SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from:
Commission File No. 1-12451
NEW YORK HEALTH CARE, INC.
(Name of small business issuer in its charter)
New York 11-2636089
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1850 McDonald Avenue, Brooklyn, New York 11223
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (718) 375-6700
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities under
a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,760,000
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [X]
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
A S S E T S
(Unaudited)
Current assets:
Cash and cash equivalents $ 140,033
Accounts receivable, net of allowance for
uncollectible amounts of $167,252 5,528,026
Unbilled services 409,440
Prepaid expenses 193,722
Due from affiliates 6,475
Deferred tax assets 45,000
-----------
Total current assets 6,322,696
Property and equipment, net 306,558
Intangibles 3,057,347
Deposits 36,401
-----------
Total assets $ 9,723,002
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll $ 647,884
Note payable - bank 2,400,000
Current maturities of long term debt 485,772
Accounts payable and accrued expenses 257,965
Income taxes payable 106,000
-----------
Total current liabilities 3,897,621
-----------
Long-term debt, less current maturities 577,500
-----------
Commitments, contingencies and other comments
Shareholders' equity:
Preferred stock $.01 par value, 2,000,000 shares authorized;
480,000 issued and outstanding 4,800
Common stock, $.01 par value, 12,500,000 shares authorized;
3,760,000 shares issued 37,600
Additional paid-in capital 4,676,157
Retained earnings 573,278
-----------
5,291,835
Less: Treasury stock (30,105 common shares at cost) (43,954)
-----------
Total shareholders' equity 5,247,881
-----------
Total liabilities and shareholders' equity $ 9,723,002
===========
See accompanying notes to financial statements
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1997 1998 1997 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net patient service revenue $ 3,450,423 $ 5,067,945 $ 9,760,498 $ 14,955,211
----------- ----------- ----------- ------------
Expenses:
Professional care of patients 2,463,792 3,442,066 6,867,931 10,303,463
General and administrative 810,670 1,278,215 2,455,376 3,693,122
Bad debts expense 25,000 15,000 45,000 30,000
Depreciation and amortization 13,424 55,949 36,876 150,149
----------- ----------- ----------- ------------
Total operating expenses 3,312,886 4,791,230 9,405,183 14,176,734
----------- ----------- ----------- ------------
Income from operations 137,537 276,715 355,315 778,477
----------- ----------- ----------- ------------
Nonoperating income (expenses):
Interest income 13,000 12,218 44,770
Other income 9,185 165 12,748 14,255
Interest expense (86,971) (12,995) (238,408)
Acquisition costs (17,163) (17,163)
----------- ----------- ----------- ------------
Nonoperating income
(expenses), net (7,978) (73,806) (5,192) (179,383)
----------- ----------- ----------- ------------
Income before provision for
income taxes 129,559 202,909 350,123 599,094
----------- ----------- ----------- ------------
Provision (credit) for income taxes:
Current 89,700 83,000 197,700 247,000
Deferred (10,500) (19,500)
----------- ----------- ----------- ------------
79,200 83,000 178,200 247,000
----------- ----------- ----------- ------------
Net income $ 50,359 $ 119,909 $ 171,923 $ 352,094
=========== =========== =========== ============
Basic and diluted earnings per share $ .01 $ .03 $ .05 $ .09
=========== =========== =========== ============
Weighted average shares
outstanding 3,750,000 3,739,504 3,750,000 3,747,539
=========== =========== =========== ============
Diluted weighted average shares
outstanding 3,750,000 3,739,504 3,750,000 3,749,047
=========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Preferred
Common Stock Stock Additional Treasury
--------------------- ---------------- Paid-In Stock Retained
Shares Amount Shares Amount Capital Shares Amount Earnings Total
---------- ------ ------ ------ ----------- ------ ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 3,750,000 $37,500 $4,064,807 $221,184 $4,323,491
Exercise of stock warrants
on June 2, 1998 10,000 100 16,150 16,250
Issuance of preferred stock
on August 6, 1998 in
exchange for promissory
note ($1.25 per share) 480,000 $4,800 595,200 600,000
Treasury stock purchased
on June 28, 1998
($1.68 per share) 7,500 $(12,638) (12,638)
Treasury stock purchased
during July and September
($1.39 average per share) 22,605 (31,316) (31,316)
Net income 352,094 352,094
--------- ------- ------- ------ ---------- ------ -------- -------- ----------
Balance at September 30,
1998 3,760,000 $37,600 480,000 $4,800 $4,676,157 30,105 $(43,954) $573,278 $5,247,881
========= ======= ======= ====== ========== ====== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
--------------------------
1997 1998
----------- -----------
Cash flows from operating activities:
Net income $ 171,923 $ 352,094
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 46,720 150,149
Bad debts expense 45,000 30,000
Deferred tax credit (19,500)
Deferred revenue (36,000)
Changes in operating assets and liabilities:
Increase in accounts receivable and
unbilled services (1,333,416) (1,171,466)
Increase in due from affiliates (6,475)
Decrease (increase) in prepaid expenses 88,801 (68,728)
Increase in deposits (1,243) (9,602)
Decrease in accounts receivable due
after one year 180,604
Increase in accrued payroll 103,598 290,410
Increase (decrease) in accounts
payable and accrued expenses 97,958 (14,566)
(Decrease) increase in income taxes
payable (72,715) 2,967
----------- -----------
Net cash used in operating activities (872,874) (300,613)
----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (65,884) (113,714)
Payments for the purchase acquisitions and
associated costs 572,295
Costs incurred for future acquisitions (95,280)
----------- -----------
Net cash used in investing activities (161,164) (686,009)
----------- -----------
Cash flows from financing activities:
Borrowings under notes payable 1,250,000
Repayment of long-term debt (3,869) (267,500)
Net (charges) proceeds from issuance of common
stock (11,976) 16,250
Purchase of treasury stock (43,954)
----------- -----------
Net cash (used in) provided by
financing activities (15,845) 954,796
----------- -----------
Net decrease in cash and cash equivalents (1,049,883) (31,826)
Cash and cash equivalents at beginning of period 1,188,450 171,859
----------- -----------
Cash and cash equivalents at end of period $ 138,567 $ 140,033
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest $ 12,995 $ 238,408
=========== ===========
Income taxes $ 228,457 $ 301,665
=========== ===========
Supplemental schedule of noncash investing
and financing activities:
The Company purchased customer lists,
furniture and fixtures and other
intangibles which were partially
acquired through the issuance
of promissory notes $ 1,730,000
===========
The Company converted long-term debt to
480,000 shares of preferred stock $ 600,000
===========
See accompanying notes to financial statements
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited financial statements, which are for an interim
period, do not include all disclosures provided in the annual financial
statements. These unaudited financial statements should be read in conjunction
with the financial statements and the footnotes thereto contained in the Annual
Report on Form 10-KSB for the year ended December 31, 1997 of New York
Healthcare, Inc. and Subsidiary (the "Corporation"), as filed with the
Securities and Exchange Commission.
In the opinion of the Corporation, the accompanying unaudited financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial statements. The results of
operations for the nine months ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2 - EARNINGS PER SHARE:
Basic earnings per share excludes dilution and is computed by dividing earnings
available to common shareholders by the weighted average number of common shares
outstanding for the period.
Diluted earnings per share is computed by dividing earnings available to common
shareholders by the weighted average number of common shares outstanding for the
period, adjusted to reflect potentially dilutive securities. The warrants issued
on June 2, 1998 and not exercised and certain stock options are included in the
diluted earnings per share during the period that the exercise price was below
the average market price. Certain other options and warrants were not included
in the computation of diluted earnings per share because the exercise price was
greater than the average market price of the stock. No dividends are payable on
the Class A Convertible Preferred Stock until 1999 and are not cummulative.
Accordingly, the 9% dividends have not been included in the diluted earnings per
share computation.
NOTE 3 - STOCK OPTIONS:
On June 2, 1998, the Corporation granted 262,000 stock options pursuant to the
Corporation's performance incentive plan to key employees at the exercise price
of $1.625 per share. The stock options have an expiration date of 5-10 years. On
June 25, 1998, the Corporation amended its Performance Incentive Plan,
authorizing the reservation of an additional 210,000 shares of $.01 par value
common stock, for each of two additional years, for a total of 420,000
additional shares.
On June 2, 1998, the Corporation granted two of its board members a warrant to
purchase up to 10,000 shares of common stock at a price of $1.625 per share at
any time until June 1, 2008. On June 2, 1998, one of the board members exercised
his warrant and purchased 10,000 shares of common stock at a price of $16,250.
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - TREASURY STOCK:
In June 1998, the Corporation purchased 7,500 shares of common stock for the
treasury at a cost of $12,638 and in July and September, purchased an additional
22,605 shares of common stock for $31,316. The treasury stock is shown at cost.
NOTE 5 - LINE OF CREDIT:
On January 26, 1998, the Corporation entered into a $6,000,000 line of credit
with a bank. The availability of the line of credit is based on a formula of
eligible accounts receivable. The line is collateralized by all property and
assets of the Corporation. The Corporation has also guaranteed the line of
credit. At September 30, 1998, $2,400,000 was outstanding. Certain borrowings
under the agreement bear interest at prime plus 1/2% (8.75% at September 30,
1998), and other borrowings are due between October and December 1998 and bear
interest between 8.1% and 8.2%.
NOTE 6 - ACQUISITIONS:
On February 8, 1998, the Corporation purchased the customer lists and other
intangible assets of an additional three offices in the State of New Jersey from
Metro Healthcare Services, Inc. for $500,000 cash and a promissory note in the
amount of $580,000. The acquisition was accounted for as a purchase and,
accordingly, the assets acquired have been recorded at their estimated fair
values at the date of acquisition. The excess of cost over fair values of the
purchased business has been allocated to goodwill, customer lists and other
intangible assets and is being amortized over 25 and 10 years, respectively.
Operating results of the business have been included in the consolidated
financial statements of the Corporation since the date of acquisition.
The purchase price of $1,080,000 plus costs incurred in making the acquisition
($73,000), aggregating $1,153,000, exceeded the fair value of the net assets
acquired at the date of acquisition by $1,123,000. The purchase price has been
allocated to furniture and fixtures for $30,000, $79,000 was assigned to
contract value and employee lists and $1,044,000 was assigned to goodwill.
On March 26, 1998, the Corporation purchased the customer lists and other
intangible assets of another entity. The entity is related to the Corporation
through common ownership and management. The aggregate purchase price is
$1,150,000. This amount was paid through issuance of a promissory note. The
acquisition was accounted for as a purchase and, accordingly, the assets
acquired have been recorded at their estimated fair values at the date of
acquisition. The excess of cost over fair values of the purchased business has
been allocated to goodwill, customer lists and other intangible assets and is
being amortized over 25 and 10 years, respectively. Operating results of the
business have been included in the consolidated financial statements of the
Corporation since the date of acquisition.
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The purchase price of $1,150,000 plus costs incurred in making the acquisition
($45,000), aggregating $1,195,000 exceeded the fair value of the net assets
acquired at the date of acquisition by $1,175,000. The purchase price has been
allocated to furniture and fixtures for $10,000; $55,000 was assigned to
contract value and employee lists and $1,130,000 was assigned to goodwill.
NOTE 7 - EARNINGS PER SHARE:
Earnings per share are computed as follows:
<TABLE>
<CAPTION>
For The Three For The Nine
Months Ended Months Ended
September 30, September 30,
------------------------- -----------------------
1997 1998 1997 1998
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Basic and diluted earnings per
share (note 2)
Earnings:
Net income applicable to common stock $ 50,359 $ 119,909 $ 171,592 $ 352,094
---------- ------------ ---------- ----------
Shares:
Weighted average number of common
shares outstanding - basic 3,750,000 3,739,504 3,750,000 3,747,539
Incremental shares relating to
stock options and warrants 1,508
---------- ------------ ---------- ----------
Diluted weight average shares outstanding 3,750,000 3,739,504 3,750,000 3,749,047
========== ============ ========== ==========
Basic earnings per share $ .01 $ .03 $ .05 $ .09
========== ============ ========== ==========
Diluted earnings per share $ .01 $ .03 $ .05 $ .09
========== ============ ========== ==========
</TABLE>
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - START UP COSTS:
During the nine month period ending September 30, 1998, the Corporation adopted
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities."
Start-up activities which include (i) one-time activities relating to the
introduction of a new product or service, conducting business in a new
territory, conducting business with a new class of customer or commencing a new
operation and (ii) organization costs, are expensed as incurred. The Company
believes that there is no cumulative effect on the amount of retained earnings
at December 31, 1998 resulting from the adoption of SOP 98-5. During the nine
months ended September 30, 1998, there were no start-up costs.
NOTE 9 - ISSUANCE OF PREFERRED STOCK:
On August 6, 1998, the Board of Directors created a series of Preferred Shares
to consist initially of 480,000 shares of Class A Convertible Preferred Stock.
The holders of the Class A Convertible Preferred Stock shall be entitled to a
dividend equal to 9% of the purchase price for shares of the Class A Convertible
Preferred Stock before any dividend is paid on Common Stock. Dividends shall be
payable quarterly commencing with the first calendar quarter of 1999 and are not
cummulative. The holders of Class A Convertible Preferred Stock receive no
preference on liquidation. The Class A Convertible Preferred Stock may be
converted into one share of common stock at any time.
On August 6, 1998, Heart to Heart Health Care Services, Inc. ("Heart to Heart"),
which is the holder of the Corporation's promissory note in the face amount of
$1,150,000 currently bearing interest at the rate of 9% per annum, converted
$600,000 of the principal amount of that promissory note into 480,000 shares of
the Corporation's newly authorized Class A Convertible Preferred Stock at a
conversion price of $1.25 per share, each share of which is convertible at any
time into shares of the Corporation's $.01 par value common stock. Heart to
Heart is owned by Jerry Braun, Jacob Rosenberg, Samson Soroka, Hirsch Chitrik
and Sid Borenstein. Messrs. Braun, Rosenberg, Chitrik and Borenstein are
officers or directors of the Corporation and together with Mr. Soroka are all
principal shareholders. The Corporation has therefore obtained an independent
opinion that the terms and conditions of the transaction are, under the
circumstances, fair to the Corporation.
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Nine months ended September 30, 1998 compared with the Nine months ended
September 30, 1997.
Results of operations
Revenues for the nine months ended September 30, 1998 increased 53.2% to
approximately $14,955,000 from approximately $9,760,000 for the nine months
ended September 30, 1997. Approximately 3.4% or $332,000 of the increase is
attributable to increased hours of service provided under existing and new
contracts in the State of New York. The remaining increase of $4,863,000 is a
result of the acquisition of seven offices in New Jersey in December 1997,
February 1998 and March 1998.
Cost of professional care of patients for the nine months ended September 30,
1998 increased 50.0% to approximately $10,303,000 from approximately $6,868,000
for the nine months ended September 30, 1997. The increase resulted from hiring
additional home health care personnel to service the increased business in New
York and hiring the staff of the seven offices purchased in New Jersey. The cost
of professional care of patients as a percentage of revenues decreased 1.5% to
approximately 68.9% for the nine months ended September 30, 1998 from
approximately 70.4% for nine months ended September 30, 1997. The decrease was
primarily caused by reduced rates of unemployment taxes and workers compensation
insurance as a result of the Company's improved experience ratings.
Selling, general and administrative expenses for the nine months ended September
30, 1998 increased 50.4% to approximately $3,693,000 from approximately
$2,455,000 for the nine months ended September 30, 1997. The increase resulted
primarily from the acquisition of seven offices in New Jersey. Selling, general
and administrative expenses as a percentage of revenue decreased to 24.7% from
25.2% due to allocation of corporate overhead over a larger revenue base.
Interest expense for the nine months ended September 30, 1998 increased to
approximately $238,000 as compared to approximately $13,000 for the nine months
ended September 30, 1997, primarily as a result of increased borrowing to
finance the purchases of the New Jersey offices and, secondarily, the need to
fund the operations of these offices as the receivables grew to normal levels.
The provision for Federal, State and Local taxes for the nine months ended
September 30, 1998 increased to approximately $247,000 from approximately
$179,000 for the nine months ended September 30, 1997. This increase is as a
result of increased income for the period.
In view of the foregoing, net income for the nine months ended September 30,
1998 increased 105.2% to approximately $353,000 as compared to approximately
$172,000 for the nine months ended September 30, 1997.
Liquidity and Capital Resources
For the nine months ended September 30, 1998, net cash used in operations was
$301,000 as compared to $873,000 during the nine months ended September 30,
1997, an decrease of $572,000 or 65.5%. The $301,000 used in the nine months
ended September 30, 1998 was principally due to the approximately $991,000
increase in accounts receivable and unbilled services, offset by an
approximately $275,000 increase in accounts payable, including payroll, and
$352,000 in net income. Significant portions of the increased receivables and
payables was from the recently acquired New Jersey offices. The $873,000 used in
the nine months ended September 30, 1997 was principally due to the
approximately $1,333,000 increase in accounts receivable and unbilled services,
offset by an approximately $202,000 increase in accrued payroll and accounts
payable and approximately $172,000 in net income. Net cash used in investing
activities approximates $686,000 primarily for the acquisition of the four New
Jersey offices. Net cash provided by financing activities for the nine months
ended September 30, 1998 totaled $955,000 compared to the $16,000 used in the
nine months ended September 30, 1997. Approximately $580,000
<PAGE>
borrowed in the nine months ended September 30, 1998 was used for the
acquisition of four of the offices in New Jersey and approximately $300,000 to
fund their operation.
As of September 30, 1998, approximately $5,185,000 (approximately 53%) of the
Company's total assets consisted of accounts receivable from clients who are
reimbursed by third-party payors, as compared to $4,185,000 (approximately 84%)
as of September 30, 1997, a decrease of 31%. Such payors generally require
substantial documentation in order to process claims. The decrease of accounts
receivable from clients who are reimbursed by third-party payors as a percentage
of total assets is the result of an increase in total assets due to the
acquisition of intangible assets purchased with the New Jersey offices.
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 billed. For the nine months ended September 30, 1998, the Company's
DSO was 104, compared to 116 days for the nine months ended September 30, 1997.
The improvement of 12 days in DSO is the net effect of combining the New Jersey
DSO's (which consist primarily of medicaid billings) of 37 days and the New
York's DSO's which are 133 days.
The Company's liquidity and long-term capital requirements depend upon a number
of factors, including the lag time to realize collections of amounts billed to
clients for services provided and the rate at which new offices and facilities
are established and acquisitions, if any, are completed. 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.
The Company is actively pursuing potential acquisitions. Further expansion of
the Company's business 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.
Potential Regulatory Changes
There have been news reports concerning potential changes in the way the
Government will reimburse home health care companies in the future, including
the possibility of capitation. While the Company is not currently a
Medicare-Certified Home Health Agency subject to these changes, most of the
Company's referral sources are and they may be negatively impacted by future
legislation which may be adopted to control home health care costs. While it is
still premature to discern what impact, if any, the potential changes may have
on the Company's operations, there can be no assurance that future legislation
will not result in reduced reimbursement rates from referral sources.
<PAGE>
Year 2000 Issues
The "Year 2000" Issue is the result of computer systems and programs using
two digits rather than four digits to define the applicable year. Computer
systems and programs that have date-sensitive applications may recognize a date
using "00" as the year 1900 rather than the Year 2000. This can result in system
failures or miscalculations causing disruption of operations including, but not
limited to, complete system failures, erroneous results and inability to process
transactions, send invoices, make payments or otherwise conduct normal business
activities.
The Company has initiated a "Year 2000" compliance program in which it has
identified the following areas of significant risk; computer hardware, computer
software and cash flow.
The Company presently operates two independent computer networks; a
Unix-based system for payroll and billing functions and a Windows NT-based
system for other accounting, word processing and database functions. The
Company's billing system is currently being modified by the software vendor and
is expected to be Year 2000 compliant during the first quarter of 1999. The
Windows NT-based system for the Company's general ledger and accounting
software, as well as its Microsoft Office software package for word processing
and database functions, are already Year 2000 compliant.
The Company has obtained the services of an outside consultant to make an
inventory of all of its computer hardware and software in all of its offices and
to design and implement a communications network that will link all of the
Company's facilities and computer systems. The principal focus of that
assessment is on the Company's hardware and operating systems for its computer
network and telephone system, which have the most significant effect on the
Company's ability to conduct business in a normal manner. The new communications
network, and all new hardware and software, will be Year 2000 compliant. At the
present time, the Company anticipates replacing approximately 25 desktop
computers which may not function properly on the Year 2000 compliant network,
which is expected to be fully operational during the first quarter of 1999.
The Company has begun formal communications with its significant payors
and vendors to determine the extent to which the Company may be vulnerable to
those third parties' failures to remediate their own Year 2000 issues. The
Company's management believes that the failure of such vendors to remediate
their Year 2000 issues in a timely manner will not have a material adverse
effect upon the Company. However, there can be no assurance that the computer
systems of such third parties will be remedied in a timely manner or that
failures or incompatibility issues arising out of the remediation methods of
such third parties will not have a material adverse effect on the Company.
Management believes that, so long as the Company's ability to provide its
services and process its payroll and billing is unaffected by Year 2000 issues,
the Company's available line of credit
<PAGE>
will be adequate to sustain operations in the event significant payors are
temporarily unable to make timely payment of their obligations to the Company.
At the present time, the Company has a Year 2000 remediation budget of
approximately $50,000; $25,000 of which is for the replacement of non-compliant
hardware, $15,000 for consulting services and $10,000 for software and
contingencies.
The Company's assessment of its Year 2000 issues is based upon
management's best estimates, which have been derived utilizing assumptions of
future events, including the availability of certain resources, third-party
modification plans and other factors, and there can be no assurance that
management's assessment of the Company's Year 2000 issues will not have to be
revised as a result of Year 2000 compliance problems which may be revealed in
the future and which could have a material adverse effect on the Company.
<PAGE>
Item 5. Other Information.
The following information relates to the period covered by this report and
has not previously been reported on Form 8-K:
(a) Set forth below is information reporting the Registrant's use of
proceeds of its initial public offering as of September 30, 1998.
(i) The effective date of the registration statement for which this
information is provided (SEC File No. 333-8155) is December 20, 1996.
(ii) The first six digits of the Registrant's CUSIP number are
649487.
(iii) The Registrant's initial public offering commenced on December
20, 1996 with H.J. Meyers & Co., Inc. as the underwriter and resulted in
the sale of a total of 1,250,000 shares of the Registrant's $.01 par value
common stock for an aggregate offering price of $5,000,000. The
overallotment option of the underwriter for an additional 187,500 shares
was not exercised.
<PAGE>
(iv) The amount of expenses incurred for the Registrant's account in
connection with the issuance and distribution of the securities of its
initial public offering consisted of the following, none of which involved
either direct or indirect payments to affiliates of the Registrant:
Underwriting discounts and commissions $500,000
Expenses paid to or for underwriters(1) 150,000
Other expenses 510,966
----------
Total expenses $1,160,966
The total net offering proceeds to the Registrant after the total
expenses set forth above was $3,839,034.
(v) The following is the amount of net offering proceeds which have
been used for each of the purposes listed below as of September 30, 1998.
Acquisition of other businesses $2,711,663
Funding of infusion therapy division (2) $ 45,000
Funding of pediatric division (3) --
Establishment of new branch offices (4) $ 14,644
Sales and marketing $ 143,000
Establishment of new principal office $ 106,283
Upgrade of facilities and computer systems $ 113,132
Working capital (2),(3),(4),(5) $ 705,312
The uses and proceeds described above and in the footnotes below do not
represent a material change in the uses of proceeds described in the
Registrant's December 20, 1996 prospectus. A portion of the proceeds allocated
to acquisition of other businesses were used to acquire the home care business
assets of Heart to Heart Healthcare Services, Inc. ("Heart to Heart"), which is
an affiliate of the Registrant as described in footnote 6 below.
The Registrant's current bank credit lines have increased from $3,500,000
to $6,000,000 (after the repayment noted above) of which $2,400,000 has been
utilized as of September 30, 1998. The Registrant will draw down from its bank
credit lines, as disclosed in the prospectus, to fund the additional uses of
proceeds which remain unfunded.
- ---------------
1. Expenses paid to or for underwriters does not include a $72,000 payment made
to H.J. Meyers & Co., Inc. for the two-year financial consulting services fee
as disclosed in the Underwriting section in the first paragraph on page 41 of
the Registrant's December 20, 1996 prospectus.
2. Working capital of approximately $30,000 has also been used to fund the
infusion therapy division receivables.
3. Working capital of approximately $70,000 has been used to fund the pediatric
division receivables.
4. The balance of the $500,000 use of proceeds allocation for establishing new
branch offices has been used for that purpose in the acquisition of other
businesses.
5. Approximately $400,000 of working capital has been used to finance the
receivables of the seven New Jersey branch offices which were acquired from
other businesses.
6. Heart to Heart Health is the holder of the Registrant's promissory note in
the face amount of $550,000 currently bearing interest at the rate of 9% per
annum after having converted $600,000 of the principal amount of that
promissory note into 480,000 shares of the Registrant's Class A Convertible
Preferred Stock at a conversion price of $1.25 per share, each share of which
is convertible at any time into shares of the Registrant's $.01 par value
common stock. Heart to Heart is owned by Jerry Braun, Jacob Rosenberg, Samson
Soroka, Hirsch Chitrik and Sid Borenstein (the "Affiliated Shareholders").
Messers. Braun, Rosenberg, Chitrik and Bornstein are officers or directors of
the Registrant and, together with Mr. Soroka, are all principal shareholders.
The Registrant obtained an independent opinion that the consideration
received by the Company in the transaction was, under the circumstances, fair
from a financial point of view to the Registrant, not including the
Affiliated Shareholders.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by item 601 of Regulation S-B.
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Purchase and Sale Agreement dated December 7, 1997 among NYHC
Newco Paxxon, Inc. and Metro Healthcare Services, Inc.**
2.2 Purchase and Sale Agreement dated February 8, 1998 among NYHC
Newco Paxxon, Inc. and Metro Healthcare Services, Inc.***
<PAGE>
2.3 Purchase and Sale Agreement dated February 25, 1998 among NYHC
Newco Paxxon, Inc. and Heart to Heart Healthcare Services, Inc.***
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 Amendment to the Certificate of Incorporation filed
October 17, 1996.*
3.5 By-laws of the Company.*
3.6 Amendment to the Certificate of Incorporation of the Company filed
December 4, 1996.*
3.7 Certificate of Designations, Rights and Preferences of New York
Health Care, Inc. Class A Convertible Preferred Stock.*****
4.1 Form of certificate evidencing shares of Common Stock.*
4.2 Underwriter's Warrant Agreement and Form of Underwriter's Warrant.*
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 30IA, 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 September 30,
1988.*
<PAGE>
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.*
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.*
<PAGE>
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 Rehabilitation 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.*
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.*
<PAGE>
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.*
10.36 Assignment of lease dated October 8, 1996, lease dated
September 30, 1995 and sublease dated May 1995 among the Company,
as tenant, Prime Contracting Design Corp., as assignor, Bellox
Realty Corp., as landlord and Nutriplus Corp., as subtenant.*
10.37 Lease for 6 Gramatan Avenue, Mount Vernon, New York, 10550 by
and between the Company and 6 Gramatan Avenue Corp. dated
December 1, 1996.*
10.38 Form of Financial Consulting Agreement with
H.J. Meyers & Co., Inc.*
10.39 Forms of Merger & Acquisition Agreement and Indemnification.*
10.40 Consulting Agreement by and between the Company and H. Gene
Berger dated July 30, 1997****
10.41 Agreement between the Company and Heart To Heart Health Care
Services, Inc. dated August 6, 1998.*****
11 Computation of Earnings Per Common Share of the Company.
<PAGE>
- --------------
* Incorporated by reference to Exhibits filed as part of the Company's
Registration Statement on Form SB-2 under File No. 333-08152, which was
declared effective on December 20, 1996.
** Incorporated by reference to Exhibits filed as part of the Company's Form
8-K report with an event date of December 8, 1997.
*** Incorporated by reference to Exhibits filed as part of the Company's Form
8-K report with an event date of February 8, 1998.
**** Incorporated by reference to Exhibits filed as part of the Company's Form
10-KSB report for the year ended December 31, 1997.
***** Incorporated by reference to Exhibits filed as part of the Company's Form
10-QSB report for the quarter ended June 30, 1998.
(b) Reports on Form 8-K. The Company has not filed reports during the third
quarter ended September 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
November 12, 1998
NEW YORK HEALTH CARE, INC.
By: /s/ David Grossman
---------------------------------------
David Grossman
Chief Financial and Accounting Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEW YORK
HEALTH CARE, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 140,033
<SECURITIES> 0
<RECEIVABLES> 5,528,026
<ALLOWANCES> (167,252)
<INVENTORY> 0
<CURRENT-ASSETS> 6,322,696
<PP&E> 567,158
<DEPRECIATION> 260,600
<TOTAL-ASSETS> 9,723,002
<CURRENT-LIABILITIES> 3,897,621
<BONDS> 0
0
4,800
<COMMON> 37,600
<OTHER-SE> 5,210,281
<TOTAL-LIABILITY-AND-EQUITY> 9,723,002
<SALES> 0
<TOTAL-REVENUES> 14,955,211
<CGS> 0
<TOTAL-COSTS> 10,303,463
<OTHER-EXPENSES> 3,873,271
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 238,408
<INCOME-PRETAX> 599,094
<INCOME-TAX> 247,000
<INCOME-CONTINUING> 352,094
<DISCONTINUED> 0
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<NET-INCOME> 352,094
<EPS-PRIMARY> .09
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