, or an
exemption from such qualification exists in such jurisdictions, and holders of
the Warrants would have no choice but to attempt to sell the Warrants in a
jurisdiction where such sale is permissible or allow them to expire unexercised.
See "Description of Securities -- Redeemable Warrants."
Adverse Effect of Possible Redemption of Warrants. The Warrants are subject
to redemption by the Company at a price of $0.05 per Warrant, commencing 24
months following the date of this Prospectus, on 30 days prior written notice,
if the average closing bid price for the Common Stock equals or exceeds $7.50
per share for 20 consecutive trading days ending on the tenth trading day prior
to the date of the notice of redemption. Redemption of the Warrants could force
the holders thereof to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for such holders to do so, to sell the
Warrants at the current market price when they might otherwise wish to hold the
Warrants or to accept the redemption price, which is likely to be substantially
less than the market value of the Warrants at the time of redemption. The
holders of the Warrants will automatically forfeit their rights to purchase
shares of Common Stock issuable upon exercise of the Warrants unless the
Warrants are exercised before they are redeemed. See "Description of Securities
- -- Redeemable Warrants."
14
<PAGE>
Shares Eligible for Future Sale. The sale of substantial amounts of Common
Stock in the public market following this offering could adversely affect the
market price of the Securities. Upon the completion of this offering, all
2,265,000 of the shares of Common Stock outstanding prior to this offering will
be "restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act") and, under certain
circumstances, will be eligible for sale without registration pursuant to the
provisions of such rule. An additional 75,000 shares underlying an option will
be eligible for sale under Rule 701 of the Act. Holders of all such shares and
the option, however, have agreed that they will not sell any shares of Common
Stock for a period of 24 months from the date of this Prospectus without the
prior written consent of the Representative. See "Shares Eligible for Future
Sale" and "Underwriting."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Representative has advised the Company that it may make a market
in the Company's securities. Rule 10b-6 under the Exchange Act may prohibit the
Representative from engaging in any market-making activities with regard to the
Company's securities for the period from nine business days (or such other
applicable period as Rule 10b-6 may provide) prior to any solicitation by the
Representative of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that the Representative may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Representative may be
unable to provide a market for the Company's securities during certain periods
while the Warrants are exercisable. Any temporary cessation of such
market-making activities could have an adverse effect on the market price of the
Securities. See "Underwriting."
Possible Adverse Effects of Authorization of Preferred Stock; Anti-Takeover
Effects. The Company's Certificate of Incorporation authorizes the issuance of a
maximum of 2,000,000 shares of preferred stock, $.01 par value ("Preferred
Stock"), on terms which may be fixed by the Company's Board of Directors without
further stockholder action. The terms of any series of Preferred Stock, which
may include priority claims to assets and dividends, and special voting rights,
could adversely affect the rights of holders of the Common Stock. The issuance
of Preferred Stock could make the possible takeover of the Company or the
removal of management of the Company more difficult, discourage hostile bids for
control of the Company in which stockholders may receive premiums for their
shares of Common Stock, or otherwise dilute the rights of holders of Common
Stock and the market price of the Common Stock. See "Description of Securities -
Preferred Stock."
Possible Adverse Effect of Exercise of Representative's Warrants and
Registration Rights. The Company has agreed to sell to the Representative for an
aggregate purchase price of $210.00, Representative's Warrants to purchase an
aggregate of 105,000 shares of Common Stock and/or 105,000 Warrants at an
exercise price equal to 120% of the initial public offering price. The shares of
Common Stock and the Warrants issuable upon exercise of the Representative's
Warrants are identical to those offered hereby. The Representative's Warrants
are exercisable for a period of four years commencing one year from the date
hereof. The exercise of the Representative's Warrants will dilute the value of
the shares of Common Stock and may adversely affect the Company's ability to
obtain equity capital. Moreover, if the Common Stock issuable upon the exercise
of the Representative's Warrants is sold in the public
15
<PAGE>
market, it may adversely affect the market price of the Common Stock. The
holders of the Representative's Warrants have been granted certain "piggyback"
registration rights for a period of seven years from the date of this Prospectus
and demand registration rights for a period of five years from the date of this
Prospectus, with respect to the registration under the Securities Act of the
securities issuable upon exercise of the Representative's Warrants. The exercise
of such rights could result in substantial expense to the Company. See
"Underwriting."
Absence of Dividends. The Company does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. See "Dividend Policy."
USE OF PROCEEDS
The net proceeds from the sale of the Securities offered hereby are
estimated to be approximately $_________ ($_________ if the over-allotment
option is exercised in full) after deducting the Underwriters' discount and
non-accountable expense allowance and other estimated expenses of the offering.
The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Amount of Percentage of
Net Proceeds Net Proceeds
------------ ------------
<S> <C> <C> <C>
Acquisition of businesses(1) $2,100,000 48.1%
Establishment of new branch offices 500,000 11.5%
Funding of Infusion Therapy Division 250,000 5.75%
Funding of Pediatric Division 250,000 5.75%
Sales and marketing 300,000 6.9%
Establishment of new principal office 150,000 3.45%
Upgrade of facilities and computer systems 150,000 3.45%
Working capital 15.1%
---------- ----
TOTAL $ 100%
========== ====
</TABLE>
- ----------
(1) The Company may, when and if the opportunity arises, acquire other
businesses which are related to the Company's business with a portion of
the net proceeds. Those businesses in which the Company has interest
include home health care agencies (which are expected to cost between
$500,000 and $1,000,000 each), infusion therapy businesses (which are
expected to cost between $750,000 and $1,500,000 each) and durable medical
equipment businesses (which are expected to cost between $400,000 and
$800,000 each) in the states of New York, New Jersey, Pennsylvania,
Connecticut, North Carolina, Georgia and Florida. The Company has no
specific arrangements with respect to any such acquisition at the present
time and is not presently involved in any negotiations with respect to any
such acquisition. The Company has no present plans for acquisition of any
companies affiliated with its management or stockholders and will not enter
into any such transactions in the future unless the Company first obtains
an independent opinion with regard to the fairness to the Company of the
terms and conditions of any such transaction. See "Certain Transactions."
There can be no assurance that any particular acquisition will be made.
The Company anticipates that the net proceeds of this offering, together
with the funds anticipated to be generated from its operations, will be
sufficient to fund the Company's contemplated cash requirements for at least 12
months following the consummation of the offering. While the initial allocation
of the net proceeds of this offering, as set forth above, represents the
Company's best estimates of their use, the amounts actually expended for each
purpose may vary significantly from
16
<PAGE>
the specific allocation of the net proceeds set forth above, depending on
numerous factors, including changes in the economic, regulatory and competitive
climates for the Company's business operations. The Company, therefore, reserves
the right to reallocate the net proceeds of this offering among the various
categories set forth above as it, in its sole discretion, deems necessary or
advisable. Depending upon the timing of the proposed expenditures for the
purposes described in the table set forth above, the Company may use a
substantial portion of the proceeds to reduce or repay in full its current bank
credit lines. In such event, borrowings under the bank credit lines would then
be used to finance the expenditures described in the table set forth above.
Pending use of the proceeds for the purposes described above, the Company
intends to invest the net proceeds in short-term, investment grade,
interest-bearing obligations. Any proceeds received upon exercise of the
Underwriters' over-allotment option, the Warrants or the Representative's
Warrants, as well as income from investments, will be added to working capital.
DILUTION
The Company had a pro forma net tangible book value of $139,088, or
approximately $.06 per share of Common Stock as of June 30, 1996. Net tangible
book value per share is equal to the net tangible assets of the Company (total
assets less total liabilities and intangible assets), divided by the number of
shares outstanding. After giving effect to the issuance of the 1,050,000 shares
of Common Stock and the 1,050,000 Warrants offered hereby (after deduction of
estimated offering expenses and the underwriting discounts and commissions
estimated at $1,011,150), the pro forma net tangible book value of the Company
at June 30, 1996 would have been $4,482,850 or approximately $1.35 per share of
Common Stock representing an immediate dilution to new investors of $3.65 per
share, or 73%, as illustrated by the following table:
<TABLE>
<S> <C>
Assumed initial public offering price per share of Common Stock ...................... $5.00
Pro forma net tangible book value per share of
Common Stock before offering ......................................................... $ .06
Increase per share of Common Stock
attributable to public investors ..................................................... $1.29
Pro forma net tangible book value per share of Common Stock after offering ........... $1.35
Dilution per share of Common Stock to new investors .................................. $3.65
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of Common Stock after this offering
would be $5,181,686 which would result in dilution to new investors in this
offering of $3.51 per share, or 70.2%.
17
<PAGE>
The following table sets forth the number of shares of Common Stock owned
by the current stockholders of the Company, the number of shares to be purchased
from the Company by the purchasers of the shares of Common Stock offered hereby
and the respective aggregate cash consideration paid or to be paid to the
Company and the average price per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
---------------- -------------------
Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Present
Stockholders(1) 2,265,000 68% $ 30,000 % $ .013
New Investors 1,050,000 32% $ % $5.00
--------- ---- ------------ -------
TOTAL 3,315,000 100.0% $ 100.0%
</TABLE>
- ----------
(1) Excludes 75,000 shares of Common Stock issuable upon exercise of an
outstanding option, exercisable at $3.75 per share, held by the Company's
President. See "Capitalization," "Management - Savings and Stock Option
Plans, "Principal Stockholders" and "Certain Transactions."
18
<PAGE>
DIVIDEND POLICY
The Company has operated as an S Corporation prior to this offering and has
paid out a substantial portion of its earnings to its current shareholders. See
"Former S Corporation Tax Treatment." The Board of Directors currently intends
to retain and reinvest any future earnings into the development and expansion of
the business and therefore does not intend to pay cash dividends. Any future
payment of dividends will be subject to the discretion of the Board of Directors
and will depend upon, among other things, future earnings, if any, the operating
and financial condition of the Company, its capital requirements and general
business conditions.
FORMER S CORPORATION TAX TREATMENT
The Company has been treated for federal income tax purposes as an S
Corporation under Subchapter S of the Internal Revenue Code of 1986, as amended,
and under Section 660 of the New York State Tax Law. As a result, earnings of
the Company were declared, for federal and New York State income tax purposes,
by the current shareholders of the Company. In past years, the Company
distributed a substantial portion of its earnings to its current shareholders.
These distributions aggregated $100,230 and $840,032 for the years ended
December 31, 1994 and 1995, respectively. Prior to the consummation of this
offering, additional distributions of previously earned and undistributed S
Corporation earnings in the aggregate amount of $2,200,000 will be made to the
current shareholders. The Company is funding the distribution to current
shareholders utilizing $2,200,000 out of its $3,500,000 aggregate lines of
credit, which bear interest at a rate equal to the prime rate published in the
Wall Street Journal, plus .75%, payable monthly, and which are for a one-year
term renewable in April, 1997. The Company will no longer be treated as an S
Corporation prior to the completion of this offering and, accordingly, the
Company will be subject to federal and New York State income taxes. See
"Capitalization," "Certain Transactions" and Notes 1, 2 and 4 to the Financial
Statements.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
June 30, 1996 and (ii) as adjusted to give effect to the sale by the Company of
the Securities offered hereby at an assumed initial public offering price of
$5.00 per share of Common Stock and $.10 per Warrant, respectively, and the
initial application of the net proceeds therefrom. The information below should
be read in conjunction with the Financial Statements and the notes thereto
included elsewhere in this Prospectus, which should be read in their entirety.
19
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996
---------------------------
Actual Pro forma (2) Pro forma As Adjusted
---------- ------------- ---------------------
<S> <C> <C> <C>
Short-term debt
Note Payable --
Bank ........................................ $1,250,000(1) $3,450,000 $3,450,000
Long-term debt - current portion ............ 6,315 6,315 6,315
---------- ---------- ----------
Total short-term debt ..................... 1,256,315 3,456,315 3,456,315
========== ========== ==========
Long-term debt
Collateralized capital leases ................. 3,320 3,320 3,320
Stockholders' equity (deficit):
Preferred Stock, $.01 par value,
authorized 2,000,000 shares,
no shares issued and outstanding ............ -- -- --
Common stock, $.01 par value,
authorized 10,000,000 shares;
2,265,000 shares issued and outstanding,
actual; 3,315,000 shares issued and
outstanding as adjusted(3) .................. 22,650 22,650 33,150
Additional paid-in capital .................... 7,350 7,350 4,340,700
Retained earnings(4) .......................... 2,495,478 295,478 295,478
---------- ---------- ----------
Total stockholders' equity .................. 2,525,478 325,478 4,669,328
---------- ---------- ----------
Total capitalization ........................ $3,785,113 $3,785,113 $8,128,963
========== ========== ==========
</TABLE>
- ----------
(1) Excludes $2,200,000 in bank debt incurred subsequent to June 30, 1996 to
fund payment of S Corporation dividends to current stockholders. See
"Dividend Policy," "Former S Corporation Tax Treatment," "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources," "Principal Stockholders," "Certain
Transactions" and Financial Statements.
(2) Pro forma weighted average number of common share equivalents outstanding
includes 700,521 shares whose proceeds would be necessary to pay the S
Corporation distribution and 18,750 shares relating to the dilutive effect
of a stock option grant. See "Former S Corporation Tax Treatment,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Principal Stockholders," "Certain Transactions" and Financial Statements.
(3) Does not include (i) 1,050,000 shares reserved for issuance upon exercise
of the Warrants; (ii) an aggregate of 210,000 shares reserved for issuance
upon exercise of the Representative's Warrants and the Warrants included
therein; and (iii) 75,000 shares reserved for issuance upon exercise of an
option granted prior to the date of this Prospectus and shares reserved for
issuance upon exercise of options available for future grant under the
Company's Stock Option Plan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources," "Management - Stock Option Plan," "Principal Stockholders,"
"Description of Securities," "Certain Transactions" and "Underwriting."
(4) Pro forma and pro forma as adjusted retained earnings do not reflect any
adjustment for a loss on the sale of $3,500,000 of accounts receivable in
the third quarter ended September 30, 1996 to 1667 Flatbush, a company
owned by the Company's current stockholders. See "Former S Corporation Tax
Treatment," "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources," "Business -
Properties," "Certain Transactions" and Note 14 to Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company for
each of the two years ended December 31, 1994 and 1995 and for the six months
ended June 30, 1995 and 1996. Except for pro forma data, the data as of December
31, 1994 and 1995 and for each of the two years in the period ended December 31,
1995 have been derived from the financial statements of the Company appearing
elsewhere in this Prospectus which have been audited by M.R. Weiser & Co. LLP.
The data for the six month periods ended June 30, 1995 and 1996 was derived from
unaudited financial statements included herein, which in the opinion of
management of the Company contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation thereof. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of results to be expected for the entire year. The selected financial data set
forth below should be read in conjunction with the Financial Statements of the
Company and related notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
---------------------------- -----------------------------
1994 1995 1995 1996
-------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Income Data:
Net patient service revenue $ 8,981 $ 11,810 $ 5,465 $ 6,147
-------- -------- -------- --------
Professional care of patients 6,301 8,128 3,708 4,185
General and administrative
expenses 1,793 2,391 1,178 1,379
-------- -------- -------- --------
Income from operations 887 1,291 579 583
Interest expense, net (85) (82) (41) (58)
Other income 6 -- -- 7
Provision for income taxes(1) (37) (81) (46) (22)
-------- -------- -------- --------
Net income $ 771 $ 1,128 $ 492 $ 510
======== ======== ======== ========
Pro Forma Data:(2)(3)
Income before provision
for income taxes $ 808 $ 1,209 $ 538 $ 532
Pro forma provision for
income taxes 353 520 232 230
-------- -------- -------- --------
Pro forma net income $ 455 $ 689 $ 306 $ 302
======== ======== ======== ========
Pro forma net income per common
share and common share
equivalents(1)(3) $ .23 $ .10
======== --------
Pro forma weighted average number of
common shares and common
share equivalents(2) 2,984 2,984
======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995 At June 30, 1996 Pro forma at June 30, 1996(4)
-------------------- ----------------- --------------------------------
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $2,775 $2,103 $ (97)
Total assets 4,840 4,402 4,402
Total liabilities 1,799 1,877 4,077
Retained earnings 3,011 2,495 295
Stockholders' equity 3,041 2,525 325
</TABLE>
- ----------
(1) The Company has been an S Corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue code") for U.S.
federal and New York State income tax purposes since its inception. As an S
Corporation, the Company was not subject to federal income tax, but
remained subject to a reduced New York State income tax. The Company will
terminate its S Corporation status prior to the completion of this
offering. See "The Company." Pro forma amounts give effect to additional
income taxes that would have been reported assuming that the Company was a
C Corporation for years ended December 31, 1994 and 1995 and the six months
ended June 30, 1995 and 1996. See "Former S Corporation Tax Treatment" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(2) Pro forma weighted average number of common share equivalents outstanding
includes 700,521 shares whose proceeds would be necessary to pay the S
Corporation distribution and 18,750 shares relating to the dilutive effect
of a stock option grant. See "Former S Corporation Tax Treatment,"
"Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Principal Shareholders," "Certain Transactions" and Financial Statements.
(3) Pro forma selected financial information includes $2,200,000 of bank debt
incurred by the Company after June 30, 1996 to fund the payment of
undistributed S Corporation earnings to current shareholders prior to this
offering. See "Former S Corporation Tax Treatment," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity," "Principal Shareholders" and "Certain
Transactions."
(4) Pro forma retained earnings does not reflect any adjustment for a loss on
the sale of $3,500,000 of accounts receivable in the third quarter ended
September 30, 1996 to 1667 Flatbush, a company owned by the Company's
current stockholders. See "Former S Corporation Tax Treatment,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources," "Business - Properties,"
"Certain Transactions" and Note 14 to Financial Statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Six Months Ended June 30, 1996 Compared with the Six Months Ended June 30,
1995
Revenues for the six months ended June 30, 1996 (the "first half of 1996")
increased 12.5% to approximately $6,147,000 from approximately $5,465,000 for
the six months ended June 30, 1995 (the "first half of 1995"). The increase
resulted primarily from new business.
Cost of professional care of patients for the first half of 1996 increased
12.9% to approximately $4,185,000 from approximately $3,708,000 for the first
half of 1995. The increase resulted primarily from the hiring of additional home
health care personnel to service the increased new business. The cost of
professional care of patients as a percentage of revenues was relatively stable
at approximately 68% for both the first half of 1996 and the first half of 1995.
Selling, general and administrative expenses for the first half of 1996
increased 17.1% to approximately $1,379,000 from approximately $1,178,000 for
the first half of 1995. The increase resulted primarily from an increase in the
reserve for doubtful accounts and from the hiring of additional office staff to
support the growth in the Company's business.
Interest expense, net of interest income, for the first half of 1996
increased 38.1% to approximately $58,000 as compared to approximately $42,000
for the first half of 1995, primarily as a result of an increase in borrowings
to finance an increase in accounts receivable that occurred during the month of
December 1995 and distributions to shareholders in the first half of 1996.
The provision for New York State and New York City income taxes for the
first half of 1996 decreased to $22,000 from $46,000 for the first half of 1995,
because a $34,000 credit for deferred New York State and New York City taxes was
recorded in the first half of 1996 as a result of timing differences due to the
cash basis of accounting for income tax purposes.
In view of the foregoing, net income for the first half of 1996 increased
3.7% to approximately $510,000, as compared to approximately $492,000 for the
first half of 1995.
Year Ended December 31, 1995 compared with the Year Ended December 31,
1994.
Revenues for the year ended December 31, 1995 ("1995") increased 31.5% to
approximately $11,810,000 from approximately $8,981,000 for the year ended
December 31, 1994 ("1994"). The
22
<PAGE>
increase resulted primarily from an increase in services provided to existing
clients and increased new business.
Cost of professional care of patients for 1995 increased 29% to
approximately $8,127,000 from approximately $6,301,000 for 1994. The increase
resulted primarily from the hiring of additional home health care personnel to
service the increased new business and increase in services rendered to existing
clients. The cost of professional care of patients as a percentage of revenues
approximated 69% for 1995 as compared to 70% for 1994.
Selling, general and administrative expenses for 1995 increased 33.4% to
approximately $2,391,000 from approximately $1,793,000 for 1994. The increase
resulted primarily from the hiring of additional office support staff to support
the growth in the Company's business.
Interest expense for 1995 decreased 3.7% to approximately $82,000, as
compared to approximately $85,000 for 1994, primarily as a result of a reduction
in borrowings resulting from the Company's increased cash flow.
In view of the foregoing, net income for 1995 increased 46.3% to
approximately $1,128,000, as compared to approximately $771,000 for 1994.
23
<PAGE>
Liquidity and Capital Resources
The Company has required cash to fund the growth of its operations,
particularly to finance expansion of accounts receivable and the opening of new
branch offices. Historically, the Company's internally generated funds have been
insufficient to meet all of its cash needs. To satisfy these requirements, the
Company has supplemented its internally generated funds with borrowings under
bank lines of credit. The Company presently has a credit facility with UMB Bank
and Trust Company in the amount of $3,500,000, which is secured by substantially
all of the Company's assets. Repayment of outstanding amounts under such
facility is guaranteed by all of the Company's directors and current
stockholders. This credit facility provides for interest at the prime rate
published in the Wall Street Journal, plus .75%, payable monthly, and is
renewable in May 1997. At June 30, 1996, the Company had outstanding borrowings
of $1,250,000. Subsequent to June 30, 1996, a total of $2,200,000 of the
$3,500,000 credit facility will be used by the Company to fund a distribution to
its current stockholders of previously undistributed S Corporation earnings. See
"Former S Corporation Tax Treatment" and "Certain Transactions."
For the first half of 1996, net cash provided by operations was
approximately $1,102,000, as compared to approximately $1,428,000 for the first
half of 1995. This decrease in net cash from operations was primarily a result
of a decrease in accounts receivable and unbilled receivables of approximately
$491,000 for the first half of 1996 compared to $705,000 for the first half of
1995, a decrease in loans to stockholders of $145,000 during the first half of
1996 and an increase in deferred registration costs of $163,000 during the first
half of 1996. Net cash used in financing activities for the first half of 1996
totalled approximately $1,004,000, primarily as a result of the payment of S
Corporation distributions to the Company's stockholders which aggregated
approximately $1,025,000 during the period. See "Former S Corporation Tax
Treatment" and "Certain Transactions."
As of June 30, 1996, approximately $3,566,000 (approximately 81%) of the
Company's total assets consisted of accounts receivable derived from payments
made to contractors by third-party payors. Such payors generally require
substantial documentation in order to process claims.
On July 8, 1996, the Company entered into an agreement with 1667 Flatbush,
pursuant to which 1667 Flatbush purchased $3,500,000 of the Company's accounts
receivable for a purchase price of $3,150,000, payable at the rate of $1,100,000
on August 1, 1996, $1,100,000 on September 1, 1996 and $950,000 on the earlier
of October 1, 1996 or the date of this Prospectus. The first payment of
$1,100,000 was made on August 1, 1996 and the second payment of $1,100,000 was
prepaid on August 23, 1996. Each payment is made
24
<PAGE>
together with accrued interest, in arrears. The payments due to the Company are
reflected in a promissory note bearing interest at the rate of 12% per annum,
are secured by a lien on the accounts receivable purchased from the Company by
1667 Flatbush and are personally guaranteed by each of the members of 1667
Flatbush. The promissory note permits prepayments of principal without penalty,
with each prepayment credited against the next due payment obligation. As a
result of the Company's sale of accounts receivable for less than their face
value, the Company expects to recognize a net charge to its earnings during the
third quarter ended September 30, 1996 in the amount of $170,000. See "Principal
Stockholders" and "Certain Transactions."
Days Sales Outstanding ("DSO") is a measure of the average number of days
taken by the Company to collect its accounts receivable, calculated from the
date services are performed. For the years ended December 31, 1994 and December
31, 1995, the Company's DSO's were 152 days and 130 days, respectively, a
reduction of approximately 14.5%, primarily as a result of additional
concentration on collection of accounts receivable. For the first half of 1995
and 1996, the Company's DSO's were 102 days and 108 days, respectively, an
increase of approximately 5.9%.
The Company has allocated a portion of the net proceeds of this offering to
upgrade its computer systems, one of the results of which is expected to be the
expediting of its internal billing procedures which can be expected to have the
effect of generally decreasing the Company's DSO's. See "Use of Proceeds."
However, there can be no assurance that any expected decrease in DSO's due to
computer upgrades will not be offset by an increase in DSO's resulting from the
efforts of third-party payors to increase their audit and review facilities and
reduce costs.
The Company's liquidity and long-term capital requirements depend upon a
number of factors, including the rate at which new offices and facilities are
established and acquisitions, if any, are made. The Company believes that the
development and start-up costs for a new branch office aggregate approximately
$100,000, including leasehold improvements, lease deposits, office equipment,
marketing, recruiting, labor and operating costs during the pre-opening and
start-up phase, and also the provision of working capital to fund accounts
receivable. Such costs will vary depending upon the size and location of each
facility and, accordingly, may vary substantially from these estimates.
Although the Company does not have any pending material commitments
regarding capital expenditures, it anticipates making additional capital
expenditures in connection with the acquisition of home health care companies,
development of a new principal office and improved branch facilities, and the
improvement of its management systems. See "Use of Proceeds." Further expansion
of the Company's business (particularly through acquisitions) may require the
Company to incur additional debt or offer additional equity if internally
generated funds, cash on hand and amounts available under its bank credit
facilities are inadequate to meet such needs. There can be no assurance that
such additional debt or equity will be available to the Company or, if
available, will be on terms acceptable to the Company.
25
<PAGE>
Inflation
Inflation has not had a significant impact on the Company's operations to
date.
Recent Pronouncements of the Financial Accounting Standards Board
Recent pronouncements of the Financial Accounting Standards Board ("FASB"),
which include Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" and SFAS No. 123, "Accounting for Stock-Based Compensation," are
effective for fiscal years beginning after December 15, 1995. The adoption of
SFAS 121 and SFAS 123 does not have a material impact on the Company's financial
statements.
BUSINESS
General
The Company is a licensed home health care agency engaged primarily in
supplying the services of paraprofessionals who provide a broad range of health
care services to patients' in their homes. The Company operates in all five
boroughs of New York City and the counties of Nassau, Westchester, Rockland,
Orange, Duchess, Ulster, Putnam and Sullivan, in the State of New York. The
Company's services are supplied principally pursuant to contracts with health
care institutions and agencies such as the Mt. Sinai Medical Center in
Manhattan, New York Methodist Hospital in Brooklyn, Beth Abraham Health Services
in the Bronx and Westchester County and the New York State Department of Social
Services.
When the Company was initially organized, in February 1983, it engaged
principally in the business of providing nursing staff in nursing homes.
In 1988, the Company purchased the equipment, fixtures, client lists and
paraprofessional aide lists of National Medical Home Care, Inc. located in
Brooklyn, Queens Village, Rockville Centre and Mount Vernon, New York.
Thereafter, the Company maintained offices in Brooklyn, Hempstead and Mount
Vernon, New York and shifted the focus of its business to the provision of home
health care support services.
In 1992, the Company opened a fourth office, in Spring Valley, New York
and, in 1993, opened its fifth office, in Newburgh, New York. Each of the
Company's five offices are responsible for the sales and health care operations
within their respective territories and maintain their own recruitment,
scheduling, training and quality assurance programs. The Brooklyn office also
serves as the Company's central administrative and financial operations
location.
26
<PAGE>
In 1993, the Company opened its maternal/child services division, "Special
Deliveries", providing both pre- and post-delivery care for pregnant women and
their newborn children, which operates out of the Hempstead office.
The Company currently offers a broad range of support services, including
assistance with personal hygiene, dressing and feeding; meal preparation, light
housekeeping and shopping; and, to a limited extent, standard skilled nursing
services such as the changing of dressings, injections, catheterizations and
administration of medications; and physical therapy. The Company's personnel
also train patients in their own care, monitor patient compliance with treatment
plans, make reports to the physicians and process reimbursement claims to
third-party payors. Among the paraprofessionals and nurses supplied by the
Company are those fluent in Spanish, Yiddish and Russian as well as personnel
knowledgeable in the requirements and practices of Kosher homes.
Industry Background
The home health care industry has grown substantially over the past decade
according to published industry information. The New York State Association of
Home Care Providers estimates (from annual reports submitted by agencies) that
Medicaid and Medicare spending on home health care has grown from approximately
$2.9 billion in 1985 to in excess of approximately $19.4 billion in 1994. The
Company believes that the primary reasons for the growth in the home health care
market include the aging of the U.S. population; the realization of substantial
cost savings through treatment at home as an alternative to hospitalization;
advances in medical technology which have enabled a growing number of treatments
to be provided in the home rather than requiring hospitalization; the general
preference of patients to receive treatment in a familiar environment;
reductions in the length of hospital stays as a result of increasing cost
containment efforts in the health care industry; growing acceptance within the
medical profession of home health care and the rapid increase in the incidence
of AIDS-related diseases and cancer.
Aging Population. The number of individuals over age 65 in the United
States is estimated to have grown from 25.7 million in 1980, or 11.3% of the
population, to approximately 34.1 million in 1996, or 12.9% of the population,
and is projected to increase to more than 35 million, or 12.8% of the
population, by the year 2000. The elderly have traditionally accounted for two
to three times the average per capita share of health care expenditures. As the
number of Americans over age 65 increases, the need for home health care
services is also expected to increase.
Cost Effectiveness of Home Health Care Services. National health care
expenditures increased from approximately $697 billion in 1990 (12.6% of the
United States gross national product) to approximately $1,008 billion in 1995
(14.2% of the United States gross national product), and is projected to
increase to more than $1,481 billion (15.9% of the United States gross national
product) by the year 2000. In response to rapidly rising costs, governmental and
private payors have adopted cost containment measures that encourage reduced
hospital admissions, reduced lengths of stay in hospitals and delayed nursing
home admissions. Changes in hospital reimbursement methods under Medicare from a
cost-based method to a fixed reimbursement method based on the patient's
diagnosis
27
<PAGE>
have created an incentive for earlier discharge of patients from hospitals.
These measures have in turn fostered an increase in home health care which, when
appropriate, provides medically necessary care at significantly less expense
than similar care provided in an institutional setting.
Advances in Technology. Advances in technology in the past decade now
enable patients who previously required hospitalization to be treated at home.
For example, the development of a compact and portable phototherapy blanket
performing the same functions as bilirubin lighting systems in hospitals for the
treatment of newborn children with jaundice, a common condition, permits these
infants to be treated at home. Prior to the development of this device, these
infants were kept in the neonatal unit of a hospital even after the mother was
discharged. This practice delayed mother-infant bonding, made breast-feeding
difficult and otherwise caused substantial inconvenience and concern to families
at a time when the mother was in a weakened state. Similar advances have been
made in home infusion therapy (which is presently provided by the Company only
on a limited basis) and rehabilitation equipment permitting treatments at home
which used to require hospital settings.
Patient Preference and Physician Acceptance. The Company believes that, if
possible in any given case, a patient will prefer to be treated at home rather
than in an institutional setting. Further, in the last decade, the medical
profession has shown greater acceptance of home health care in the clinical
management of patients. As evidence of this greater acceptance, the American
Medical Association Councils on Scientific Affairs and Medical Education has
recommended that training in the principles and practice of home health care be
incorporated into the undergraduate, graduate and continuing education of
physicians.
Incidences of AIDS and Cancer. Increases in the incidence of AIDS/HIV
infections and cancer have also been responsible for a significant portion of
the growth in the home care market. As of December 1995, more than 513,486 cases
of AIDS had been reported to the Center for Disease Control (not including those
with less advanced HIV who could still benefit from treatment). During their
treatment, AIDS/HIV patients may receive several courses of infusion and other
therapies typically administered by infusion therapy companies, including AZT,
aerosolized Pentamidine(TM), antibiotics and nutritional support. The Company
presently provides a limited amount of infusion therapy with pharmaceuticals
provided by licensed suppliers. The Company plans to expand its infusion therapy
operations during the next year. See "- Home Health Care Services."
The American Cancer Society estimates that 83 million (or 33%) of Americans
now living will eventually be diagnosed with cancer. Approximately one million
new cases are reported annually. At the same time, improvements in cancer
diagnosis and treatment have caused mortality rates to increase more slowly than
the increase in incidence rates. Cancer treatment is one of the fastest growing
segments of outpatient infusion therapy due to increasing numbers of patients
and new technologies that allow for the therapy's safe and effective
administration in the home and at alternate site locations. Over the course of
their treatment, cancer patients may require a range of infusion therapies,
including chemotherapy, pain management and nutritional support.
28
<PAGE>
Home Health Care Services
The Company's home health care services are provided principally by its
paraprofessional staff, who provide personal care to patients and, to a lesser
extent, by its skilled nursing staff, who provide various therapies employing
medical supplies and equipment and, to a lesser extent, infusion therapy.
Personal care and nursing services for a particular patient can extend from a
few visits to years of service and can involve intermittent or continuous care.
Approximately 95% of the Company's total net revenues in 1995 were attributable
to services by its paraprofessional staff.
Certified Paraprofessionals
The Company's certified paraprofessional staff provide a combination of
unskilled nursing and personal care services to patients, as well as assistance
with daily living tasks such as hygiene and feeding. Consistent with applicable
regulations, all of the Company's aides are certified and work under the
supervision of a licensed professional nurse. Certain aides have been specially
trained by the Company to work with patients with particular needs, such as new
mothers and their newborn infants, patients with particular diseases such as
cancer, AIDS or Alzheimer's Disease, and particular classes of patients such as
the developmentally disabled and terminal.
The Company is approved by the New York State Department of Health to train
"Home Health Aides" and by the New York Department of Social Services to train
"Personal Care Aides." Medicaid provides reimbursement for services performed by
both Home Health Aides and Personal Care Aides, while Medicare provides
reimbursement only for the services provided by Home Health Aides. In order to
provide a qualified and reliable staff, the Company continuously recruits,
trains, provides continuing education for, and offers benefits and other
programs to encourage retention of its staff. Recruiting is conducted primarily
through advertising, direct contact with community groups and employment
programs, and the use of benefits programs designed to encourage new employee
referrals by existing employees.
All paraprofessional personnel must pass a written exam and a skills
competency test prior to employment, with all certificates having been validated
by the issuing agency. The Director of Nursing or Director of Maternal/Child
Health in each of the Company's branch offices validates the professional
competency of all new hires. Newly hired employees are re-evaluated as to
competency within six months of their employment and all employees are
re-evaluated on an on-going basis at least semi-annually. In addition, they
undergo an orientation program which includes material regarding HIV patients,
Hepatitis B, essential precautions which must be taken with all patients,
patient's rights issues, and the Company's policies and procedures. An
orientation manual is also provided to each employee.
High quality service is emphasized throughout the various divisions of the
Company, both in hiring, Company training and testing of its personnel, and in
the manner in which services are delivered. Training and quality assurance
programs are regularly reviewed and directed by
29
<PAGE>
management and corporate support staff consisting of experienced health care
professionals. The Company received "Accreditation with Commendation" from the
Joint Commission on Accreditation of Health Care Organizations ("JCAHO") after
its initial and only review, in 1994, and, in February 1996, was selected by the
University of Colorado Health Sciences Center as one of only 22 home health care
agencies participating in a two to three year study known as the Outcome-Based
Quality Improvement in Home Care New York State Demonstration Project funded by
the New York State Department of Health, by reason of the Company's commitment
to both quality assurance and improvement. The Company believes that its
reputation for quality patient care has been and will continue to be a
significant factor in its success.
Competition for qualified staff has been intense in recent years. The
Company competes to attract and retain personnel on the basis of compensation
and working conditions. Among the benefits which the Company provides to its
staff are competitive salaries, a 401(k) Plan and unlimited Company-paid visits
to a walk-in clinic. The Company has generally not experienced difficulties in
the past in attracting and retaining personnel. It believes it will be able to
compete effectively in this area and satisfy its overall staffing requirements.
However, there can be no assurance that shortages of health care professionals
in the future will not occur and such shortages could materially effect the
Company's ability to maintain or increase its current obligations.
Licensed Professional Nurses
The Company employs licensed professional nurses (both registered nurses
and licensed practical nurses) who provide special and general professional
nursing services (these nurses are employed on a per diem basis). The Company
also employs registered nurses who are responsible for training and supervising
the Company's paraprofessional staff, as well as providing backup in the field
for the nursing staff which is providing care (these nurses are employed on a
salaried basis). General nursing care is provided by registered and licensed
practical nurses and includes periodic assessments of the appropriateness of
home care, the performance of therapy procedures, and patient and family
instruction. Patients receiving such care include stabilized post-operative
patients recovering at home, patients who, although acutely ill, do not need to
be cared for in an acute care facility and patients who are chronically or
terminally ill.
Specialty nurses are registered nurses with experience or certification in
particular specialties, such as emergency service, intensive care, oncology,
intravenous therapy or infant and pediatric nursing. The Company employs
specialty nurses to provide a variety of therapies and special care regimes to
patients in their homes. These specialty nurses also instruct patients and their
families in the self administration of certain therapies and in infection
control, emergency procedures and the proper handling and usage of medications,
medical supplies and equipment.
In August 1993, the Company established a maternal/child care division,
called "Special Deliveries," which provides comprehensive nursing services for
women during pregnancy, and for them and their newborn children after
childbirth. The Company provides its skilled nursing staff with special
additional training in this division, which offers a wide range of quality
health services to
30
<PAGE>
patients at home through the provision of Registered Nurses, including those
with at least two years of experience in maternal child care, Neonatal Intensive
Care Unit ("NICU") Nurses, Maternal/Newborn Registered Nurses, Certified
Childbirth Educators and Certified Lactation Consultants. Referral services are
also available for support programs providing social workers, bereavement
counselors and nutritionists. Each patient's individual treatment plan and
insurance coverage is reviewed prior to commencement of services being rendered,
except for childbirth education, which is privately contracted.
The Company's licensed professional nurses also provide a very limited
amount of in-home administration to patients of nutrients, antibiotics and other
medications intravenously (into a vein), subcutaneously (under the skin) or
through feeding tubes, utilizing supplies provided by licensed suppliers. Such
intravenous therapy is used for antibiotic treatment, parenteral nutrition (the
administration of nutrients), enteral nutrition (the administration of nutrients
directly into the digestive tract), growth hormone therapy, pain management, and
chemotherapy. The duration, progression and complexity of infusion therapy is
governed by the patient's disease and condition and can range anywhere from a
few weeks to many years.
All nurses hired by the Company must have at least one year of current,
verifiable experience, including references and license verification.
Maternal/Child care nurses must have at least two years of experience.
While the provision of licensed professional nursing services accounted for
less than 5% of the Company's net revenues in 1995, the Company intends to
expand its maternal/child care and infusion therapy operations in its existing
markets as well as new geographic locations. See "Use of Proceeds" and " -
Company Strategy."
Company Strategy
The Company's objective is to become a comprehensive provider of efficient
and high quality home health care to an increased share of expanding markets.
The primary elements of the Company's strategy to achieve this objective are
geographic expansion of its branch office network by investment in additional
branch offices and by the acquisition of other home health care companies, and
by expansion of the services provided by its licensed professional nurses,
principally in the areas of infusion therapy, pediatrics and maternal/child
care. The Company intends to initially concentrate its expansion efforts in its
current market areas and the counties surrounding those market areas. In
addition to expansion into geographic areas in proximity to the Company's
current branch offices, the Company will generally seek to enter and expand into
new metropolitan areas in the Northeast and Southeast regions of the United
States which have large patient populations and, in particular, patients
traveling between these regions.
31
<PAGE>
Acquisitions
A major element of the Company's strategy is to acquire home health care
and related companies in order to diversify in additional geographic markets, to
increase market share in the Company's current markets, and add patients and
referral sources to existing branch offices without adding substantial overhead
cost. The Company will also seek to expand into other metropolitan areas through
acquisition, if it can identify appropriate opportunities which make an
acquisition more cost-effective than a direct investment for facilities and
personnel in areas outside of its current branch office network. The Company is
interested in home health care agencies (which are expected to cost between
$500,000 and $1,000,000 each), infusion therapy companies (which are expected to
cost between $750,000 and $1,500,000 each) and durable medical equipment
businesses (which are expected to cost between $400,000 and $800,000 each) in
the states of New York, New Jersey, Pennsylvania, Connecticut, North Carolina,
Georgia and Florida. However, the Company has not yet identified any particular
potential acquisition and there can be no assurance that any such acquisition
which may be consistent with the Company's strategy will be available or, if
available, that it will be at a price which the Company deems to be favorable.
See "Use of Proceeds."
Branch Offices
The home health care industry is, fundamentally, a local one in which both
the patients and the referral sources (such as hospitals, home health agencies,
social service agencies and physicians) are located in the local geographic area
in which the services are provided. The Company seeks to serve local market
needs through its branch office network, run by branch managers who are
responsible for all aspects of local office decision-making, including
recruiting, training, staffing and marketing. The Company intends to open
additional branch offices with a portion of the net proceeds of this offering in
the Counties of Suffolk, Putnam, Ulster and Duchess, in New York State, subject
to entering required agreements with the local New York Department of Social
Services Agencies. In addition, the Company hopes to expand into New Jersey,
Pennsylvania and Connecticut in order to offer a wider geographic coverage to
the health maintenance organizations ("HMO's") and health care insurance
organizations with which it deals, and to add additional organizations. This
further expansion is subject to the completion of market surveys in the various
locations to ascertain the extent to which existing home care medical needs are
not being met as well as competition and recruitment issues.
Expansion of Infusion Therapy
The Company presently provides a limited amount of infusion therapy service
to patients, utilizing pharmaceuticals provided by licensed suppliers.
Management believes that the total market for home infusion therapy is
continuing its growth and that increasing the provision of infusion therapy will
build on the Company's strength in providing nursing services, because such
therapies generally require administration by specialty nurses. The Company will
also seek to supply infusion therapy patients with the other home health care
services and therapies which they often require and which are offered by the
Company. While the Company has no current commitments to establish infusion
therapy facilities, it intends to pursue the establishment of such facilities
during the next 18 months in order to increase its very small market share. See
"Use of Proceeds." However, there can be no assurance that the Company will
succeed in expanding an infusion therapy business or, if expanded, that it will
conduct such a business on a profitable basis.
32
<PAGE>
Professional Care Resources
The Company intends to expand its maternal/child care division, Special
Deliveries, as well as its pediatric care programs in order to meet the needs
which management believes are being created by early discharge programs. The
existing referral base utilized by the Company from the various agencies, social
workers, case managers and positions will be used to meet what management
perceives to be a need not being met by the current pool of home health care
agencies. The Company expects that the expansion of this program will require
the hiring of an additional services director with an extensive background in
pediatrics to assist the Directors of Nursing in each of the Company's branch
offices. Additional support staff will also be required, as well as new training
materials, assistant directors, coordinators and marketing staff. The Company
also expects that expansion of the Special Deliveries division will result in
the acquisition of additional office facilities.
Organization and Operations
The Company operates 24 hours a day, seven days a week, to receive
referrals and coordinate services with physicians, case managers, patients and
their families. The Company provides services through its five principal and
branch offices and one recruitment and training office. The Company seeks to
achieve economies of scale by having each branch office serve a large patient
population. Each office conducts its own marketing efforts, negotiates contracts
with referral sources, recruits and trains professionals and paraprofessionals
and coordinates patient care and care givers. Each office is typically staffed
with a branch manager, director of nursing, home care coordinators, clerical
staff and nursing services staff.
The Company's principal office retains all functions necessary to ensure
quality of patient care and to maximize financial efficiency. Services performed
at the principal office include billing and collection, quality assurance,
financial and accounting functions, policy and procedure development, system
design and development, corporate development and marketing. The Company uses
financial reporting systems through which it monitors data for each branch
office, including patient mix, volume, collections, revenues and staffing. The
Company's systems also provide monthly budget analysis, financial comparisons to
prior periods and comparisons among the Company's branch offices. The Company
has committed a portion of the proceeds to this offering to acquire new computer
hardware and upgrade its software and other systems with the intention of
increasing its processing capacity, enhancing its database capabilities and
clinical management capacities and improving collections and financial
management. See "Use of Proceeds."
Work Flow
A case is initiated by one of the Company's referral sources contacting a
branch office and advising it of the patient's general location, diagnosis,
types of services required, hours of service required and the time of day when
the services are to be rendered. The branch office then contacts the
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<PAGE>
referral source as promptly as possible with the identification of the staff
person who will be rendering the service, after which the referral source
transmits to the branch office a detailed copy of the plan for the patient's
home care, which includes the type of care to be rendered, the method by which
it should be rendered, the precise location and hours.
The supervisory staff at the branch office then reviews the care plan with
the staff member(s) who will be providing the care and then dispatches the staff
member(s) to begin rendering the care, usually the next day.
The clerical staff at the branch office enters all of the information
regarding the case into the local area computer network of the branch office,
which then generates the work schedule for the staff member(s), which provides a
detailed description of the services to be rendered, the hours and number of
days during which the care is to be provided. All of this information is
spontaneously received by the Company's principal office by way of the wide area
computer network linking the principal office to each of the branch offices.
This information is then processed by the principal office computer system on a
weekly basis to generate the documentation of the services being provided. Such
documentation is then used to generate the billing for the service as well as
process the payroll for the staff member(s) providing the service.
Referral Sources
The Company obtains patients primarily through referrals from hospitals,
community-based health care institutions and social service agencies. Referrals
from these sources accounted for substantially all of the Company's net revenues
in 1995. The Company generally conducts business with most of its institutional
referral sources, including those referred to below, under one-year contracts
which fix the rates and terms of all future referrals but do not require that
any referrals be made. Under these contracts, the referral sources refer
patients to the Company and the Company bills the referral sources for services
provided to patients. These contracts also generally designate the kinds of
services to be provided by the Company's employees, liability insurance
requirements, billing and recordkeeping responsibilities, complaint procedures,
compliance with applicable laws, and rates for employee hours or days depending
on the services to be provided. A total of 45 such contracts were in effect as
of June 30, 1996.
One or more referring institutions have accounted for more than 5% of the
Company's net revenues during the Company's last two fiscal years, as set forth
in the following table:
Percentage of Net Revenues
- --------------------------------------------------------------------------------
Referring Institution 1994 1995
- --------------------------------------------------------------------------------
New York State Department 27.5% 26.8%
of Social Services
- --------------------------------------------------------------------------------
34
<PAGE>
- --------------------------------------------------------------------------------
Beth Abraham Health 15.38% 12.5%
Services
- --------------------------------------------------------------------------------
Kingsbridge Medical Center 6.9% 6.1%
- --------------------------------------------------------------------------------
Mt. Sinai Medical Center1 0 6%
- --------------------------------------------------------------------------------
Methodist Medical Center 5.1% 3.1%
- --------------------------------------------------------------------------------
Center for Nursing 4.6% 5.6%
- --------------------------------------------------------------------------------
Franklin Medical Center 3.1% 6.4%
- --------------------------------------------------------------------------------
- ----------
1/ The Mount Sinai Medical Center contract was established in March 1995.
Overall, the Company's ten largest referring institutions accounted for
approximately 73% of net revenues for 1995 and 76% of net revenues for 1994.
Billing and Collection
The Company screens each new case to determine whether adequate
reimbursement will be available and has developed substantial expertise in
processing claims. The Company makes a concerted effort to provide complete and
accurate claims data to the relevant payor sources in order to accelerate the
collectibility of its accounts receivable. For the years ended December 31, 1994
and 1995, the Company's days' sales outstanding, which are measured from the
date services are performed, were 153 days and 130 days, respectively. For the
six months ended June 30, 1995 and June 30, 1996, the Company's DSO's were 102
days and 108 days, respectively. Certain accounts receivable are outstanding for
more than 90 days, particularly where the agreement provides for payment terms
of 90 days or more, the services relate to new patients, or existing patients
receive additional services requiring medical review. The Company does not
expect a material change in its DSO during the current year. However, there can
be no assurance that the Company's DSO will not increase in subsequent fiscal
periods.
The Company licenses the Dataline Home Care System, a computerized payroll
system designed to produce invoices for services rendered as a by-product of
employee compensation. Automated schedules and staffing requirements are
maintained in the Company's offices, with the ability to enter all relevant
patient and employee demographic information. The payroll is processed weekly at
the Company's principal office in Brooklyn. This office is responsible for the
processing of data, ensuring the availability of all required billing
documentation and its accuracy, and the printing and distributing of payments.
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<PAGE>
Once payroll processing is completed, the Company's computer system
generates the resulting invoices automatically. The necessary documentation is
attached to all invoices that are mailed to clients.
Management reviews reports for all phases of the billing process and
prepares reconciliations for the purpose of ensuring accuracy and maintenance of
controls. When errors are found, new processes are developed, as appropriate, to
ensure and improve the quality and accuracy of the billing process and
responsiveness to clients' needs and requirements.
Accounts receivable reports are produced weekly and are analyzed and
reviewed by staff and management to locate negative trends or emerging problems
which would require immediate attention. All unpaid invoices are reviewed and
telephone contacts established for invoices over 90 days old. The Company's
experience with collection of accounts receivable has been quite favorable, with
uncollectible accounts remaining negligible.
Private patients are required to pay the one week fee for their service in
advance, as a deposit for services to be provided. For patients with insurance
covering home health services, the Company accepts assignment of the insurance
and submits claims if the carrier first verifies coverage and eligibility.
Payments from private patients are required to be made weekly, as invoices are
submitted and, if unpaid over three weeks, result in follow-up telephone calls
to ensure prompt payment. Requests for terms from private patients are generally
honored and payment arrangements structured based on the patient's financial
resources and ability to pay. Unresponsive accounts are referred to outside
collection agencies.
Reimbursement
The Company is reimbursed for its services, primarily by referring
institutions, such as health care institutions and social service agencies,
which in turn receive their reimbursement from Medicaid, Medicare and, to a much
lesser extent, through direct payments by insurance companies and private
payors. New York State Medicaid programs constitute the Company's largest
reimbursement source, when including both direct Medicaid reimbursement and
indirect Medicaid payments through many of the Company's referring institutions.
For 1994 and 1995, payments from referring institutions which receive direct
payments from Medicare and New York State Medicaid, together with direct
reimbursement to the Company from New York State Medicaid, accounted for
approximately 89% and 92%, respectively, of net revenues. For the same periods,
a significant number of referring institutions (which are primarily private
not-for-profit organizations) with home health care programs that the Company
believes are reimbursed to varying extents by New York State Medicaid accounted
for approximately 74% and 76%, respectively, of net revenues. Direct
reimbursements from private insurers, prepaid health plans, patients and other
private sources accounted for approximately 11% and 8%, respectively, of net
revenues for the calendar years 1994 and 1995.
The New York State Department of Health, in conjunction with local
Departments of Social Services, promulgates annual reimbursement rates for
patients covered by Medicaid. These rates are
36
<PAGE>
generally established on a county-by-county basis, using a complex reimbursement
formula applied to cost reports filed by providers. The Company has filed all
required annual cost reports for each of its offices which provide services to
Medicaid recipients. Generally, the first report filed (called a "budgeted"
report) uses projections to develop the current year's reimbursement rate,
subject to retroactive recapture of any monies paid by local Departments of
Social Services for budgeted expenses which are greater than the actual expenses
incurred. The Company's expenses have always equaled or exceeded the budgeted
amounts.
Third party payors, including Medicaid, Medicare and private insurers, have
taken extensive steps to contain or reduce the costs of health care. These steps
include reduced reimbursement rates, increased utilization review of services,
negotiated prospective or discounted pricing and adoption of a competitive bid
approach to service contracts. Home health care, which is generally less costly
to third party payors than hospital-based care, has benefited from many of these
cost containment measures.
The New York State Department of Health issues Certificates of Need for
Certified Home Health Agencies ("CHHA'S"), which provide post-acute home care
services for people who have just been discharged from a hospital but are not
yet fully recovered, and Long-Term Home Health Care Programs ("LTHHCP'S"), also
known as the "Nursing Home Without Walls," which is intended to provide elderly
people with an alternative for long-term care other than by entering a nursing
home at less than the cost of nursing home care. The Company negotiates its
contracts with CHHA's and LTHHCP's on the basis of services to be provided, in
connection with contracts either currently in effect with the Company or with
other agencies. Prevailing market conditions are such that, despite escalating
operating expenses, reduced contract rates are regularly "demanded" as a result
of internal budget restraints and reductions mandated by managed care contracts
between the Company's clients and HMO's and other third party administrators.
While management anticipates that this trend is likely to continue for the
foreseeable future, it does not expect the impact on the Company to be
significant, since its rates are competitive and, therefore, are expected to be
subject to only minor reductions. However, as expenditures in the home health
care market continue to grow, initiatives aimed at reducing the costs of health
care delivery at non-hospital sites are increasing. A significant change in
coverage or a reduction in payment rates by third party payors, particularly New
York State Medicaid, would have a material adverse effect upon the Company's
business.
Quality Assurance
The Company has established a quality assurance program to ensure that its
service standards are implemented and that the objectives of those standards are
met. The Company believes that it has developed and implemented service
standards that comply with or exceed the service standards required by JCAHO.
The Company received "Accreditation with Commendation" from JCAHO after its
initial, and only, review in 1994. In February 1996, the Company was selected by
the University of Colorado Health Sciences Center as one of only 22 home health
care agencies participating in a two to three year study known as the New York
State Outcome-Based Quality Improvement in Home Care Demonstration
37
<PAGE>
project being funded by the New York State Department of Health, by reason of
the Company's commitment to both quality assurance and improvement. The Company
believes that its reputation for quality patient care has been and will continue
to be a significant factor in its success. An adverse determination by JCAHO
regarding the Company on any branch office could adversely affect the Company's
reputation and competitive position.
The Company's quality assurance program includes the following:
Quality Advisory Boards. The Company maintains two Quality Advisory Boards,
one for its northern group of branch offices and the other for the southern
offices. Each Quality Advisory Board consists of a physician, nursing
professionals and representatives of branch management. The Quality Advisory
Boards identify problems and suggest ways to improve patient care based on
internal quality compliance audits and clinical and personnel record reviews.
Internal Quality Compliance Review Process. Periodic internal reviews are
conducted by the Company's management to ensure compliance with the
documentation and operating procedures required by state law, JCAHO standards
and internal standards. Written reports are forwarded to branch managers. The
Company believes that the internal review process is an effective management
tool for branch managers.
Case Conferences. Staff professionals regularly hold case conferences to
review problem and high risk cases, the physician's plan of treatment and
Company services provided for such cases in order to ensure appropriate, safe
patient care and to evaluate patient progress and plans for future care.
Clinical Record Review. Clinical record review is the periodic evaluation
of the documentation in patient clinical records. In this review process, the
Company evaluates the performance of the nursing services staff to ensure that
professional and patient care policies are followed in providing appropriate
care and that the needs of patients are being met. Clinical record review
findings are documented and reviewed by the applicable Quality Advisory Board
for recommendations.
Sales and Marketing
The Company's executive officers, Jerry Braun and Jacob Rosenberg, are
principally responsible for the marketing of the Company's services. Each branch
office director is also responsible for sales activities in the branch office's
local market area. The Company attempts to cultivate strong, long-term
relationships with referral sources through high quality service and education
of local health care personnel about the appropriate role of home health care in
the clinical management of patients.
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<PAGE>
Government Regulation
The federal government and the State of New York, where the Company
currently operates, regulate various aspects of the Company's business. Changes
in the law or new interpretations of existing laws can have a material effect on
permissible activities of the Company, the relative costs associated with doing
business and the amount of reimbursement by government and other third-party
payors.
The Company is licensed by New York State as a home care services agency.
The State requires approval by the New York State Public Health Council
("Council") of any change in "the controlling person" of an operator of a
licensed home care services agency ( a "LHCSA"). Control of an entity is
presumed to exist if any person owns, controls or holds the power to vote 10% or
more of the voting securities of the LHCSA. A person seeking approval as a
controlling person of a LHCSA, or of an entity that is the operator of a LHCSA,
must file an application for Council approval within 30 days of becoming a
controlling person and, pending a decision by the Council, such person may not
exercise control of the LHCSA. If any person should become the owner or holder,
or acquire control of or the right to vote 10% or more of the issued and
outstanding Common Stock of the Company, such person could not exercise control
of the Company's LHCSA until an application for approval of such ownership,
control or holding has been submitted to the Council and approved. In the event
such an application is not approved, such owner or holder may be required to
reduce their ownership or holding to less than 10% of the Company's issued and
outstanding Common Stock.
The Company is also subject to federal and state laws prohibiting payments
for patient referrals and regulating reimbursement procedures and practices
under Medicare, Medicaid and state programs. The federal Medicare and Medicaid
legislation contains anti-kickback provisions which prohibit any remuneration in
return for the referral of Medicare and Medicaid patients. Courts have, to date,
interpreted these anti-kickbacks laws to apply to a broad range of financial
relationships. Violations of these provisions may result in civil and criminal
penalties, including fines of up to $15,000 for each separate service billed to
Medicare in violation of the anti-kickback provisions, exclusion from
participation in the Medicare and state health programs such as Medicaid and
imprisonment for up to five years.
The Company's healthcare operations potentially subject it to the Medicare
and Medicaid anti-kickback provisions of the Social Security Act. These
provisions are broadly worded and often vague, and the future interpretation of
these provisions and their applicability to the Company's operations cannot be
fully predicted with certainty. There can be no assurance that the Company will
be able to arrange its acquisitions or business relationships so as to comply
with these laws or that the Company's present or future operations will not be
accused of violating, or be determined to have violated, such provisions. Any
such result could have a material adverse effect on the Company.
Various Federal and state laws regulate the relationship among providers of
healthcare services, including employment or service contracts, and investment
relationships. These laws include
39
<PAGE>
the broadly worded fraud and abuse provisions of the Social Security Act that
are applicable to the Medicare and Medicaid programs, which prohibit various
transactions involving Medicare or Medicaid covered patients or services. Among
other things, these provisions restrict referrals for certain designated health
services by physicians to entities with which the physician or the physician's
immediate family member has a "financial relationship" and the receipt of
remuneration by anyone in return for, or to induce, the referral of a patient
for treatment or purchasing or leasing equipment or services that are paid for,
in whole or in part, by Medicare or Medicaid. Violations of these provisions may
result in civil or criminal penalties for individuals or entities and/or
exclusion from participation in the Medicare and Medicaid programs. The future
interpretation of these provisions and their applicability to the Company's
operations cannot be fully predicted with certainty.
In May 1991, the United States Department of Health and Human Services
adopted regulations creating certain "safe harbors" from federal criminal and
civil penalties by identifying certain types of joint venture and management
arrangements that would not be treated as violating the federal anti-kickback
laws relating to referrals of patients for services paid by the Medicare and
Medicaid programs. It is not possible to accurately predict the ultimate impact
of these regulations on the Company's business.
New York and other states also have statutes and regulations prohibiting
payments for patient referrals and other types of financial arrangements with
health care providers which, while similar in many respects to the federal
legislation, vary from state to state, are often vague and have infrequently
been interpreted by courts or regulatory agencies. Sanctions for violation of
these state restrictions may include loss of licensure and civil and criminal
penalties. In addition, the professional conduct of physicians is regulated
under state law. Under New York law, it is unprofessional conduct for a
physician to receive, directly or indirectly, any fee or other consideration for
the referral of a patient. Finally, under New York law, a physician with a
financial interest in a health care provider must disclose such information to
the patients and advise them of alternative providers.
The Company believes that the foregoing arrangements in particular and its
operations in general comply in all material respects with applicable federal
and state laws relating to anti-kickbacks, and that it will be able to arrange
its future business relationships so as to comply with the fraud and abuse
provisions.
Management believes that the trend of federal and state legislation is to
subject the home health care and nursing services industry to greater
regulation, particularly in connection with third-party reimbursement and
arrangements designed to induce or encourage the referral of patients to a
particular provider of medical services. The Company is attempting to be
responsive to such regulatory climate. However, the Company is unable to
accurately predict the effect, if any, of such regulations or increased
enforcement activities on the Company's future results of operations.
In addition, the Company is subject to laws and regulations which relate to
business corporations in general, including antitrust laws, occupational health
and safety laws and environmental laws (which relate, among other things, to the
disposal, transportation and handling of
40
<PAGE>
hazardous and infectious wastes). None of these laws and regulations have had a
material adverse effect on the Company's business or competitive position or
required material expenditures on the part of the Company, although no assurance
can be given that such will continue to be the case in the future.
The Company is unable to accurately predict what additional legislation, if
any, may be enacted in the future relating to the Company's business or the
health care industry, including third-party reimbursement, or what effect any
such legislation may have on the Company.
The Company has never been denied any license it has sought to obtain. The
Company believes that its operations are in material compliance with all state
and federal regulations and licensing requirements.
Competition
The home health care market is highly fragmented, and significant
competitors are often localized in particular geographical markets. The
Company's largest competitors include U.S. Home Care, Inc., Star Multicare,
Inc., TransWorld Home Health Care, Inc., Patient Care, Inc., Plaza Nurses
Agency, Inc. and Personal Touch Home Care Services, Inc. The home health care
business is marked by low entry costs. The Company believes that, given the
increasing level of demand for nursing services, significant additional
competition can be expected to develop in the future. Some of the companies with
which the Company presently competes in home health care have substantially
greater financial and human resources than the Company. The Company also
competes with many other small temporary medical staffing agencies.
The home infusion therapy market is highly competitive, and the Company
expects that the competition will intensify. As the Company seeks to expand its
provision of infusion therapy services, it will compete with a large number of
companies and programs in the areas in which its facilities are located. Many of
these are local operations servicing a single area; however, there are a number
of large national and regional companies, including Olsten Kimberly QualityCare,
Inc., Coram Health Care Corp., Staff Builders, Inc. and Interim Personnel, Inc.
In addition, certain hospitals, clinics and physicians, who traditionally may
have been referral sources for the Company, have entered or may enter the market
with local programs.
The Company believes that the principal competitive factors in its industry
are quality of care, including responsiveness of services and quality of
professional personnel; breadth of therapies and nursing services offered;
successful referrals from referring government agencies, hospitals and health
maintenance organizations; general reputation with physicians, other referral
sources and potential patients; and price. The Company believes that its
competitive strengths have been the quality, responsiveness, flexibility and
breadth of services and staff it offers, and to some extent price competition,
as well as its reputation with physicians, referral sources and patients.
41
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The United States health care industry generally faces a shortage of
qualified personnel. Accordingly, the Company experiences intense competition
from other companies in recruiting qualified health care personnel for its home
health care operations. The Company's success to date has depended, to a
significant degree, on its ability to recruit and retain qualified health care
personnel. Most of the registered and licensed nurses and health care
paraprofessionals who are employed by the Company are also registered with, and
may accept placements from time to time through, competitors of the Company. The
Company believes it is able to compete successfully for nursing and
paraprofessional personnel by aggressive recruitment through newspaper
advertisements, flexible work schedules and competitive compensation
arrangements. There can be no assurance, however, that the Company will be able
to continue to attract and retain qualified personnel. The inability to either
attract or retain such qualified personnel would have a material adverse effect
on the Company's business.
Insurance Coverage
The Company maintains a policy of insurance covering the acts and omissions
of its health care personnel. This policy, which is renewable by the carrier at
the beginning of each policy year, provides coverage of $3 million in the
aggregate or $1 million per occurrence for each policy year. The Company also
maintains umbrella insurance which provides an addition $5 million in coverage.
The Company believes that the insurance coverage which it maintains is customary
in the home health care and infusion therapy industry. However, there can be no
assurance that such insurance will be adequate to cover the Company's
liabilities or that the Company will be able to continue its present insurance
coverage on satisfactory terms, if at all. A successful claim against the
Company in excess of, or not covered by, the Company's insurance coverage could
have a material adverse effect on the Company's business and financial
condition. Claims against the Company, regardless of their merit or eventual
outcome could also have a material adverse effect on the Company's reputation
and business.
Employees
At June 30, 1996, the Company had 650 employees, of whom 42 are salaried,
including three executive officers, one director of operations, five branch
managers, five directors of nursing, one director of maternal/child health, six
accounting/clerical staff, and 21 field staff supervisors. The remaining 608
employees are paid on an hourly basis and consist of professional and
paraprofessional employees. None of the Company's employees are compensated on
an independent contractor basis. The Company believes that its employee
relations are good. None of the Company's employees is represented by a labor
union.
Litigation
To the knowledge of the Company, there are no material legal proceedings
pending or threatened against the Company, other than legal proceedings pending
in the ordinary course of business which are fully covered by insurance.
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Properties
The Company's principal place of business is located at 1667 Flatbush
Avenue, Brooklyn, New York 11210 and consists of approximately 2,000 square feet
on two of the three floors of a commercial building, which is owned by 1667
Flatbush Ave., L.L.C., a New York limited liability company owned by the
Company's current stockholders. See "Certain Transactions." The lease is for a
period ending October 31, 2000 and is subject to a renewal option for five years
in favor of the Company. The rent is $3,000 a month and is subject to annual
increases, beginning November 1, 1996, equal to 5% of the total prior year's
monthly rent for the original term and all renewal terms of the lease. The
Company intends to use a portion of the proceeds of this offering to move to a
new and larger principal office facility, as well as to upgrade its existing
branch office facilities and its computer management systems. See "Use of
Proceeds."
The table below sets forth certain information with respect to each of the
Company's existing branch office locations, all of which are leased from
non-affiliated lessors:
<TABLE>
<CAPTION>
Lease Terms
Approx. Square -------------------------------------
Opening Footage of Expiration Annual
Location Date Sales Area Date Rental(1)
<S> <C> <C> <C> <C>
Nassau County
Branch Office
175 Fulton Avenue
Hempstead, NY 11550 9/93 1,600 10/31/98 $20,187
Westchester County
Branch Office
105 Stevens Avenue
Mt. Vernon, NY 10550 1/93 1,600 12/31/96 $20,400
Rockland County
Branch Office
49 South Main Street
Spring Valley, NY 10977 10/94 1,500 9/30/98 $15,600(2)
Orange County
Branch Office
45 Grand Street
Newburgh, NY 11250 9/92 1,500 8/31/97 $10,800(3)
Queens Recruitment and
Training Office
91-31 Queens Blvd.
Elmhurst, NY 11373 10/95 750 9/30/97 $17,400
</TABLE>
- ----------
(1) The leases provide for additional rentals based upon increases in real
estate taxes and other cost escalations.
(2) Until 10/1/96; thereafter, the rent is at the rate of $16,200 per year.
(3) Until 8/31/96; thereafter, the rent is $12,000 per year.
43
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Jerry Braun 39 President, Chief Executive Officer and Director
Jacob Rosenberg 38 Vice President, Chief Operating Officer,
Secretary and Director
Gilbert Barnett 51 Chief Financial Officer and Chief Accounting
Officer
Samson Soroka 40 Director
Hirsch Chitrik 68 Director
Sid Borenstein 42 Director
Jerry Braun has been the President, Chief Executive Officer and Chief
Operating Officer of the Company since its inception in 1983.
Jacob Rosenberg has been Secretary and a Director since the Company's
inception in 1983, and Vice President and Chief Operating Officer since February
1995.
Gilbert Barnett has been the Chief Accounting Officer and Chief Financial
Officer of the Company since April 1995. From 1989 to 1995, he was Director of
Finance for the Mt. Sinai Medical Center in New York, where he was responsible
for the Patient Accounting Department. From 1981 to 1988, Mr. Barnett was the
President of Grand Graham Medical Center, a shared health facility located in
Brooklyn, New York. In 1981, he was the treasurer of Accredited Care, Inc., a
licensed home care company in White Plains, New York. Mr. Barnett is a Certified
Public Accountant, a Fellow of the Health Care Financial Management Association
and a Certified Manager of Patient Accounts.
Samson Soroka has been a Director of the Company since its inception in
1983. From 1988 to February 1995, Mr. Soroka was employed by the Company as its
Chief Financial Officer. Since then, Mr. Soroka has been employed as an
independent consultant. Mr. Soroka is a graduate of Brooklyn College of the City
University of New York (BS, Accounting and Computer Science, 1979).
Hirsch Chitrik has been a Director of the Company since May 1995. For more
than the last five years, Mr. Chitrik has been the President of Citra Trading
Corporation, a privately-held company in New York engaged in the jewelry
business.
44
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Sid Borenstein has been a Director of the Company since May, 1995. For more
than the last five years, Mr. Borenstein, a Certified Public Accountant has been
a General Partner in Sid Borenstein & Co., CPAs, in Brooklyn, New York.
There are no committees of the Board of Directors. Directors hold their
offices until the next annual meeting of the stockholders and thereafter until
their successors have been duly elected and qualified. Executive officers are
elected by the Board of Directors on an annual basis and serve at the direction
of the Board. All of the executive officers devote approximately 90% of their
time to the business affairs of the Company. See "Certain Transactions." The
Company intends to appoint a Compensation Committee after the completion of this
offering.
Employment Agreements
On March 26, 1996, the Company entered into employment agreements with
Jerry Braun and Jacob Rosenberg, each of which is for a term ending December 31,
1999. On August 27, 1996, the Company entered into an employment agreement with
Gilbert Barnett, its chief financial and accounting officer, with a term ending
July 30, 1999.
Mr. Braun's agreement provides that he will serve as President and Chief
Executive Officer in consideration of (i) initial annual compensation of
$175,000; (ii) reimbursement of authorized business expenses incurred in
connection with the conduct of the Company's business; (iii) participation in
the Company's 401(k) Plan and stock option plan; (iv) an automobile
reimbursement allowance of $500 per month toward automobile leasing cost and
reimbursement of automobile insurance cost; (v) an allowance of $3,500 per year
towards the cost of $500,000 of term life insurance, and disability insurance;
(vi) four weeks paid vacation; and (vii) annual increase in salary of 10% for
each year. He is required to devote a majority of his business time to the
Company's affairs and is permitted to devote a limited amount of his business
time to the affairs of Heart to Heart, provided those activities do not compete
with the Company's business. See "Certain Transactions."
Mr. Rosenberg's agreement has the same general terms and conditions as Mr.
Braun's, except that he will serve as Chief Operating Officer, and the annual
compensation is $140,000.
Mr. Barnett's agreement provides that he will serve as Chief Financial
Officer in consideration of (i) initial annual compensation of $80,000; (ii)
reimbursement of authorized business expenses incurred in connection with the
conduct of the Company's business; (iii) participation in the Company's 401(k)
Plan; (iv) a reimbursement allowance of $1,000 per year toward professional dues
and continuing professional education; and (v) up to three weeks paid vacation.
He is required to devote his entire business time to the Company's affairs.
Mr. Braun, Mr. Rosenberg and Mr. Barnett also participate, together with
all employees of the Company, in a bonus plan pursuant to which 10% of the
Company's annual pre-tax net income is contributed to the bonus pool which is
distributed to such persons and in such amounts as decided upon by the Company's
Compensation Committee.
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<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth, for the year ended December 31, 1995, the
cash compensation paid by the Company, as well as certain other compensation
paid with respect to those years, to its President, Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer (the "Named Executives") in
all capacities in which they served.
Annual Compensation
-------------------
Other Annual
Name and Principal Position Year Salary Compensation
- --------------------------- ---- ------ ------------
Jerry Braun
President and Chief Executive
Officer 1995 $116,177 $18,294(1)
Jacob Rosenberg
Chief Operating Officer 1995 $100,096 $19,480(2)
Gilbert Barnett(3)
Chief Financial Officer 1995 $ 57,692 $ 851
- ----------
(1) Includes $10,412 of medical insurance premiums paid on behalf of such
individual and $7,882 for automobile and automobile-related costs, including
insurance, incurred on behalf of such individual.
(2) Includes $10,412 of medical insurance premiums paid on behalf of such
individual and $9,068 for automobile and automobile-related costs, including
insurance, incurred on behalf of such individual.
(3) Mr. Barnett joined the Company in April 1995.
Directors Compensation
The Company currently reimburses each non-employee director for their
expenses in connection with attending meetings.
Savings and Stock Option Plans
401(k) Plan
The Company maintains an Internal Revenue Code Section 401(k) salary
deferral savings plan (the "Plan") for all of its eligible employees who have
been employed for at least one year and are at
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least 21 years old (effective July 1, 1996, field staff employees at the
Company's Orange County branch office, in Newburgh, New York, ceased being
eligible to participate in the Plan). Subject to certain limitations, the Plan
allows participants to voluntarily contribute up to 15% of their pay on a
pre-tax basis. Under the Plan, the Company may make matching contributions on
behalf of the pre-tax contributions made by participants. For 1995 and for the
first half of 1996, the Company contributed 50% of each dollar contributed to
the Plan by participants up to a maximum of 6% of the participant's salary. All
participants are fully vested in their accounts in the Plan with respect to
their salary deferral contributions and are vested in Company matching
contributions at the rate of 20% per year for two years through four years of
service, with 100% vesting after five years of service. However, participants
who are first hired after December 31, 1994 will not be vested in the Company
matching contributions until the completion of five years service, when they
become 100% vested. The Company has agreeed with the Representative that no
discretionary contributions to the Plan may be made for officers or stockholders
of the Company.
Stock Option Plan
In March 1996, the Company's Board of Directors and stockholders approved
and adopted the New York Health Care, Inc. Performance Incentive Plan (the
"Option Plan"). Under the terms of the Option Plan, options to purchase up to
210,000 shares of Common Stock may be granted to key employees of the Company.
Moreover, the Company's Board of Directors has approved a resolution which
proposes to provide for an increase in the number of shares of Common Stock
available for options under the Option Plan equal to an additional 210,000
shares for each of two additional years, subject to approval by the Company's
shareholders at the first annual meeting of shareholders which is held after the
completion of this offering. The Option Plan is to be administered by a
Compensation Committee to be appointed by the Board of Directors (the
"Committee"), which is authorized to grant incentive stock options and
non-qualified stock options to selected employees of the Company and to
determine the participants, the number of options to be granted and other terms
and provisions of each option.
The exercise price of any incentive stock option or nonqualified option
granted under the Option Plan may not be less than 100% of the fair market value
of the shares of Common Stock of the Company at the time of the grant. In the
case of incentive stock options granted to holders of more than 10% of the
voting power of the Company, the exercise price may not be less than 110% of the
fair market value.
Under the terms of the Option Plan, the aggregate fair market value
(determined at the time of grant) of shares issuable to any one recipient upon
exercise of incentive stock options exercisable for the first time during any
one calendar year may not exceed $100,000. Options granted under the Option Plan
become exercisable in whole or in part from time to time as determined by the
Committee, but in no event may a stock option granted in conjunction therewith
be exercisable prior to the expiration of six months from the date of grant,
unless the grantee dies or becomes disabled prior thereto. Stock options granted
under the Option Plan have a maximum term of 10 years from the date of grant,
except that with respect to incentive stock options granted to an employee who,
at the time of the grant, is a holder of more than 10% of the voting power of
the Company, the stock option shall expire not more than five years from the
date of the grant. The option price must be paid
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in full on the date of exercise and is payable in cash or in shares of Common
Stock having a fair market value on the date the option is exercised equal to
the option price.
If a grantee's employment by, or provision of services to, the Company
shall be terminated, the Committee may, in its discretion, permit the exercise
of stock options for a period not to exceed one year following such termination
of employment with respect to incentive stock options and for a period not to
extend beyond the expiration date with respect to non-qualified options, except
that no incentive stock option may be exercised after three months following the
grantee's termination of employment, unless it is due to death or permanent
disability, in which case they may be exercised for a period of up to one year
following such termination.
The Underwriting Agreement between the Company and the Representative
provides that for a period of three years from the effective date of this
Prospectus, the Company will not adopt, propose to adopt or otherwise permit to
exist any employee, officer, director or compensation plan or arrangement
permitting the grant, issue or sale of any shares of Common Stock or other
securities of the Company in an amount greater than 210,000 shares, other than
the proposed increase in the Option Plan described above. The Underwriting
Agreement also provides that, (i) for the 12 month period commencing on the
effective date of this Prospectus, the exercise price for any option granted
pursuant to the Option Plan or otherwise during such period cannot be less than
the fair market value per share of the Common Stock on the date of grant and
(ii) if the Company's shareholders approve an increase of an additional 210,000
shares for each of two additional years, then any option granted in the first 12
months following such an increase will have an exercise price no lower than the
fair market value per share of the Common Stock upon the date of the option
grant.
Other than a stock option which has been issued outside of the Option Plan
to Jerry Braun for 75,000 shares of the Company's Common Stock at an exercise
price of $3.75 per share, the Company has not issued any options under the
Option Plan, or otherwise, as of the date of this Prospectus. The Company does
not have any other existing stock option or other deferred compensation plans,
but may adopt such plans in the future. However, the Company has agreed with the
Representative not to adopt any other stock option or deferred compensation
plans during the three-year period commencing on the effective date of this
Prospectus without the written consent of the Representative.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding shares of the
Common Stock beneficially owned as of the date of this Prospectus by (i) each
person, known to the Company, who beneficially owns more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each of the Named Executives
and (iv) all officers and directors as a group:
<TABLE>
<CAPTION>
Percentage(1)
-------------
Name and Address of Shares Prior to After
Beneficial Owner Beneficially Owned(1) Offering Offering
- ---------------- --------------------- -------- --------
<S> <C> <C> <C>
Jerry Braun(2) 924,374 39.5% 27.27%
929 East 28th Street
Brooklyn, NY 11210
Jacob Rosenberg 424,688 18.75% 12.81%
932 East 29th Street
Brooklyn, NY 11210
Samson Soroka 424,688 18.75% 12.81%
1228 East 22nd Street
Brooklyn, NY 11210
Hirsch Chitrik 453,000 20% 13.67%
1401 President Street
Brooklyn, NY 11213
Sid Borenstein(3) 113,250 5% 3.42%
1246 East 10th Street
Brooklyn, NY 11230
All officers and directors 2,340,000 100% 68%
as a group (5 persons)(1)(2)
</TABLE>
- ----------
(1) The shares of Common Stock owned by each person or by the group, and the
shares included in the total number of shares of Common Stock outstanding,
have been adjusted in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended, to reflect the ownership of shares
issuable upon exercise of outstanding options, warrants or other common
stock equivalents which are exercisable within 60 days. As provided in such
Rule, such shares issuable to any holder are deemed outstanding for the
purpose of calculating such holder's beneficial ownership but not any other
holder's beneficial ownership.
(2) Includes 75,000 shares of Common Stock issuable upon the exercise of a
stock option granted to Mr. Braun at an exercise price of $3.75 per share.
See "Management" and "Certain Transactions."
(3) Mr. Borenstein is a subordinated lender to, and participates in the profits
of, RAS Securities Corp., the Representative. See "Underwriting."
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<PAGE>
CERTAIN TRANSACTIONS
The Company operated as an S Corporation prior to this offering and has
paid out a substantial portion of its earnings to the current stockholders.
These distributions aggregated $100,230 and $840,302 for the years ended
December 31, 1994 and 1995, respectively, and $1,025,431 for the six months
ended June 30, 1996. Prior to the consummation of this offering, additional
distributions of previously earned undistributed S Corporation earnings in the
aggregate amount of $2,200,000 will be made to the current stockholders. The
Company is funding the distribution utilizing $2,200,000 out of its $3,500,000
aggregate lines of credit. See "Former S Corporation Tax Treatment",
"Capitalization" and Notes 1, 2 and 4 to the Financial Statements.
The Company's directors are the sole stockholders of a New Jersey
corporation named Heart to Heart Health Care Services, Inc. ("Heart to Heart"),
with offices located at 7 Glenwood Avenue, East Orange, New Jersey 07017. Heart
to Heart, which began its operations in 1995, engages in the home health care
business in northern New Jersey, but not in the State of New York, and had net
revenues of $288,948 in the year ended December 31, 1995. Since its inception,
Heart to Heart has utilized Company personnel for its administrative functions
regarding payroll, benefits management and data processing. The Company and
Heart to Heart have entered into a Service Agreement, pursuant to which the
Company will provide administrative services relating to payroll, benefits
management and data processing for a term of 18 months ending June 30, 1997 for
which the Company will be reimbursed for all expenses attributable to such
operations, presently totalling approximately $15,000 per year. The Company is
not a guarantor of any obligations of Heart to Heart, nor is it engaged in any
business or financing transactions with Heart to Heart, other than as described
herein.
On February 13, 1995, Samson Soroka resigned as Chief Financial Officer of
the Company. Mr. Soroka entered into a Settlement Agreement and General Release
with the Company on September 28, 1995 (the "Settlement Agreement"), pursuant to
which the Company agreed to pay his base salary of $85,000 per year through
August 13, 1995 and continue his medical insurance coverage through February 13,
1996. In addition, the Company agreed to advance to Mr. Soroka, without
interest, the sum of $25,000 against the cash distributions payable to the
Company's current stockholders and loaned to Mr. Soroka the sum of $125,000,
bearing interest at the same rate charged to the Company under its credit lines.
Mr. Soroka has since repaid his loan, together with accrued interest. Mr. Soroka
agreed to keep confidential all commercial, financial or technical information
concerning the Company which he learned during his employment. The Company and
Mr. Soroka also entered into mutual releases of all claims which they might have
had against each other.
On May 8, 1995, Jerry Braun, Jacob Rosenberg and Samson Soroka contributed
back to the Company an aggregate of 566,250 shares of Common Stock and the
Company issued 453,000 shares of its Common Stock to Hirsch Chitrik and 113,250
shares of Common Stock to Sid Borenstein
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<PAGE>
in consideration for their having obtained a bank line of credit for the Company
of not less than $800,000 at an interest rate no greater than 2% over the prime
rate of Citibank N.A. The credit line was obtained in 1988 pursuant to a March
31, 1988 agreement between Jerry Braun, Jacob Rosenberg, Samson Soroka, Hirsch
Chitrik, Sid Borenstein and the Company, in which they subscribed to purchase
shares of Common Stock, subject to New York State Department of Health and
Public Health Council approval (which was granted on March 24, 1995), and which
provided to Messrs. Chitrik and Borenstein non-voting equity distributions of
20% and 5%, respectively.
On November 1, 1995, the Company transferred the land and building located
at 1667 Flatbush Avenue, Brooklyn, New York, which houses its principal offices,
to 1667 Flatbush. This transfer, which relieved the Company of a first mortgage
obligation aggregating $146,250, was a non-cash distribution to the current
stockholders of S Corporation earnings in the aggregate sum of $144,927. The
Company now leases its principal offices from 1667 Flatbush for a term of five
years ending October 31, 2000, which term is subject to a five-year renewal
option in favor of the Company. The rent is $3,000 per month and is subject to
annual increases equal to 5% of the prior year's monthly rent beginning November
1, 1996 for each year of the original and any renewal term. Management believes
that the terms of the lease were and are no less favorable to the Company than
could be obtained from unaffiliated third parties. See " Former S Corporation
Tax Treatment" and "Business -- Properties."
On March 26, 1996, the Company issued a stock option to its President and
Chief Executive Officer, Jerry Braun, for the purchase of 75,000 shares of the
Company's Common Stock at an exercise price of $3.75 per share during the period
ending March 31, 2001. See "Management -- Savings and Stock Option Plans."
On March 26, 1996, the Company entered into employment agreements with
Jerry Braun and Jacob Rosenberg. See "Management -- Employment Agreements."
On July 8, 1996, the Company entered into an agreement with 1667 Flatbush
pursuant to which 1667 Flatbush purchased $3,500,000 of the Company's accounts
receivable for a purchase price of $3,150,000, payable at the rate of $1,100,000
on August 1, 1996, $1,100,000 on September 1, 1996 and $950,000 at the earlier
of October 1, 1996 or the date of this Prospectus. The first payment of
$1,100,000 was made on August 1, 1996 and the second payment of $1,100,000 was
prepaid on August 23, 1996. Each payment is made together with accrued interest,
in arrears. The payments due to the Company are reflected in a negotiable
promissory note of 1667 Flatbush bearing interest at the rate of 12% per annum,
are secured by a lien on the accounts receivable purchased from the Company by
1667 Flatbush and are personally guaranteed by each of the members of 1667
Flatbush. The promissory note permits prepayments of principal without penalty.
Each such prepayment is credited against the next due payment obligation of 1667
Flatbush. As a result of the Company's sale of accounts receivable for less than
their face value, the Company expects to recognize a net charge to its earnings
during the third quarter ended September 30, 1996 in the amount of $170,000. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
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<PAGE>
The transactions described above involve actual or potential conflicts of
interest between the Company and its officers or directors. In order to reduce
the potential for conflicts of interest between the Company and its officers and
directors, prior to entering into any transaction in which a potential material
conflict of interest might exist, the Company's policy has been and will
continue to be that the Company does not enter into transactions with officers,
directors or other affiliates unless the terms of the transaction are at least
as favorable to the Company as those which would have been obtainable from an
unaffiliated source. As of the date of this Prospectus, the Company has no plans
to enter into any additional transactions which involve actual or potential
conflicts of interest between the Company and its officers or directors and will
not enter into any such transactions in the future without first obtaining an
independent opinion with regard to the fairness to the Company of the terms and
conditions of any such transaction.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 10,000,000 shares of
Common Stock, par value $.01 per share and 2,000,000 shares of Preferred Stock,
par value $.01 per share. Prior to this offering, there were 2,265,000 shares of
Common Stock issued and outstanding held by five holders of record.
Common Stock
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors with the result that the
holders of more than 50% of the shares of Common Stock can elect all of the
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision has been made for each class of stock, if any, having preference
over the Common Stock, as such, having no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
Common Stock.
Preferred Stock
The Board of Directors of the Company is authorized to issue up to
2,000,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including the dividend rights,
dividend rate, conversion rights, voting rights, terms of redemption (including
sinking fund provisions), redemption price or prices, liquidations preferences
and the number of shares constituting any series or the designations of such
series, without any further vote or action by the stockholders. It would be
possible for the Board of Directors to issue shares of such preferred stock in a
manner which would make acquisition of control of the Company, other than as
approved by the Board, exceedingly difficult.
The Company currently has no plans to issue any shares of Preferred Stock.
52
<PAGE>
Redeemable Warrants
Each Warrant entitles the holder thereof, upon exercise, to purchase one
share of Common Stock at a price of $6.00 per share, subject to adjustment,
exercisable for a period of four years, commencing one year from the date of
this Prospectus.
The exercise price of the Warrants and the number and kind of shares of
Common Stock issuable upon the exercise of Warrants are subject to adjustment in
certain circumstances, including a stock split of, or stock dividend on, the
Common Stock, all as set forth in the Warrant Agreement relating to the issuance
of the Warrants. There will be no adjustment for the payment of cash dividends,
if any, by the Company on its Common Stock. Holders of the Warrants have no
voting power and are not entitled to any dividends. In the event of any
dissolution or winding up of the Company, the holders of the Warrants will not
be entitled to participate in a distribution of the Company's assets.
In the event that the Company adopts a resolution to merge, consolidate, or
sell all or substantially all of its assets prior to the expiration of the
Warrants, each Warrant holder, upon the exercise of his Warrant, would be
entitled to receive the same treatment as other holders of any other shares of
Common Stock. In the event the Company adopts a resolution for the liquidation,
dissolution or winding-up of the Company's business, the Company will give
written notice of the adoption of such resolution to the registered holders of
the Warrants. Thereupon, all liquidation and dissolution rights under the
Warrants will terminate at the end of 30 days from the date of the notice to the
extent not exercised within those 30 days.
The Warrants are subject to redemption by the Company, at any time,
commencing 24 months following the date of this Prospectus, on 30 days prior
written notice, at a price of $.05 per Warrant if the average closing bid price
for the Common Stock equals or exceeds $7.50 per share for 20 consecutive
trading days ending on the tenth trading day prior to the date of the notice of
redemption.
The Warrant may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date (or earlier redemption date, if applicable) of
such Warrants at the offices of the warrant agent, with the form of "Election to
Purchase" on the reverse side of the Warrant certificate completed and executed
as indicated, accompanied by payment of the full exercise price (in cash or by
certified check payable to the order of the warrant agent, as agent for the
Company) for the number of Warrants being exercised.
No Warrant will be exercisable or redeemable unless, at the time of
exercise or redemption, the Company has filed a current Prospectus with the
Commission covering the shares of Common Stock to be issued or redeemed upon
exercise or redemption of such Warrant and such shares have been registered or
qualified or deemed to be exempt under the securities laws of the state of
residence of the holder of such Warrant. The Company will use its best efforts
to have all such shares so registered or qualified on or before the exercise or
redemption date of the Warrants and to maintain a current Prospectus relating
thereto until the expiration of the Warrants, subject to the terms of the
Warrant Agreement. While it is the Company's intention to do so, there is no
assurance that it will be able to do so.
53
<PAGE>
Transfer Agent and Warrant Agent
Continental Stock Transfer & Trust Company, New York, New York, is the
transfer agent and registrar for the shares of Common Stock and the warrant
agent for the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be 2,265,000 shares of Common
Stock outstanding that are "restricted securities" as that term is defined in
Rule 144 promulgated under the Act. In general, under Rule 144, and providing
the Company is current in all reports which are required to be filed by the
Securities Exchange Act of 1934, a person (or persons whose shares are
aggregated) who has satisfied a two-year holding period may, under certain
circumstances, sell within any three-month period that number of shares which
does not exceed the greater of one percent of the then outstanding shares or the
average weekly trading volume during the four calendar weeks prior to such sale.
Rule 144 also permits, under certain circumstances, the sale of shares without
any quantity limitation by a person who has satisfied a three-year holding
period and who is not, and has not been for the preceding three months, an
affiliate of the Company. Under the provisions of Rule 144, 1,698,750 shares of
such restricted securities may be sold immediately and 566,250 shares may be
sold beginning in May, 1997. The Warrants being offered by the Company entitle
the holders of such Warrants to purchase up to an aggregate of 1,050,000 shares
of Common Stock at any time during the period beginning one year from the date
of this Prospectus and expiring five years from the date of this Prospectus.
Sales of either the Warrants or underlying shares of Common Stock, or even the
existence of the Warrants, may depress the price of the Common Stock or the
Warrants in any market which may develop for such securities. Holders of 100% of
the Common Stock (including shares issuable in connection with pre-offering
transactions and upon exercise of outstanding options) have agreed not to
directly or indirectly sell any shares of Common Stock or any other securities
of the Company owned by them for a period of two years from the date of this
Prospectus without the prior written consent of the Representative.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, which is filed as an exhibit to the Registration Statement, the
Underwriters have agreed to purchase, and the Company has agreed to sell,
1,050,000 shares of Common Stock and 1,050,000 Warrants as follows:
Name Shares Warrants
RAS Securities Corp.........................
**** ******** *** ..........................
Total....................................... 1,050,000 1,050,000
The Underwriting Agreement provides that the Underwriters will be obligated
to purchase all the Securities offered hereby on a "firm commitment" basis, if
any are purchased. The Company has been advised by the Underwriters that they
propose to offer the Shares and the Warrants to the public initially at the
offering prices set forth on the cover page of this Prospectus; that the
Underwriters may
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<PAGE>
allow to selected dealers a concession of $.** per Share and $.** per Warrant;
and that such dealers may reallow a concession of $.** per Share and $.** per
Warrant to certain other dealers.
The Company has granted to the Representative an over-allotment option to
purchase up to 157,500 shares of Common Stock and/or 157,500 Warrants during the
30 day period commencing with the date of this Prospectus, solely to cover
over-allotments in the sale of the Shares and the Warrants. The Company has also
agreed to sell to the Representative for nominal consideration the
Representative's Warrants to purchase an aggregate of 105,000 shares of Common
Stock and 105,000 Warrants. The Representative's Warrants are exercisable at a
price equal to 120% of the initial offering price, for a period of four years
commencing one year from the date of this Prospectus. The Representative's
Warrants grant to the holder thereof certain "piggyback" registration rights for
a period of seven years from the date of this Prospectus and demand registration
rights for a period of five years from the date of this Prospectus with respect
to the registration under the Securities Act of the securities issuable upon
exercise of the Representative's Warrants.
During the term of the Representative's Warrants, the holders are given the
opportunity to profit from a rise in the market price of the Common Stock with a
resulting dilution in the interest of other stockholders. Moreover, the holders
may exercise the Representative's Warrants at a time when the Company would in
all likelihood be able to obtain equity capital on terms more favorable than
those provided in the Representative's Warrants.
In accordance with the Underwriting Agreement, the Representative has been
granted the option of designating an individual to serve on the Company's Board
of Directors for a period of three years after completion of this offering. The
Representative has not advised the Company whether it will exercise such option
or, if so, who it will designate.
The Underwriting Agreement provides that the Company will pay a
nonaccountable expense allowance of 3% of the gross proceeds of this offering to
the Underwriters, $50,000 of which has been paid as of the date of this
Prospectus. The Company also has agreed to pay all expenses in connection with
qualifying the Shares and the Warrants offered hereby for sale under the laws of
such states as the Underwriters may designate, including fees and expenses of
counsel retained for such purposes, certain costs of investigatory searches of
the Company's executive officers and other expenses in connection with the
Offering.
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
All of the Company's other stockholders, officers and directors have agreed
not to sell their shares without the consent of the Representative for a period
of 24 months. The Underwriting Agreement provides that, other than the issuance
of options pursuant to the Option Plan, the Company will not offer any shares of
Common Stock, options to purchase Common Stock, Warrants or any other equity or
debt security within three years after the date of this Prospectus without the
consent of the Representative.
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<PAGE>
The Underwriting Agreement provides that the Company will neither solicit
the exercise of the Warrants nor authorize any other dealer to engage in such
solicitation without the consent of the Representative. Upon the exercise of the
Warrants, the Company has agreed to pay to the Representative a commission equal
to 5% of the aggregate exercise price. The commission will be payable only if
(i) the Warrant is exercised at least 12 months after the date of this
Prospectus; (ii) the market price of the Common Stock on the date that the
Warrant is exercised is greater than the exercise price of the Warrants; (iii)
the exercise of the Warrant was solicited by a member of the National
Association of Securities Dealers, Inc.; (iv) the Warrant is not held in a
discretionary account; (v) disclosure of the compensation arrangements is made
at the time of the exercise of the Warrant; (vi) the holder of the Warrant has
stated in writing that the exercise was solicited and designated in writing the
soliciting broker-dealer; and (vii) solicitation of exercise of the Warrant was
not in violation of Rule l0b-6 promulgated under the Exchange Act. However, no
fees will be payable to the Representative in connection with Warrants
voluntarily exercised without solicitation by the Representative.
The Underwriting Agreement provides that, on the effective date of this
Prospectus, the Company shall enter into a non-exclusive financial consulting
agreeement with the Representative providing that during the five-year period
after the date of this Prospectus, in the event the representative originates a
financing or a merger, acquisition or transaction to which the Company is a
party, the Representative will be entitled to receive a finder's fee in
consideration for origination of such a transaction. The fee is based upon a
percentage of the consideration paid in the transaction ranging from 7% of the
first $1,000,000 to 2 1/2% of any consideration in excess of $9,000,000. There
are no current plans, proposals, arrangements or understandings with the
Representative with respect to any financing, merger, acquisition or other
transaction.
Prior to this offering, there has been no public market for any of the
Company's securities. Accordingly, the initial public offering prices of the
Securities was determined by negotiation between the Company and the
Representative. Factors considered in determining such prices and terms, in
addition to prevailing market conditions, included the history of and the
prospects of the industry in which the Company intends to compete, an assessment
of the Company's management, the prospects of the Company, its capital structure
and such other factors as were deemed relevant.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act. To
the extent that the Underwriting Agreement may purport to provide exculpation
from possible liabilities arising under the federal securities laws, it is the
opinion of the Commission that such indemnification is contrary to public policy
and unenforceable.
In December 1994, Sid Borenstein, a director of the Company, made a
subordinated loan to the Representative in the principal amount of $490,000, due
in December 1996. In connection with such loan, Mr. Borenstein received the
right to participate in certain profits of the Representative.
LEGAL MATTERS
The validity of the issuance of the Securities will be passed upon for the
Company by Scheichet & Davis, P.C., New York, New York. Bachner, Tally, Polevoy
& Misher LLP, New York, New York has acted as counsel for the Underwriters in
connection with this offering. The statements
56
<PAGE>
under the captions "Risk Factors - State and Federal Regulation", "Business -
Reimbursement" and "Business - Government Regulation" and other references in
this Prospectus to health care regulations and third party reimbursement have
been reviewed for the Company by Halpern & Pasternack, P.C., Garden City, New
York.
EXPERTS
The historical financial statements of the Company as of December 31, 1994
and December 31, 1995 included in this Prospectus have been audited by M.R.
Weiser & Co. LLP, independent certified public accountants. Their report appears
elsewhere in this Prospectus and is included in reliance upon the authority of
that firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), in Washington, D.C., a Registration Statement on Form SB-2 under
the Securities Act with respect to the Securities. This Prospectus omits certain
information contained in said Registration Statement as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Securities, reference is made to the Registration Statement,
including the exhibits thereto. Statements contained herein concerning the
contents of any contract or any other document are not necessarily complete, and
in each instance, reference is made to such contract or other document filed
with the Commission as an exhibit to the Registration Statement, or otherwise,
each such statement being qualified in all respects by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and at the Northeast Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of such materials can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
57
<PAGE>
NEW YORK HEALTH CARE, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1995 AND
FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996
<PAGE>
<TABLE>
<CAPTION>
NEW YORK HEALTH CARE, INC.
INDEX TO FINANCIAL STATEMENTS
<S> <C>
NEW YORK HEALTH CARE, INC.:
Independent Auditors' Report F-1
Balance Sheets at December 31, 1995 and June 30, 1996 F-2
Statements of Income for the Years Ended December 31, 1994 and 1995,
and for the Six Months Ended June 30, 1995 and 1996 F-3
Statements of Shareholders' Equity for the Years Ended December 31, 1994
and 1995, and for the Six Months Ended June 30, 1995 and 1996 F-4
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995,
and for the Six Months Ended June 30, 1995 and 1996 F-5
Notes to Financial Statements F-6 - F-16
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
New York Health Care, Inc.
We have audited the accompanying balance sheet of New York Health Care, Inc.
(the "Corporation") as of December 31, 1995, and the related statements of
income, shareholders' equity and cash flows for the years ended December 31,
1994 and 1995. These financial statements are the responsibility of the
Corporation'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 auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New York Health Care, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1995 in conformity with generally accepted
accounting principles.
/s/
-----------------------------
M.R. WEISER & CO. LLP
Certified Public Accountants
New York, NY
January 26, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
NEW YORK HEALTH CARE, INC.
BALANCE SHEETS
A S S E T S
Pro Forma
June 30,
December 31, June 30, 1996
1995 1996 Note 2
------------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash (Notes 2 and 8) $ 177,688 $ 264,012 $ 264,012
Accounts receivable, net of allowance for uncollectible
amounts of $44,000 and $100,000 in 1995 and 1996,
respectively (Notes 4, 8 and 14) 4,089,198 3,566,081 3,566,081
Unbilled services (Note 2) 109,314 85,960 85,960
Advances to shareholders 145,000
Prepaid expenses 46,867 60,399 60,399
---------- ---------- ----------
Total current assets 4,568,067 3,976,452 3,976,452
Property and equipment, net (Notes 2 and 3) 96,431 94,292 94,292
Note receivable - shareholder (Note 9) 125,000 125,000 125,000
Acquisition costs, net (Note 2) 30,757 23,793 23,793
Deferred registration costs, net (Note 2) 162,597 162,597
Deposits 19,819 19,819 19,819
---------- ---------- ----------
Total assets $4,840,074 $4,401,953 $4,401,953
========== ========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Note payable - bank (Note 4) $1,225,000 $1,250,000 $3,450,000
Accrued payroll 288,023 301,233 301,233
Deferred income taxes (Note 2) 184,000 150,000 150,000
Accounts payable and accrued expenses 59,138 124,366 124,366
Income taxes payable (Note 2) 29,737 41,241 41,241
Current maturities of long term debt (Note 6) 6,980 6,315 6,315
---------- ---------- ----------
Total current liabilities 1,792,878 1,873,155 4,073,155
---------- ---------- ----------
Long-term debt, less current maturities (Note 6) 6,502 3,320 3,320
---------- ---------- ----------
Commitments, contingencies and other comments (Note 8)
Shareholders' equity (Notes 7 and 10):
Preferred stock $.01 par value, 2,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 10,000,000 shares
authorized; 2,265,000 shares issued and outstanding 22,650 22,650 22,650
Additional paid-in capital 7,350 7,350 7,350
Retained earnings 3,010,694 2,495,478 295,478
---------- ---------- ----------
Total shareholders' equity 3,040,694 2,525,478 325,478
---------- ---------- ----------
Total liabilities and shareholders' equity $4,840,074 $4,401,953 $4,401,953
========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
NEW YORK HEALTH CARE, INC.
STATEMENTS OF INCOME
For The
For the Years Ended Six Months Ended
December 31, June 30,
------------------------------- -------------------------------
1994 1995 1995 1996
------------ ------------ ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net patient service revenue (Note 2) $ 8,981,301 $ 11,809,728 $ 5,465,251 $ 6,147,293
----------- ------------ ----------- -----------
Expenses:
Professional care of patients 6,301,138 8,127,447 3,708,207 4,184,742
General and administrative 1,719,220 2,358,487 1,163,351 1,310,368
Bad debts expense 50,000 55,464
Depreciation 23,940 32,455 14,400 13,772
----------- ------------ ----------- -----------
Total operating expenses 8,094,298 10,518,389 4,885,958 5,564,346
----------- ------------ ----------- -----------
Income from operations 887,003 1,291,339 579,293 582,947
----------- ------------ ----------- -----------
Nonoperating income (expenses):
Interest income 5,974
Other income 5,940 7,500
Interest expense (84,931) (82,328) (41,647) (64,206)
----------- ------------ ----------- -----------
Nonoperating expenses, net (78,991) (82,328) (41,647) (50,732)
----------- ------------ ----------- -----------
Income before provision for income taxes 808,012 1,209,011 537,646 532,215
----------- ------------ ----------- -----------
Provision (credit) for income taxes (Note 2):
Current 666 35,000 65,000 56,000
Deferred 36,000 46,000 (19,000) (34,000)
----------- ------------ ----------- -----------
36,666 81,000 46,000 22,000
----------- ------------ ----------- -----------
Net income $ 771,346 $ 1,128,011 $ 491,646 $ 510,215
=========== ============ =========== ===========
Pro forma (unaudited) (See Note 2):
Historical income before provision
for income taxes $ 808,012 $ 1,209,011 $ 537,646 $ 532,215
Pro forma provision for income taxes 353,000 520,000 232,000 230,000
----------- ------------ ----------- -----------
Pro forma net income $ 455,012 $ 689,011 $ 305,646 $ 302,215
=========== ============ =========== ===========
Pro forma net income per common share
and common share equivalents $ .23 $ .10
=========== ===========
Pro forma weighted average number of
common shares and common share equivalents 2,984,271 2,984,271
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
NEW YORK HEALTH CARE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended December 31, 1994 and 1995 And For
The Six Months Ended June 30, 1996 (Unaudited) (a)
Common Stock Additional
--------------------------- Paid-In Retained
Shares Amount Capital Earnings Total
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 2,265,000 $ 22,650 $ 7,350 $ 2,051,599 $ 2,081,599
Net income 771,346 771,346
Distributions ($.04 per share) (100,230) (100,230)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 2,265,000 22,650 7,350 2,722,715 2,752,715
Net income 1,128,011 1,128,011
Distributions ($.37 per share) (840,032) (840,032)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 2,265,000 22,650 7,350 3,010,694 3,040,694
Net income (unaudited) 510,215 510,215
Distributions ($.45 per share)
(unaudited) (1,025,431) (1,025,431)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1996
(unaudited) 2,265,000 $ 22,650 $ 7,350 $ 2,495,478 $ 2,525,478
========= =========== =========== =========== ===========
</TABLE>
(a) Retroactive effect has been given to the March 26, 1996 recapitalization
referred to in Note 10.
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
NEW YORK HEALTH CARE, INC.
STATEMENTS OF CASH FLOWS
For The
For the Years Ended Six Months Ended
December 31, June 30,
---------------------------- ----------------------------
1994 1995 1995 1996
------------- ------------ ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 771,346 $ 1,128,011 $ 491,646 $ 510,215
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 42,827 59,403 31,449 20,736
Bad debts expense 50,000 55,464
Deferred tax expense (credit) 36,000 46,000 (19,000) (34,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable
and unbilled receivables (1,033,667) (453,893) 704,968 491,007
(Increase) decrease in due from affiliate (68,149) 68,149 68,149
(Increase) decrease in due from shareholders (145,000) 145,000
(Increase) decrease in prepaid expenses (43,308) 7,159 27,066 (13,532)
Increase in deferred charges (21,514)
Increase in deferred registration costs (162,597)
(Increase) decrease in deposits 28,499 (3,600) 5,300
Decrease in sundry assets 5,460 2,000 2,000
Increase (decrease) in accounts payable
and accrued expenses 50,009 (135,563) 35,731 65,228
Increase in accrued payroll 72,333 95,374 15,887 13,210
Increase in income taxes payable 29,737 64,818 11,504
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities (110,164) 697,777 1,428,014 1,102,235
----------- ----------- ----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (327,916) (27,416) (21,592) (11,633)
Proceeds from sale of investment 18,112
Increase in note receivable - shareholder (125,000)
----------- ----------- ----------- -----------
Net cash used in investing activities (309,804) (152,416) (21,592) (11,633)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under note payable 350,000 325,000 (400,000) 25,000
Borrowing of long-term debt 176,498
Repayment of long-term debt (32,210) (18,887) (12,113) (3,847)
Distributions (100,230) (695,105) (334,800) (1,025,431)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 394,058 (388,992) (746,913) (1,004,278)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (25,910) 156,369 659,509 86,324
Cash and cash equivalents at beginning of period 47,229 21,319 21,319 177,688
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 21,319 $ 177,688 $ 680,828 $ 264,012
(See Note 13) =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
1. THE COMPANY:
New York Health Care, Inc. (the "Corporation") was incorporated in
February 1983 under the laws of the State of New York and has elected "S"
corporation status under provisions of the Internal Revenue Service. The
Corporation was formed to provide the services of registered nurses and
nurses aides to hospitals, nursing homes and other healthcare providers
within the New York metropolitan area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information (Unaudited):
The financial statements and accompanying financial information as of
June 30, 1996, and for the six months ended June 30, 1995 and 1996, are
unaudited but include all adjustments (consisting solely of normal
recurring accruals) which the Corporation considers necessary for a fair
presentation of the financial position at June 30, 1996, and the
operating results and cash flows for the six month periods ended June 30,
1995 and 1996. Results for interim periods are not necessarily indicative
of results for the entire year.
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 and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition:
The Corporation recognizes net patient service revenue based upon the
date services are rendered. Net patient service revenue is reported at
the estimated net realizable amounts from patients, third-party payers
and others. Unbilled services represent amounts due for services rendered
which were not billed at the end of each period.
F-6
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
Property, Plant and Equipment:
Property, plant and equipment is carried at cost and is being depreciated
under the straight-line method over the following estimated useful lives
of the assets or the life of the lease, whichever is shorter.
Machinery and equipment 5 years
Furniture and fixtures 7 years
Transportation equipment 5 years
Acquisition Costs:
On March 17, 1988, the Corporation purchased the customer lists, employee
lists and other intangible assets of National Medical Home Care at a cost
of $139,273. This cost is being amortized using the straight-line method
over a period of ten years. At December 31, 1995 and June 30, 1996, the
accumulated amortization was $108,516 and $115,480, respectively.
Deferred Registration Costs:
Costs relating to the Corporation's efforts to obtain additional
financing through a proposed public offering have been deferred and will
be offset against the proceeds of a successful offering or, if the
offering is unsuccessful, charged to operations.
Income Taxes:
The accompanying historical financial statements exclude a provision for
Federal income taxes because the Corporation elected to be treated as an
S corporation under the applicable provisions of the Internal Revenue
Code. Accordingly, the operations of the Corporation are included in the
individual income tax returns of the shareholders.
The Corporation uses the asset and liability method to calculate deferred
tax assets and liabilities. Deferred state and city taxes are recognized
based on the differences between financial reporting and income tax bases
of assets and liabilities using enacted income tax rates. Deferred state
and city income taxes arise from the use of the cash basis of accounting
for income tax purposes.
F-7
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
Pro forma Information (Unaudited):
a. Pro forma Net Income Per Common Share and Common Share Equivalents:
Pro forma net income per common share and common share equivalents
has been computed based upon the weighted average number of shares
and common share equivalents outstanding during each period. Common
share equivalents recognize the potential dilutive effects of the
exercise of outstanding options and warrants to acquire common stock.
The Corporation has used the anticipated initial public offering
price of $5.00 per common share for all periods presented for
purposes of computing the potential dilutive effects of common share
equivalents. The issuance of a stock option had the effect of
increasing the weighted average shares outstanding for all periods by
18,750 shares calculated by using the treasury stock method.
Pursuant to the rules of the Securities and Exchange Commission,
dividends declared in the latest twelve month period would be deemed
to be in contemplation of the offering with the intention of
repayment out of offering proceeds to the extent that the dividend
exceeded earnings during the previous twelve months. The shares whose
proceeds would be necessary to pay the S-Corporation distribution
declared and paid during the twelve month period ended June 30, 1996
($1,385,736) and the dividend declared on July 10, 1996 ($2,200,000)
has the pro forma effect of increasing the weighted average shares
outstanding for all periods by 700,521 shares.
b. Pro Forma Balance Sheet:
The pro forma balance sheet as of June 30, 1996 presents the pro
forma effects of the S-Corporation distribution of $2,200,000
declared on July 10, 1996.
c. Pro Forma Statement of Income Adjustment:
The pro forma statement of income information presents the pro forma
effects on the historical financial information of the Corporation's
termination of its S corporation status upon consummation of the
planned initial public offering. The unaudited proforma adjustment
included in the statements of income gives effect to a charge in lieu
of income taxes that would have been included in the provision for
income taxes had the Corporation been taxed as a C Corporation.
Cash Equivalents:
For purposes of the statement of cash flows, the Corporation considers
all highly liquid investments with maturities of three months or less
when purchased to be cash equivalents.
F-8
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
Stock Based Compensation:
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", which requires adoption of the disclosure
provisions no later than fiscal years beginning after December 15, 1995
and adoption of the measurement and recognition provisions for
non-employee transactions no later than after December 15, 1995. The new
standard defines a fair value method of accounting for the issuance of
stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually
the vesting period. Pursuant to SFAS No. 123, the Corporation is not
required to adopt the fair value method of accounting for employee
stock-based transactions. The Corporation is permitted to continue to
account for such transactions under Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees", but is
required to disclose in a note to the financial statements pro forma net
income, and per share amounts as if the corporation had applied the new
method of accounting. In 1996, the Corporation adopted the disclosure
provisions of SFAS No. 123. However, due to the minimal impact, no
disclosures were required.
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of:
The Company has adopted Statement of Financial Accounting Standards
("FAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," in the first quarter of 1996.
FAS No. 121 establishes new accounting standards for measuring the
impairment of long-lived assets. The adoption of this new standard does
not have a significant effect on the Corporation's financial statements.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
<S> <C> <C>
Property and equipment consist of the following:
December 31, June 30,
1995 1996
---------- ----------
(Unaudited)
Machinery and equipment $150,058 $155,099
Furniture and fixtures 47,215 53,808
Transportation equipment 5,000 5,000
---------- ----------
202,273 213,907
Less accumulated depreciation and amortization 105,842 119,615
--------- ---------
$ 96,431 $ 94,292
========= =========
</TABLE>
F-9
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
4. NOTE PAYABLE - BANK:
The Corporation had arranged for a $1,300,000 line of credit with a bank
during 1994. In October 1995, the available line of credit was increased
to $2,000,000. The line of credit is collateralized by the Corporation's
accounts receivable and is guaranteed by certain shareholders. Interest
is payable monthly at 1.5% above the prime rate published by Chemical
Bank. The amount outstanding at December 31, 1995 and June 30, 1996 is
$1,225,000 and $1,250,000, respectively. On May 9, 1996, the Corporation
entered into a promissory note with its bank which increased the line of
credit to $3,500,000 and adjusted the interest payable to .75% above the
market prime as posted in the Wall Street Journal (8.25% at June 30,
1996). The line of credit is renewable in May 1997.
5. THIRD-PARTY RATE ADJUSTMENTS AND REVENUE:
Approximately 26% and 27% of net patient service revenue was derived
under New York State third-party reimbursement programs during the years
ended December 31, 1994 and 1995, respectively, and approximately 29% and
25% of net patient service revenue was derived under New York State
third-party reimbursement programs during the six months ended June 30,
1995 and 1996, respectively. These revenues are based, in part, on cost
reimbursement principles and are subject to audit and retroactive
adjustment by the respective third-party fiscal intermediaries. Provision
for estimated amounts due to/from the Corporation has been made in the
financial statements. Differences between estimated revised rates and
subsequent revisions will be reflected in the statement of income in the
year revisions are calculated.
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
Long-term debt consists of the following:
December 31, June 30,
1995 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Capital leases collateralized by various machinery
and equipment are payable through April 1998 $ 13,482 $ 9,635
Less current maturities (6,980) (6,315)
-------- -------
$ 6,502 $ 3,320
======== =======
</TABLE>
F-10
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
7. PERFORMANCE INCENTIVE PLAN AND 401(K) PLAN:
Performance Incentive Plan:
On March 26, 1996, the Corporation's Board of Directors adopted the
Performance Incentive Plan (the "Option Plan"). Under the terms of the
Option Plan, 210,000 shares of common stock may be granted. The Option
Plan will be administered by a Committee appointed by the Board of
Directors. The Committee will determine which key employee, officer or
director on the regular payroll of the Company, shall receive stock
options. Granted options are exercisable in three equal annual
installments, commencing six months after the date of grant, and expire
ten years after the date of grant. The exercise price of any incentive
stock option or nonqualified option granted under the Option Plan may not
be less than 100% of the fair market value of the shares of common stock
of the Company at the time of the grant. No options have been granted
under the Option Plan.
401 (K) Plan:
The Corporation maintains an Internal Revenue Code Section 401 (k) salary
deferred savings plan (the " Plan") for all of its employees who have
been employed for at least 1 year and are at least 21 years old. Subject
to certain limitations, the Plan allows participants to voluntarily
contribute up to 15% of their pay on a pre-tax basis. The Corporation
currently contributes 50% of each dollar contributed to the Plan by
participants up to a maximum of 6% of the participants salary. The Plan
also provides for certain discretionary contributions by the Corporation
as determined by the Board of Directors. The Corporation's contributions
amounted to $21,200 and $41,900 for the years ended December 31, 1994 and
1995 and $17,500 and $16,200 for the six months ended June 30, 1995 and
1996, respectively.
F-11
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
8. COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS:
Lease Commitments:
The Corporation leases office space under noncancellable operating leases
in the New York metropolitan area that expire between December 1996 and
November 2000.
At December 31, 1995 (substantially the same at June 30, 1996), future
minimum lease payments due under operating and capital leases
approximate:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
--------- ---------
<S> <C> <C>
1997 $ 93,000 $ 8,204
1998 75,000 4,303
1999 69,000
2000 42,000
2001 38,000
--------- ---------
Total minimum future payments $317,000 12,507
=========
Less amounts representing interest 2,872
---------
Present value of net minimum lease payments $ 9,635
=========
</TABLE>
Rental expense charged to operations was approximately $66,000 and
$86,000 for the years ended December 31, 1994 and 1995 and $41,700 and
$60,600 for the six months ended June 30, 1995 and 1996, respectively.
Employment Agreements:
On March 26, 1996, the Corporation entered into employment agreements
with two officers of the Corporation, with terms expiring on December 31,
1999. The agreements call for aggregate annual compensation of
approximately $315,000 with annual increases of 10%, and provide for
certain additional benefits. Aggregate compensation paid to these two
officers amounted to $217,000 during the year ended December 31, 1995.
F-12
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
Concentrations of Credit Risk:
Financial instruments which potentially subject the Corporation to
concentrations of credit risk consist primarily of temporary cash
investments and commercial accounts receivable. The Corporation has cash
investment policies that restrict placement of these investments to
financial institutions evaluated as highly creditworthy. The Corporation
does not require collateral on commercial accounts receivable as the
customer base consists of large, well established institutions. As of
December 31, 1995, accounts receivable include $1,326,000 or 32% from
three hospitals, and as of June 30, 1996, accounts receivable include
$1,276,000 or 36% from three hospitals.
Major Customers:
One major customer accounted for approximately 15.4% and 12.5% of
net patient service revenue for the years ended December 31, 1994 and
1995, respectively.
One major customer accounted for approximately 12% and 10% of net
patient service revenue for the six months ended June 30, 1995 and 1996,
respectively.
Business Risks:
Certain factors relating to the industry in which the Corporation
operates and the Corporation's business should be carefully considered.
The Company's primary business, offering home health care services, is
heavily regulated at both the federal and state levels. While the
Corporation is unable to predict what regulatory changes may occur or the
impact on the Corporation of any particular change, the Corporation's
operations and financial results could be negatively affected.
Further, the Corporation operates in a highly competitive industry which
may limit the Corporation's ability to price its services at levels that
the Corporation believes appropriate. These competitive factors may
adversely affect the Corporation's financial results.
Reference is made to "Risk Factors" elsewhere in this registration
statement.
F-13
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
9. RELATED PARTY TRANSACTIONS:
In September 1995, the Corporation entered into a loan agreement with a
shareholder wherein the Corporation lent the shareholder $125,000. The
note is due at the earlier of (i) 30 days after notice of the filing of a
registration statement, or (ii) September 28, 1997. Interest is payable
monthly at the rate charged by the Corporation's lender. (See Note 4).
The shareholder's stock certificates are being held as collateral for the
note.
In January 1996, the Corporation entered into a Service Agreement with a
company affiliated through common ownership. The Corporation has agreed
to provide administrative services relating to payroll, benefits
management and data processing to the company through June 30, 1997. The
Company will be reimbursed for all expenses attributable to such
operations, presently totaling $15,000 per year.
On November 1, 1995, the Corporation transferred the land and building
which it had acquired on April 18, 1994 to a company related through
common ownership. As a result of the transaction, the Corporation was
relieved of its mortgage obligation of $146,250 and the shareholders
received a non-cash distribution in 1995 of $144,927 which represented
the net book value of the land and building. No gain or loss was
recognized upon the transfer.
10. SHAREHOLDERS' EQUITY:
Common Stock and Recapitalization:
As effected on March 26, 1996, the shareholders and Board of Directors
authorized an increase in the number of authorized shares of common stock
from 200 to 10,000,000, an increase in par value to $.01 per share, a
stock split of 56,625 for 1 of the Corporation's common stock
outstanding, and a stock split of 48,343.75 for 1 of the Corporation's
unissued common stock. As a result, all historic share amounts and per
share amounts in the accompanying financial statements and notes have
been adjusted to reflect the stock split and increase in par value.
Preferred Stock:
On March 26, 1996, the shareholders and Board of Directors approved the
authorization of a total of 2,000,000 shares of preferred stock which may
be issued in one or more series with rights and preferences to be
determined by the Board of Directors.
F-14
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
Options:
On March 26, 1996, the Corporation issued an option to purchase 75,000
shares of common stock to the President of the Corporation at an exercise
price of $3.75 per share. The option may be exercised at any time through
March 26, 2006.
Dividend Policy:
The Corporation has operated as an S Corporation prior to the proposed
public offering and has paid out a substantial portion of its earnings to
its current shareholders as S Corporation distributions. On July 10,
1996, the Board of Directors declared an S Corporation distribution of
$2,200,000. The Board of Directors intends to retain and reinvest any
future earnings into the development of the business. Any future payment
of dividends will be subject to the discretion of the Board of Directors.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The amounts included in the balance sheets at December 31, 1995 and June
30, 1996 for cash, accounts receivable, unbilled services, advances to
shareholders, note payable - bank, accrued payroll, accounts payable and
accrued expenses, and current maturities of long-term debt approximate
fair value because of the short-term nature of these instruments. The
carrying value of long-term debt approximates the estimated fair value
because the long-term debt is at interest rates comparable to notes
currently available to the Company for debt with similar terms and
remaining maturities.
12. OTHER MATTERS:
Proposed Public Offering:
On March 6, 1996, the Corporation signed a letter of intent with an
investment banker for a proposed public offering of the Corporation's
common stock and warrants. The letter specifies that the investment
banker will underwrite, on a firm commitment basis, 1,050,000 shares of
common stock anticipated to be offered at $5.00 per share and 1,050,000
of redeemable warrants at $.10 per redeemable warrant. The redeemable
warrants will be exercisable at any time during a period of four years
commencing one year after the effective date of the Prospectus at an
exercise price of $6.00 per share. The redeemable warrants will include
an option, whereby, under certain conditions, the Corporation can redeem
the warrants.
F-15
<PAGE>
NEW YORK HEALTH CARE, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts And Disclosures As Of June 30, 1996 And Subsequent Thereto
And For The Six Months Ended June 30, 1995 And 1996 Are Unaudited)
13. SUPPLEMENTAL CASH FLOW DISCLOSURES:
<TABLE>
<CAPTION>
For the Years Ended Six Months Ended
December 31, June 30,
---------------------------- ----------------------------
1994 1995 1995 1996
------------- ------------- ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest $76,607 $ 93,439 $ 33,712 $64,205
======= =========== ============ =======
Income taxes $12,379 $ -- $ -- $12,262
======= =========== ============ =======
Supplemental disclosure of non-cash investing
and financing activities:
Transfer of ownership of building to a
separate corporation:
Decrease in fixed assets $ 291,177
Decrease in long-term debt 146,250
-----------
Non-cash distribution to shareholders $ 144,927
===========
</TABLE>
14. SUBSEQUENT EVENT (UNAUDITED):
On July 8, 1996, the Corporation entered into an agreement with 1667
Flatbush LLC ("1667 Flatbush") a limited liability company owned by the
Corporation's officers and directors, whereby 1667 Flatbush purchased
$3,500,000 of the Corporation's accounts receivable for a purchase price
of $3,150,000. As a result of the Corporation's sale of accounts
receivable for less than their face value, the Corporation expects to
recognize a net charge to its earnings during the third quarter ended
September 30, 1996 in the amount of $170,000. The purchase price,
represented by a negotiable promissory note bearing interest at the rate
of 12% per annum, is payable $1,100,000 on August 1, 1996, $1,100,000 on
September 1, 1996, and $950,000 at the earlier of October 1, 1996 or the
effective date of the initial public offering. The note is collateralized
by a lien on the accounts receivable purchased from the Corporation, and
is personally guaranteed by each of the members of 1667 Flatbush. The
note permits prepayments of principal without penalty.
F-16
<PAGE>
================================================================================
No dealer, sales representative or other individual has been authorized to give
any information or to make any representation not contained in this Prospectus
in connection with this offering other than those contained in this Prospectus
and if given or made, such information or representation must not be relied upon
as having been authorized by the Company or the Underwriter. This Prospectus
does not constitute an offer to sell or solicitation of an offer to buy the
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized or in which the person making such offer or solicitation is
not qualified to do so or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that the
information contained herein is correct as of any time subsequent to its date.
-----------------------
TABLE OF CONTENTS
Page
Prospectus Summary ...................................................... 3
Risk Factors ............................................................ 9
Use of Proceeds ......................................................... 16
Dilution ................................................................ 17
Dividend Policy ......................................................... 19
Former S Corporation Tax Treatment ...................................... 19
Capitalization .......................................................... 19
Selected Financial Data ................................................. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................................................ 22
Business ................................................................ 26
Management .............................................................. 44
Principal Stockholders .................................................. 49
Certain Transactions .................................................... 50
Description of Securities ............................................... 52
Shares Eligible for Future Sale ......................................... 54
Underwriting ............................................................ 54
Legal Matters ........................................................... 56
Experts ................................................................. 57
Additional Information .................................................. 57
Index to Financial Statements ........................................... 58
Financial Statements .................................................... F-1
Until _____, 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as Underwriter and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
1,050,000 Shares of
Common Stock
and
1,050,000 Warrants
NEW YORK HEALTH CARE, INC.
----------------------
P R O S P E C T U S
----------------------
RAS SECURITIES CORP.
______________, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Third of the Certificate of Incorporation of New York Health Care,
Inc. (the "Registrant") provides with respect to the indemnification of
directors and officers, among other things, that (a) the Registrant may, to the
fullest extent permitted by Sections 721 through 726 of the New York Business
Corporation Law, as amended, indemnify all persons whom it may indemnify
pursuant thereto, (b) a director of the Registrant shall not be personally
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for certain transactions or
events as set forth in such Article Third, (c) each person who was or is made a
party, or is threatened to be made a party, to or is involved in any action,
suit or proceeding, by reason of the fact that he or she is or was a director or
officer of the Registrant, shall be indemnified and held harmless by the
Registrant to the fullest extent authorized by the New York Business Corporation
Law, against all expense, liability and loss reasonably incurred or suffered by
such person in connection therewith and (d) the right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in such Article Third shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders and disinterested directors or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth various expenses, other than the
Underwriters' fees and commissions, which will be incurred in connection with
the public offering to which this Registration Statement relates. Other than the
SEC registration fee and the NASD and Nasdaq filing fees, amounts set forth
below are estimates:
SEC registration fee ....................................... $ 5,508
NASD Filing Fee ............................................ 1,980
Nasdaq Filing Fee .......................................... 10,000
Boston Stock Exchange Filing Fee ........................... 250
Printing and engraving expenses ............................ 65,000
Legal fees and expenses .................................... 110,000
Blue Sky fees and expenses ................................. 30,000
Accounting fees and expenses ............................... 50,000
Transfer Agent fees ........................................ 3,000
Miscellaneous expenses ..................................... 39,262
--------
$315,000
========
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Securities which were issued or sold by the Registrant within the past
three years and which were not registered under the Securities Act of 1933, as
amended (the "Act"), are as follows:
1. On May 8, 1995, the Company issued 453,000 shares of its Common Stock to
Hirsch Chitrik and 113,250 shares of Common Stock to Sid Borenstein.
2. On March 26, 1996, the Company issued a stock option to its President
and Chief Executive Officer, Jerry Braun, for the purchase of 75,000 shares of
Common Stock at an exercise price of $3.75 per share during the period ending
March 31, 1999.
Exemption from registration under the Act is claimed for the sales of
Common Stock referred to above in reliance upon the exemption afforded by
Section 4(2) of the Act for transactions not involving a public offering. Each
certificate evidencing such shares of Common Stock bears an appropriate
restrictive legend, and "stop transfer" orders are maintained on the Company's
stock transfer records against each holder named above. None of these sales
involved participation by an underwriter or a broker-dealer.
ITEM 27. EXHIBITS
The following is a list of the Exhibits which comprise a part of the
Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page
- ------ ---------------------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Company.
3.2 Restated Certificate of Incorporation of the Company.
3.3 Certificate of Correction of Restated Certificate of Incorporation
of New York Health Care, Inc.
3.4 By-laws of the Company.
4.1 Omitted.
4.2 Underwriter's Warrant Agreement and Form of Underwriter's Warrant.
4.3 Form of Warrant Agreement between the Company and the Warrant
Agent, including Form of Warrant.
5 Opinion of Scheichet & Davis, P.C. on legality of securities being
registered.*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.1 Purchase and Sale Agreement by and between the Company, National
Medical Homecare, Inc., Jerry Braun and Sam Soroka dated March 18,
1988.
10.2 Lease for 105 Stevens Avenue, White Plains, New York by and
between the Company and Vincent Rippa as receiver dated October
30, 1992.
10.3 Lease for 175 Fulton Avenue, Suite 301A, Hempstead, New York by
and between and the Company and Hempstead Associates Limited
Partnership dated July 22, 1993.
10.4 Deed for 1667 Flatbush Avenue, Brooklyn, New York from Tiara
Realty Co. to the Company dated April 22, 1994.
10.5 Agreement between Jerry Braun, Jacob Rosenberg, Samson Soroka,
Hirsch Chitrik, Sid Borenstein and the Company dated March 31,
1988.
10.6 Lease for 49 South Main Street, Spring Valley, New York by and
between the Company and Joffe Management dated November 1,
1994.
10.7 Agreement for Provisions of Home Health Aide and Personal Care
Worker Services by and between the Company and Kingsbridge
Heights Health Facilities Long Term Home Health Care Program dated
November 2, 1994.
10.8 State of New York Department of Health Office of Health Systems
Management Home Care Service Agency License for the Company
doing business in Rockland, Westchester and Bronx Counties dated
May 8, 1995.
10.9 State of New York Department of Health Office of Health Systems
Management Home Care Service Agency License for the Company
doing business in Dutchess, Orange, Putnam, Sullivan and Ulster
Counties dated May 8, 1995.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.10 State of New York Department of Health Office of Health Systems
Management Home Care Service Agency License for the Company
doing business in Nassau, Suffolk and Queens Counties dated May 8,
1995.
10.11 State of New York Department of Health Office of Health Systems
Management Home Care Service Agency License for the Company
doing business in Orange and Rockland Counties dated July 1, 1995.
10.12 Lease Renewal for 45 Grand Street, Newburgh, New York by and
between the Company and Educational and Charitable Foundation of
Eastern Orange County , Inc. dated July 12, 1995.
10.13 Lease for 91-31 Queens Boulevard, Elmhurst, New York by and
between the Company and Expressway Realty Company dated
September 15, 1995.
10.14 Settlement Agreement and General Release by and between the
Company and Samson Soroka dated September 28, 1995.
10.15 Personal Care Aide Agreement by and between the Company and
Nassau County Department of Social Services dated October 18, 1995.
10.16 Lease for 1667 Flatbush Avenue, Brooklyn, New York by and between
the Company and 1667 Flatbush Avenue LLC dated November 1,
1995.
10.17 State of New York Department of Health Office of Health Systems
Management Home Care Service Agency License for the Company
doing business in Bronx, Kings, New York, Queens and Richmond
Counties dated December 29, 1995.
10.18 Home Health Agency Agreement by and between the Company and
the Center for Nursing and Rehabliltation dated January 1,
1996.
10.19 Homemaker and Personal Care Agreements by and between the
Company and the County of Rockland Department of Social Services
dated January 1, 1996
10.20 Home Health Aide/ Personal Care Worker Services Agreement by and
between the Company and Beth Abraham Hospital dated January 12,
1996.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.21 Homemaker Services Agreement by and between the Company and
the Orange County Department of Social Services dated February 16,
1996
10.22 Personal Care Service Agreement by and between the Company and
the Orange County Department of Social Services dated February 16,
1996
10.23 Certified Home Health Agency Agreement by and between the
Company and New York Methodist Hospital dated February 28, 1996.
10.24 Employment Agreement by and between the Company and Jacob
Rosenberg dated March 26, 1996
10.25 Employment Agreement by and between the Company and Jerry Braun
dated March 26, 1996
10.26 Stock Option Agreement by and between the Company and Jerry
Braun dated March 26, 1996
10.27 Home Health Agency Agreement by and between the Company and the
Mount Sinai Hospital Home Health Agency dated April 1, 1996.
10.28 Absolute, Unconditional, Irrevocable and Limited Continuing
Guaranty of Payment by and between Jacob Rosenberg and United
Mizrahi Bank and Trust Company dated May 9, 1996.
10.29 Absolute, Unconditional, Irrevocable and Limited Continuing
Guaranty of Payment by and between Jerry Braun and United Mizrahi
Bank and Trust Company dated May 9, 1996.
10.30 Continuing General Security Agreement by and between the Company
and United Mizrahi Bank and Trust Company dated May 9, 1996.
10.31 Agreement for the Purchase of Accounts Receivable between the
Company and 1667 Flatbush Avenue LLC dated July 8, 1996.
10.32 401(k) Plan for the Company
10.33 Performance Incentive Plan for the Company
10.34 Services Agreement between the Company and Heart to Heart Health
Care Services, Inc., dated January 1, 1996.
10.35 Employment Agreement by and between the Company and Gilbert Barnett
dated August 27, 1996.*
</TABLE>
II-5
<PAGE>
11 Computation of Earnings Per Common Share of the Company.
23.1 Consent of Scheichet & Davis, P.C. (included in Exhibit 5).
23.2 Consent of Halpern & Pasternack, P.C.*
23.3 Consent of M.R. Weiser & Co. LLP.*
24 Power of Attorney (included on page II-5).
- -------------
* Filed with this Amendment.
(b) Financial Statement Schedules. (none).
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes:
(1) That for the purpose of determining any liability under the Act, treat
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act as part of this Registration Statement as of the time the
Commission declared it effective.
(2) That for the purpose of determining any liability under the Act, treat
each post-effective amendment that contains a form of Prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the Act;
(b) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(c) To include any additional or changed material information or the
plan of distribution.
II-6
<PAGE>
(4) That, for the purpose of determining any liability under the Act, treat
each posteffective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(5) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(6) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against the
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrant will provide to the Underwriter at the closing specified in
the underwriting agreement, certificates in such denominations and registered in
such names as required by the Representative to permit prompt delivery to each
Purchaser.
II-7
<PAGE>
POWER OF ATTORNEY
We the undersigned officers and directors of New York Health Care, Inc.
(the "Company"), do hereby constitute and appoint each of Jerry Braun and Jacob
Rosenberg as our true and lawful attorneys and agents to sign a Registration
Statement on Form SB-2 to be filed with the Securities and Exchange Commission
("SEC") and to do any and all acts and things and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents may deem necessary or advisable to enable the Company
to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the SEC in connection with such Registration
Statement including, specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) hereto; and we do
hereby ratify and confirm all that the said attorneys and agents shall do or
cause to be done by virtue of this Power of Attorney.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York, on the 29th day
of August, 1996.
New York Health Care, Inc.
By: /s/ Jerry Braun
----------------------------------
Jerry Braun, President and
Chief Executive Officer
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/s/ Jerry Braun President, August 29, 1996
- --------------------- Chief Executive Officer,
Jerry Braun and Director
* Vice President, Chief Operating August 29, 1996
- --------------------- Officer, Secretary and Director
Jacob Rosenberg
* Chief Financial Officer August 29, 1996
- --------------------- and Chief Accounting
Gilbert Barnett Officer
* Director August 29, 1996
- ---------------------
Samson Soroka
* Director August 29, 1996
- ---------------------
Hirsch Chitrik
* Director August 29, 1996
- ---------------------
Sid Borenstein
- ----------
* Jerry Braun, pursuant to a Power of Attorney (executed by each of the
officers and directors listed above and indicated as signing above, which
was filed with the Securities and Exchange Commission), by signing his name
hereto does hereby sign and execute this Amendment to the Registration
Statement on behalf of each of the persons referenced above.
/s/ Jerry Braun
--------------------------
Jerry Braun
August 29, 1996
II-9
Scheichet & Davis, P.C.
Counselors at Law
505 Park Avenue
New York, NY 10022
(212) 688-3200
Fax: (212) 371-7634
August 29, 1996
New York Health Care, Inc.
1667 Flatbush Avenue
Brooklyn, NY 11021
Re: Registration Statement on Form SB-2
Under the Securities Act of 1933;
S.E.C. File No. 333-8155
-----------------------------------
Gentlemen:
In our capacity as counsel to New York Health Care, Inc., a New York
corporation (the "Company"), we have been asked to render this opinion in
connection with the Company's Registration Statement on Form SB-2 (the
"Registration Statement"), heretofore filed by the Company with the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
The Registration Statement covers the following securities:
1. 1,050,000 shares of Common Stock, $.01 par value per share (the
"Common Stock");
2. 1,050,000 Redeemable Warrants to purchase an identical number of
shares of Common Stock (the "Redeemable Warrants");
3. 1,050,000 shares of Common Stock issuable upon the exercise of the
Redeemable Warrants;
4. 157,500 shares of Common Stock and 157,500 Redeemable Warrants
issuable solely at the option of the Underwriter to cover
over-allotments, if any;
5. Underwriter's Warrants entitling the Underwriter to purchase 105,000
shares of Common Stock and 105,000 Redeemable Warrants from the
Company;
<PAGE>
New York Health Care, Inc.
August 29, 1996
Page 2
6. 105,000 shares of Common Stock issuable upon the exercise of the
Underwriter's Warrants;
7. 105,000 Redeemable Warrants issuable upon the exercise of the
Underwriter's Warrants; and
8. 105,000 shares of Common Stock issuable upon the exercise of the
Redeemable Warrants which, in turn, are to be issued upon the exercise
of the Underwriter's Warrants.
In that connection, we have examined the Company's Certificate of
Incorporation and By-Laws, as amended, the Registration Statement, corporate
proceedings of the Company relating to the issuance of the Common Stock, the
Redeemable Warrants and the Underwriter's Warrants, respectively, and such other
instruments and documents as we have deemed relevant under the circumstances.
In making the aforesaid examinations, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
to us as original or photostatic copies. We have also assumed that the corporate
records furnished to us by the Company include all corporate proceedings taken
by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of New York;
2. The shares of Common Stock have been duly and validly authorized and,
when issued and paid for as described in the Registration Statement, will be
duly and validly issued, fully paid and non-assessable;
3. The Redeemable Warrants have been duly and validly authorized and, when
issued and paid for as described in the Registration Statement, will be duly and
validly issued;
4. The shares of Common Stock which are to be issued upon the exercise of
the Redeemable Warrants have been duly and validly authorized and, when issued
and paid for as described in the Registration Statement and the Redeemable
Warrants, will be duly and validly issued, fully paid and non-assessable;
<PAGE>
New York Health Care, Inc.
August 29, 1996
Page 3
5. The Redeemable Warrants which are to be issued upon the exercise of the
Underwriter's Warrants have been duly and validly authorized and, when issued
and paid for as described in the Registration Statement, will be duly and
validly issued; and
6. The shares of Common Stock which are to be issued upon the exercise of
the Redeemable Warrants, which are to be issued upon the exercise of the
Underwriter's Warrants, have been duly and validly authorized and, when issued
and paid for as described in the Registration Statement, will be duly and
validly issued, fully paid and non-assessable.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
SCHEICHET & DAVIS, P.C.
/s/ William J. Davis
---------------------------
William J. Davis
A Member of the Firm
WJD/jm
EMPLOYMENT AGREEMENT
This Agreement made and entered into this 27th day of August, 1996, by and
between New York Health Care, Inc., a New York corporation, with its principal
place of business at 1667 Flatbush Avenue, Brooklyn, New York 11210,
(hereinafter "Employer" or the "Company"), and Gilbert Barnett, an individual
whose residential address is at 3 Terrace Circle, Great Neck, New York 11021
(hereinafter "Employee").
W I T N E S S E T H :
WHEREAS, Employer is engaged in the business of home health care;
WHEREAS, Employee possesses skills, knowledge, abilities and experience
which Employer wishes to continue to avail itself of; and
WHEREAS, Employer wishes to continue the employment of Employee;
NOW, THEREFORE, in consideration of the mutual covenants as set forth
herein:
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Employment. Employer hereby shall employ Employee as the Chief Financial
Officer of the Company and to perform such additional duties and services as may
be assigned to him pursuant to Paragraph 3 hereof. Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth.
2. Term. The term of employment of Employee hereunder shall be for the
period commencing as of August 1, 1996 and ending at the close of business July
30, 1999. Employer will give Employee written notice of any intention to renew
this Agreement on or before May 30, 1999.
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3. Duties.
(A) Employee's duties shall include overseeing and directing the
Company's financial and accounting activities, and generally promoting and
facilitating the Company's business objectives. For purposes of this paragraph,
Employer's subsidiaries, if any, are also encompassed in the term "Company".
(B) During the term of this Agreement, Employee shall perform such
additional services as shall from time to time be assigned to him by the Board
of Directors or the Chief Executive Officer or Chief Operating Officer of
Employer and which are consistent with the duties reasonably assigned to the
Chief Financial Officer of such size Company.
(C) Employee shall devote his entire business time and attention,
energy, and skill to the business of Employer. Notwithstanding the foregoing,
Employee may take all necessary and appropriate action to maintain his
registrations and licences as an NASD Registered Representative and a CFTC
Commodity Trading Advisor in compliance with all applicable rules and
regulations, provided, however, that he will not engage in the rendering of any
advice or in the the execution of any transactions in the securities of the
Employer without prior clearance by the Employer' attorneys.
(D) Employee shall provide to the Employer not less than four (4)
weeks written notice of his intention to resign from his employment.
4. Annual Compensation; Bonus; Supplemental Compensation.
(A) For his services to Employer during the term of this Agreement,
Employee's annual salary shall be Eighty Thousand Dollars ($80,000) (hereinafter
"Annual Base Compensation"). The Annual Base Compensation may be increased at
the discretion of the Employer's Compensation
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Committee, commencing on April 1, 1997 (the "Anniversary Date") and continuing
on the Anniversary Date in each year thereafter during the term of this
Agreement.
(B) Employee shall be granted participation in the Company's 401(k)
Plan, as well as all other benefits available to other employees of the Company.
5. Expenses. Employer will reimburse Employee or cause him to be reimbursed
for all ordinary and necessary traveling expenses and other disbursements
incurred by him for or on behalf of Employer in the performance of his duties
hereunder, and will reimburse him for his professional dues and continuing
professional education expenses up to a maximum of $1,000 per year. For such
purposes Employee shall submit to Employer periodic reports of such expenses and
other disbursements at least once in each calendar quarter.
6. Vacation Time. Employee shall be entitled to two (2) weeks vacation
during the first year of the term of this Agreement and three (3) weeks in each
subsequent year of this Agreement, which vacations shall be at such time or
times and for such periods as Employee shall choose, consistent with the
reasonable performance of his duties hereunder.
7. Employer's Right to Terminate.
(A) Employer shall have the right to terminate this Agreement, without
Cause, at any time. In the event of such termination without Cause, the
Employee's then Annual Base Compensation, as provided in paragraph 4 above,
shall be paid for a period of two (2) months. In this instance, "Annual Base
Compensation" shall include compensation for accrued but unused vacation time
during the year in which termination occurs, prorated for the remaining portion
of that year.
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(B) Employer shall have the right to terminate this Agreement for
Cause at any time during the period of this Agreement. "Cause," for all purposes
for this Agreement, will be defined as follows:
(i) the death of Employee;
(ii) the disability of Employee, said term being defined as Employee
becoming physically or mentally incapable of fully performing the
services required of him in accordance with his obligations
hereunder, and such incapacity continuing, or being reasonably
expected to continue, for more than three (3) months during any
period of twelve (12) months;
(iii) dishonest or illegal conduct of Employee;
(iv) unethical conduct of Employee or failure to perform his material
duties and obligations under this Agreement after thirty (30)
days prior written notice of such unethical conduct or failure;
or
(v) any use of illegal drugs or abuse of substances involving alcohol
or prescription drugs.
In event of termination for cause, the Employee's then Annual Base Compensation
and benefits, as provided in paragraph 4, above, shall be paid for a period of
two (2) weeks following termination, except that in the case of a termination
pursuant to paragraphs 7 (iii), (iv) and (v), such compensation and benefits
shall be paid only to the date of termination, plus all earned and accrued
benefits, and reimbursement of expenses incurred by him for and on its behalf.
Except for those duties and obligations stated in paragraphs 8, 9 (B) and 9(C),
any and all of Employer's other duties and
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obligations shall immediately be extinguished and made null and void and of no
further force and effect.
8. Confidentiality.
(A) Employee understands and acknowledges that as a result of
Employee's employment with Employer and involvement with the business of
Employer, he shall necessarily become informed of and have access to,
confidential information of Employer including, without limitation, inventions,
trade secrets, technical information, know-how, plans, specifications, identity
of customers and identity of suppliers, and that such information, even though
it may have been or may be developed or otherwise acquired by Employee, is the
exclusive property of Employer to be held by Employee in trust and solely for
Employer's benefit and Employee shall not at any time, either during or
subsequent to his employment hereunder, reveal, report, publish, transfer or
otherwise disclose to any person, corporation or other entity or use any of
Employer's confidential information, without its written consent of the Board of
Directors, except for use on behalf of the Company in connection with its
business, and except for such information which legally and legitimately is or
becomes of general public knowledge from authorized sources other than Employer.
(B) Upon the termination of his employment with Employer for any
reason, Employee shall promptly deliver to it all drawings, manuals, letters,
notes, notebooks, reports and copies thereof and all other materials, including,
without limitation, those of a secret or confidential nature, relating to
Employer's business which are in Employee's possession or control. Employer
shall reimburse Employee for any packing or moving costs reasonably incurred by
him in connection with the foregoing delivery.
9. Non-Competition; Restrictive Covenants and Confidentiality; Injunctive
Relief.
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(A) During the term of his employment with Employer pursuant to this
Agreement, or any renewal thereof, Employee shall not, directly or indirectly
whether as principal, agent, shareholder, employee, officer, director,
consultant, joint-venturer, partner or otherwise, own, manage, operate, join,
control or participate in the ownership, management, operation or control of,
render any services to or be connected in any manner with any business which is
in direct competition with or is of the type or character of any business
engaged in by Employer or which offers, sells or markets products, projects or
services that directly compete with products, projects or services offered by
Employer or any of its subsidiaries or affiliates, irrespective of whether
Employee's involvement shall be as an officer, owner, employee, partner,
joint-venturer, consultant, agent or other participant; provided, however, that
the foregoing shall not restrict Employee from making an investment in any
company the securities of which are listed on a national securities exchange or
actively traded in the over-the-counter market, so long as such investment does
not equal or exceed five percent (5%) of the total number of outstanding shares
of common stock of such company.
(B) For a period of up to one (1) year after the expiration or
termination of his employment with Employer without cause, as the Employer in
its sole discretion may elect in writing upon such expiration or termination, or
for a period of one (1) year after termination for cause, Employee shall not,
directly or indirectly, whether as principal, agent, shareholder, employee,
officer, director, joint-venturer, partner, consultant or otherwise, render any
services to or with any company, firm or individual which competes in any way
with Employer in a business actually engaged in or being actively developed by
it, provided that in the event of expiration or a termination without cause the
Employer pays to the Employee fifty percent (50%) of his Annual Base
Compensation during the period of the restriction.
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(C) For a period of one (1) year following the expiration or
termination of his employment with Employer for any reason, Employee shall not,
directly or indirectly, whether as principal, agent, shareholder, employee,
officer, director, joint-venturer, partner, consultant or otherwise, solicit,
raid, entice or induce any person who is, or was at the time of such termination
or at any time within the six-month period immediately preceding such
termination, an employee of Employer to terminate his or her employment with the
Employer or become employed by any other person, firm or corporation, and he
will not approach any such employee for such purpose or authorize or knowingly
approve the taking of such action by other persons to become employed in a
business who or which are actively engaged in a competitive business.
10. Assignability and Binding Effect. The rights and obligations arising
under this Agreement shall inure to the benefit of and shall be binding upon the
executors, administrators, successors and legal representatives of Employee and
shall inure to the benefit of and be binding upon Employer, upon its successors
and assigns, but neither this Agreement nor the rights or obligations of
Employee hereunder may be assigned, pledged, hypothecated or otherwise
transferred by Employee in whole or in part to another person, firm or
corporation nor may the obligations of Employee hereunder be delegated.
11. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, prepaid and return receipt requested, to the other
party hereto at his or its mailing address as set forth at the beginning of this
Agreement, and in the case of Employer with copies to William J. Davis, Esq.,
Scheichet & Davis, P.C., 505 Park Avenue, New York, New York 10022. Either party
may change the address to
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which such communications hereunder shall be sent by sending notice of such
change to the other party as herein provided.
12. Representations by Employee and Employer. Employee hereby represents
and warrants that he is not a party to any other agreement, contract or
understanding, whether of employment or otherwise, which would in any way
restrict or prohibit him from undertaking or performing employment with Employer
in accordance with the terms and conditions of this Agreement. Employer hereby
represents and warrants that this Agreement has been properly authorized by all
necessary corporate action and, when and if, fully executed, will be binding and
enforceable upon the Company in accordance with its terms except for the
application of the laws of insolvency and bankruptcy as they may otherwise
affect such Agreement. Employer further represents and warrants that no other
contract, agreement, provision of its certificate of incorporation or bylaws,
debt obligation, law, regulation or court or administrative order prevents it
from entering into, or conflicts with, this Agreement.
13. Waiver. The waiver by either party of any breach or violation of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach or violation, whether singular in nature or not.
14. Prior Agreements; Complete Understanding; Amendment. This Agreement
cancels and supersedes any and all prior agreements and understandings, if any,
between the parties hereto regarding the services of Employee to Employer and
constitutes the complete understanding between the parties with respect to the
employment of Employee hereunder and no statement, representation, warranty or
covenant has been made by either party with respect thereto except as expressly
set forth herein. Employee acknowledges that he has been afforded the right to
review this Agreement with
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legal counsel prior to the execution of this Agreement, and that he has been
encouraged to do so. This Agreement shall not be altered, modified or amended
except by written instrument signed by each of the parties hereto.
15. Headings. The headings set forth in this Agreement are for convenience
only and shall not be considered as part of this Agreement in any respect nor
shall they in any way affect the substance of any provisions contained in this
Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one and the same agreement.
17. Arbitration. Any dispute, controversy or claim with respect to the
enforcement of the provisions of paragraph 7(B)(iv) of this Agreement or the
performance or breach of such provision shall be settled exclusively by
arbitration conducted in the English language in New York, New York in
accordance with the arbitration rules of the American Arbitration Association by
a panel of three neutral arbitrators appointed in accordance with such rules. In
any such arbitration proceeding, the arbitrators shall have the authority to
order specific performance of an act by any party to such proceeding, in
addition to or in lieu of monetary damages. The parties to this Agreement hereby
consent to the jurisdiction of the court's of the State of New York in Nassau
County.
18. Indemnification. The Employer shall, to the fullest extent permitted by
applicable law, indemnify and hold harmless the Employee so that he shall not be
personally liable to the Registrant or its stockholders or third parties for
monetary damages for breach of fiduciary duty, and against all expense,
liability and loss reasonably incurred or suffered by such person in connection
with his duties and acts hereunder, together with the right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition.
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19. Governing Law; Construction with Existing Law; Severability. This
Agreement shall be governed by, and construed and enforced in accordance with,
the internal laws of the State of New York. It is the intention of the parties
hereto that all terms and conditions of this Agreement are in compliance with
the laws and regulations of the state of New York, and nothing in this Agreement
shall be construed to be in derogation of the laws, rules and regulations
thereof. If for any reason any provision of this Agreement or any part hereof is
invalid, unlawful or incapable of being enforced by reason of any rule of law,
equity or public policy, all conditions and provisions of the Agreement which
can be given effect without such invalid, unlawful or unenforceable provision
shall, nevertheless, remain in full force and effect, and such invalid, unlawful
or irrevocable provision shall be carried out as nearly as possible according to
its original terms and intent, while eliminating such invalidity or
non-enforceability.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
NEW YORK HEALTH CARE, INC.
By: ___________________________________
Title:
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Gilbert Barnett
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CONSENT OF ATTORNEYS FOR THE REGISTRANT
We hereby consent to all references to our firm included in or made a part
of this Form SB-2 Registration Statement.
Dated: New York, New York
August 29, 1996
/s/ Halpern & Pasternack, P.C.
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Halpern & Pasternack, P.C.
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We consent to the use in this registration statement on Form SB-2 of our report
dated January 26, 1996, on our audit of the financial statements of New York
Health Care, Inc. as of December 31, 1995 and for the years ended December 31,
1994 and 1995. We also consent to the reference to our firm under the captions
"Selected Financial Data" and "Experts".
/s/
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M.R. WEISER & CO. LLP
New York, NY
August 28, 1996
