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: March 31, 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: 3,750,000
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [X]
1
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
A S S E T S
(Unaudited)
Current assets:
Cash $ 205,494
Accounts receivable, net of allowance
for uncollectible
amounts of $149,770 5,836,522
Unbilled services 283,476
Prepaid expenses 119,907
Due from affiliates 15,095
Deferred tax asset 45,000
----------
Total current assets 6,505,494
Property and equipment, net 305,702
Intangibles 3,092,246
Acquisition costs, net 57,308
Deposits 30,766
----------
Total assets $9,991,516
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll $ 578,656
Note payable - bank 2,600,000
Current maturities of long term debt 291,933
Deferred revenue 27,000
Accounts payable and accrued expenses 431,537
Income taxes payable 11,123
----------
Total current liabilities 3,940,249
----------
Long-term debt, less current maturities 1,614,532
----------
Commitments, contingencies and other comments
Shareholders' equity:
Preferred stock $.01 par value, 2,000,000 shares
authorized; no shares issued or outstanding
Common stock, $.01 par value, 12,500,000
shares authorized; 3,750,000 shares
issued and outstanding 37,500
Additional paid-in capital 4,064,807
Retained earnings 334,428
----------
Total shareholders' equity 4,436,735
----------
Total liabilities and shareholders' equity $9,991,516
==========
See accompanying notes to financial statements
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
1997 1998
-------- ---------
Net patient service revenue $ 3,086,034 $ 4,575,866
----------- -----------
Expenses:
Professional care of patients 2,141,108 3,221,661
General and administrative 811,610 1,106,066
Bad debts expense 15,000 --
Depreciation and amortization 11,371 37,542
----------- -----------
Total operating expenses 2,979,089 4,365,269
----------- -----------
Income from operations 106,945 210,597
----------- -----------
Nonoperating income (expenses):
Interest income 8,179 19,554
Other income 2,687 9,000
Interest expense (12,995) (55,107)
----------- -----------
Nonoperating income (expenses), net (2,129) (26,553)
----------- -----------
Income before provision for income taxes 104,816 184,044
----------- -----------
Provision (credit) for income taxes:
Current 49,000 70,800
Deferred (7,000)
----------- -----------
42,000 70,800
----------- -----------
Net income $ 62,816 $ 113,244
=========== ===========
Basic and diluted earnings per share $.02 $.03
==== ====
Weighted average shares outstanding 3,750,000 3,750,000
=========== ===========
See accompanying notes to financial statements
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Three Months Ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 3,750,000 $37,500 $4,064,807 $221,184 $4,323,491
Net income 113,244 113,244
--------- ------- ---------- -------- ----------
Balance at March 31, 1998 3,750,000 $37,500 $4,064,807 $334,428 $4,436,735
========= ======= ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
1997 1998
---------- ----------
Cash flows from operating activities:
Net income $ 62,816 $ 113,244
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 14,853 37,542
Bad debts expense 15,000
Deferred tax credit (7,000)
Deferred revenue (9,000)
Changes in operating assets
and liabilities:
Increase in accounts receivable
and unbilled services (475,985) (1,323,998)
Increase in due from affiliates (15,095)
Decrease in prepaid expenses 38,102 5,087
Increase in deposits (6,765) (3,967)
Decrease in accounts receivable
due after one year 180,604
(Decrease) increase in accrued
payroll (98,631) 221,182
Increase in accounts payable and
accrued expenses 49,144 159,006
Increase (decrease) in income
taxes payable 12,884 (91,910)
----------- -----------
Net cash used in operating
activities (395,582) (727,305)
----------- -----------
Cash flows from investing activities:
Acquisition of fixed assets (47,954) (88,640)
Payments for purchase acquisitions
and associated costs (2,267,518)
Costs incurred for future
acquisitions (37,902)
----------- -----------
Net cash (used in) investing
activities (47,954) (2,394,060)
----------- -----------
Cash flows from financing activities:
Borrowings under notes payable 3,180,000
Repayment of long-term debt (181) (25,000)
Net charges from issuance of common stock (11,976)
----------- -----------
Net cash (used in) provided by
financing activities (12,157) 3,155,000
----------- -----------
Net (decrease) increase in cash and
cash equivalents (455,693) 33,635
Cash and cash equivalents at beginning
of period 1,188,450 171,859
----------- -----------
Cash and cash equivalents at end of period $ 732,757 $ 205,494
=========== ===========
Supplemental cash flow disclosure:
Cash paid during the period for:
Interest $12,995 $56,162
======= =======
Income taxes $215,062 $163,335
======== ========
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 three months ended March 31, 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. Options and
warrants were not included in the computation of diluted earnings per share
because the exercise price was greater than the market price of the stock.
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - ACQUISTIONS:
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 sum of 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 of the three offices acquired at the date of acquisition by $1,123,000;
$30,000 of the purchase price was assigned to acquired furnitures and fixtures,
$79,000 was assigned to contract value and employee lists and $1,044,000 was
assigned to goodwill. Amortization expense for the period amounted to
approximately $6,600.
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 intangibles assets and is
being amortized over 25 and 10 years, respectively.
The sum of the purchase price of $1,150,000 plus costs incurred in making the
acquisition ($35,000) aggregating $1,185,000 exceeded the fair value of the net
assets of the other entity acquired at the date of acquisition by $1,175,000;
$10,000 of the purchase price was assigned to acquired furnitures and fixtures,
$55,000 was assigned to contract value and employee lists and $1,120,000 was
assigned as goodwill.
Intangibles consist of goodwill of approximately $2,989,000 and other
intangibles of $134,000.
<PAGE>
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma summary for the three months ended March 31,
1997 and 1998 combines the results of operations of the Corporation and the
above mentioned acquisitions as if the acquisitions had occurred on January 1,
1997. The unaudited proforma summary is not necessarily indicative either of the
results of operations that would have occurred had the purchase been made during
the periods presented, or of future results of operations of the combined
companies.
For the Three Months Ended
March 31,
---------------------------------
Unaudited 1997 1998
- --------------------------- ---------- ----------
Proforma revenues $5,081,034 $5,440,409
Proforma net income 82,766 159,444
Proforma basic and diluted
earnings per share $.02 $.04
NOTE 4 - 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 March 31, 1998, $2,600,000 was outstanding. Borrowings under the
agreement are due between April and August 1998 and bear interest between 8.1%
and 8.2%.
<PAGE>
Management Discussion & Analysis of Financial Conditions
and Results of Operations
Three Months Ended March 31, 1998 compared with the Three Months Ended March 31,
1997.
Revenues for the three months ended March 31, 1998 increased 48.3% to
approximately $4,576,000 from approximately $3,086,000 for the three months
ended March 31, 1997. Approximately 12.2% or $376,000 of the increase is
attributable to increased hours of service provided under existing and new
contracts in the State of New York. The additional increase of $1,114,000 is a
result of the acquisition of three offices in New Jersey in December 1997 and an
additional three New Jersey offices in February 1998.
Cost of professional care of patients for the three months ended March 31, 1998
increased 50.4% to approximately $3,221,000 from approximately $2,141,000 for
the three months ended March 31, 1997. The increase resulted from the hiring of
additional home health care personnel to service the increased business in New
York and the hiring of the staff of the six offices purchased in December 1997
and February, 1998. The cost of professional care of patients as a percentage of
revenues increased 1.0% to approximately 70.4% for the three months ended March
31, 1998 from approximately 69.4% for three months ended March 31, 1997. This
was caused by increased professional nursing services provided by the five New
York offices.
Selling, general and administrative expenses for the three months ended March
31, 1998 increased 36.1% to approximately $1,106,000 from approximately $812,000
for the three months ended March 31, 1997. The increase resulted primarily from
the acquisition of six offices in New Jersey. Selling, general and
administrative expenses as a percentage of revenue decreased to 24.1% from 26.2%
because of the additional revenue from the acquired offices and minimal increase
in corporate overhead.
Interest expense, net of interest income, for the three months ended March 31,
1998 increased to approximately $36,000 as compared to approximately $5,000 for
the three months ended March 31, 1997, primarily as a result of the borrowings
to finance the purchases of the New Jersey offices and the need to fund the
receivables of these offices as the receivable grow to normal levels.
The current provision for Federal, State and Local taxes for the three months
ended March 31, 1998 increased to approximately $71,000 from approximately
$49,000 for the three months ended March 31, 1997. This increase is as a result
of increased income for the period.
<PAGE>
2
In view of the foregoing, net income for the three months ended March 31, 1998
increased 79.4% to approximately $113,000 as compared to approximately $63,000
for the three months ended March 31, 1997 .
Liquidity and Capital Resources
For the three months ended March 31, 1998, net cash used in operations was
$727,000 as compared to $396,000 during the three months ended March 31, 1997,
an increase of $332,000 or 83.8%. The $727,000 used in the first three months
ended March 31, 1997 was principally due to the approximately $1,143,000
increase in accounts receivable and unbilled services, offset by approximately
$370,000 increase in accrued payroll and accounts payable and $113,000 in net
income. Significant portions of the increased receivables and payables was from
the New Jersey offices. The $396,000 used in the first quarter of 1997 was
principally due to the approximately $476,000 increase in accounts receivable
and unbilled services, offset by approximately $63,000 in net income. Net cash
used in investing activities approximates $2,394,000 primarily for the
acquisition of the three New Jersey office in February 1998 and one New Jersey
office in March 1998. Net cash provided by financing activities for the three
months ended March 31, 1998 totaled $3,155,000 compared to the $12,000 used in
the three months ended March 31, 1997. Approximately $2,270,000 borrowed in the
three months ended March 31, 1997 was used for the acquisition of four offices
in New Jersey. Approximately $600,000 of the additional borrowing was used for
the operating expenses of the New Jersey offices as the receivable grow to
normal levels.
As of March 31, 1998, approximately $5,993,000 (approximately 60%) of the
Company's total assets consisted of accounts receivable from clients who are
reimbursed by third-party payors, as compared to $3,293,000 (approximately 78%)
as of March 31, 1997, an increase of 82.0%. Such payors generally require
substantial documentation in order to process claims. The decrease as a
percentage of total assets is the result of the increase in intangible assets
relating to the recent acquisitions. The March 31, 1997 percentage is due to an
increase in total assets as a result of the Company's public stock offering in
December 1996, off-set by the $2,150,000 increase in receivables from clients
reimbursed by third party payors.
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 first three months ended March 31, 1998, the
Company's DSO was 116, compared to 98 days for the first three months ended
March 31, 1997. The increase of 18 days in DSO is principally the result of the
Company having received the purchase price of $3,150,000 pursuant to the
Receivable Sales Agreement which caused unusually low DSO's during the three
months ended March 31, 1997 and is therefore not indicative of any trend.
<PAGE>
3
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 recent news reports concerning federal budget negotiations
regarding 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
and/or referral of cases from referral sources.
<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.
May 20, 1998
NEW YORK HEALTH CARE, INC.
By: /s/ DAVID GROSSMAN
---------------------------------------
David Grossman
Chief Financial and Accounting Officer
<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 THREE
MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<SECURITIES> 0
<CASH> 205,494
<RECEIVABLES> 5,986,292
<ALLOWANCES> (149,770)
<INVENTORY> 0
<CURRENT-ASSETS> 6,505,494
<PP&E> 523,601
<DEPRECIATION> (217,899)
<TOTAL-ASSETS> 9,991,516
<CURRENT-LIABILITIES> 3,940,249
<BONDS> 0
0
0
<COMMON> 37,500
<OTHER-SE> 4,399,235
<TOTAL-LIABILITY-AND-EQUITY> 9,991,516
<SALES> 0
<TOTAL-REVENUES> 4,575,866
<CGS> 0
<TOTAL-COSTS> 3,221,661
<OTHER-EXPENSES> 1,143,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,107
<INCOME-PRETAX> 184,044
<INCOME-TAX> 70,800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,244
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0
</TABLE>
