SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MAY 31, 2000, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO .
Commission file number 0-25777
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3476656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1983 Marcus Avenue, Lake Success, New York 11042
(Address of principal executive offices) (Zip Code)
(516) 358-1000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (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
The number of shares of common stock outstanding on July 14, 2000
was 11,809,653.
TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
May 31, 2000 and February 29, 2000 2
Condensed Statements of Consolidated
Operations - Three months ended
May 31, 2000 and 1999 3
Condensed Statements of Consolidated Cash
Flows - Three months ended May 31, 2000
and 1999 4
Notes to Condensed Consolidated Financial
Statements 5-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-11
Forward-Looking Statements 11-13
PART II. OTHER INFORMATION 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
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PART I. FINANCIAL INFORMATION
TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) (UNAUDITED)
MAY 31, FEBRUARY 29,
2000 2000
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 5,260 $ 9,299
Accounts receivable, net of allowance
for doubtful accounts of $5,370 and
$5,900, respectively 61,074 55,221
Prepaid expenses and other current assets 2,713 3,056
Total current assets 69,047 67,576
FIXED ASSETS, net of accumulated
depreciation of $6,951 and
$6,054, respectively 17,590 18,243
INTANGIBLE ASSETS, net of accumulated
amortization of $9,139 and
$8,984, respectively 4,333 4,489
OTHER ASSETS 3,130 3,203
TOTAL $ 94,100 $93,511
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 21,896 $23,784
Accrued payroll and payroll related expenses 21,648 22,996
Current portion of Medicare and
Medicaid liabilities 10,400 10,401
Current portion of long-term debt 5,847 5,872
Total current liabilities 59,791 63,053
LONG-TERM DEBT 62,197 53,351
LONG-TERM MEDICARE and MEDICAID LIABILITIES 43,748 43,936
OTHER LIABILITIES 3,022 3,162
TOTAL LIABILITIES 168,758 163,502
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - $.01 par value;
50,000,000 shares authorized;
11,809,653 outstanding at May 31,
2000 and February 29, 2000 118 118
Additional paid-in capital 50,921 50,921
Accumulated deficit (125,697) (121,030)
Total stockholders' equity (deficit) (74,658) (69,991)
TOTAL $ 94,100 $93,511
<FN>
See notes to condensed consolidated financial statements.
</FN>
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TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended
May 31,
2000 1999
<S> <C> <C>
CONTINUING OPERATIONS:
REVENUES:
Service revenues: $ 56,631 $69,927
Sales of licensees and fees, net 29 168
Total Revenues 56,660 70,095
OPERATING EXPENSES:
Service costs 35,138 44,485
General and administrative costs 22,046 27,165
Total Operating Expenses 57,184 71,650
(Loss) before interest, depreciation,
amortization and income taxes (524) (1,555)
INTEREST AND OTHER EXPENSES:
Interest expense 3,306 396
Interest (income) (235) (95)
Depreciation and amortization 1,122 1,229
Other (income) expense, net (75) (151)
Total interest and other expenses 4,118 1,379
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (4,642) (2,934)
PROVISION FOR INCOME TAXES 25 25
NET (LOSS) FROM CONTINUING OPERATIONS (4,667) (2,959)
INCOME FROM DISCONTINUED OPERATIONS
(NET OF INCOME TAXES) - 775
NET (LOSS) $ (4,667) $(2,184)
INCOME (LOSS) PER COMMON SHARE - BASIC:
Income (loss) from continuing operations $ (.40) $ (.25)
Income (loss) from discontinued operations - .07
Net (loss) $ (.40) $ (.18)
INCOME (LOSS) PER COMMON SHARE - DILUTED:
Income (loss) from continuing operations $ (.40) $ (.25)
Income (loss) from discontinued operations - .07
Net (loss) $ (.40) $ (.18)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 11,810 11,810
Diluted 11,810 11,810
<FN>
See notes to condensed consolidated financial statements.
</FN>
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TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands) Three MonthsEnded
May 31,
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $(4,667) $(2,184)
Adjustments to reconcile net (loss)
to net cash provided by operations:
Depreciation and amortization of fixed assets 967 1,101
Amortization of intangibles and goodwill 155 128
Allowance for doubtful accounts (530) (975)
(Gain) on sale of assets (23) (65)
Increase (decrease) in other liabilities (140) 475
Change in operating assets and liabilities:
Accounts receivable (5,323) 1,887
Accrued payroll 298 345
Prepaid expenses and other current assets 343 384
Accounts payable and accrued expenses (3,326) 1,202
Increase (decrease) in Medicare and
Medicaid liabilities (189) (1,084)
Other assets 73 8
Net assets of discontinued operations - (9,605)
Net cash used in operating activities (12,362) (8,383)
Cash Flows from Investing Activities:
Proceeds from sale of assets 25 65
Purchase of fixed assets (316) (2,126)
Net cash used in investing activities (291) (2,061)
Cash Flows from Financing Activities:
Borrowings under secured credit facilities 8,861 10,238
Proceeds from note payable 1,000 -
Payment of notes payable and other long
term liabilities (1,247) (315)
Net cash provided by financing activities 8,614 9,923
Net increase (decrease) in Cash and
Cash Equivalents (4,039) (521)
Cash and Cash Equivalents, Beginning
of Period 9,299 1,323
Cash and Cash Equivalents, End of Period $ 5,260 $ 802
Supplemental Data:
Cash paid for:
Interest $ 3,473 $ 317
Income taxes, net $ (22) $ 168
Acquisition of business through issuance of
notes payable $ - $ 310
<FN>
See notes to condensed consolidated financial statements.
</FN>
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TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS - The accompanying unaudited condensed
consolidated financial statements reflect the home health care
service operations of Tender Loving Care Health Care Services,
Inc. ( "TLCS" or the "Company") and its related financial
position and cash flows. On October 20, 1999, the Company
began operations as an independent, publicly traded company
resulting from the spin-off of the home health care operations
previously owned by Staff Builders, Inc. ("SBLI") ("the spin-
off"). The spin-off was accomplished by TLCS acquiring 100%
of the outstanding capital stock of the SBLI subsidiaries
engaged in the home health care business with a pro rata
distribution made to SBLI stockholders of all of the shares of
TLCS common stock owned by SBLI ("the Distribution"). The
Distribution was made by issuing one share of TLCS common
stock for every two shares of SBLI Class A and Class B common
stock which were outstanding on October 12, 1999 ("the Record
Date"). Based upon the 23,619,388 shares of SBLI common stock
which were outstanding on the Record Date, 11,809,694 shares
of TLCS common stock were distributed to holders of SBLI Class
A and Class B common stock. All references to shares
outstanding prior to the spin-off date have been retroactively
adjusted for the spin-off. Since the spin-off date, TLCS and
SBLI have been separate, stand-alone companies, with TLCS
operating the home health care business segment and SBLI
operating the supplemental staffing business segment.
The spin-off was reported as a reverse spin-off for
financial statement purposes because a greater proportion of
the former assets and operations of SBLI are held by TLCS
after the spin-off. Therefore, the spin-off has been
reflected for financial statement purposes as if TLCS was the
continuing company and the stock of SBLI was distributed as a
dividend to TLCS stockholders. Accordingly, the TLCS
financial statements reflect the financial position and
results of operations of the home health care business segment
as continuing operations and the results of operations of the
supplemental staffing business segment now owned by SBLI as
discontinued operations.
In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of only normal and recurring accruals)
necessary to present fairly the financial position of the
Company and its subsidiaries as of May 31, 2000 and February
29, 2000 and the results of operations and the cash flows for
the three months ended May 31, 2000 and 1999. The results for
the three months ended May 31, 2000 and 1999 are not
necessarily indicative of the results for an entire year. It
is suggested that these condensed consolidated financial
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statements be read in conjunction with the Company's audited
financial statements as of February 29, 2000 and for the year
then ended which are included in the Company's annual report
on Form 10-K.
2. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - The
calculation of basic and diluted earnings (loss) per share was
calculated for all periods in accordance with the requirements
of Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
The shares used in computing basic and diluted earnings (loss)
per share were 11,809,653 shares for the three months ended
May 31, 2000 and 1999. The calculations of earnings (loss) per
share reflect the weighted average number of shares
outstanding as a result of the Distribution (see Note 1.) The
weighted average number of shares outstanding reflect the
Distribution as if it occurred as of March 1, 1999.
3. MEDICARE REPAYMENT PLAN - In December 1999, the Company
reached an agreement with the Federal Health Care Financing
Administration ("HCFA") for a five year plan for repayment of
certain Medicare liabilities. The repayment plan will be in
effect through September 2004. The total principal portion of
Medicare and Medicaid liabilities was $54.1 million and $54.3
million at May 31, 2000 and February 29, 2000, respectively.
Under this repayment agreement, the Company is repaying excess
periodic interim payments ("PIP") received as well as certain
Medicare audit liabilities.
On July 11, 2000, the Company was notified in writing that a
moratorium was granted to the Company whereby no payments will
be required until November 2000, at which time the Company
will be required to pay principal and interest aggregating
$1.0 million per month through March 2001. All remaining
liabilities as of April 2001 for periods covered by this
repayment plan including accrued interest, will then be paid
in equal monthly installments over the remaining 42 months of
the repayment plan through September 2004.
The Medicare repayment plan covers excess quarterly PIP
amounts received through August 31, 1999, audit liabilities
for which assessments have been made to date and assessments
which will be made in future periods through April 2001. Any
overpayments or audit liabilities that are successfully
appealed by the Company will be subtracted from the total
amount owed under the repayment plan. Interest is accrued
from the date of each assessment at the government rate of
interest, as revised from time to time (currently at 13.50%
per annum) on all Medicare liabilities except for the PIP
related liability for which interest accrues beginning one
year after the date of the respective assessment, less any
payments made.
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4. CONTINGENCIES - In July 1999, a former licensee of the Company
in Port St. Lucie, Florida pleaded guilty to several counts of
Medicare fraud. The Federal government has sought to hold the
Company liable for losses to the government arising from the
former licensee's conduct. The Federal government and the
Company have agreed in principle to settle all financial
issues arising out of the former licensee's illegal conduct
for approximately $1.4 million, amounts deemed inappropriately
reimbursed during the period of time that the licensee
operated the business. In connection with the criminal
investigation of the former licensee of the Company, the
United States Health Care Financing Administration has already
recouped approximately $1.7 million through July 15, 2000
through Medicare hold-backs against current remittances. The
Company intends to negotiate terms mutually favorable to
facilitate the completion of the proposed settlement
agreement.
On September 20, 1995, the United States Attorney for the
Eastern District of Pennsylvania alleged that between 1987 and
1989, a corporation, substantially all assets and
liabilities of which were acquired by a subsidiary of the
Company in 1993, submitted false claims to Medicare. The
alleged false claims and false statements were made before the
Company acquired that corporation in 1993. There have been
significant discussions with the office of the United States
Attorney which the Company believes are likely to lead to a
settlement of the outstanding claims for approximately $650
thousand, the conclusion of which is pending final government
approval of the payment and other settlement items.
On December 21, 1998, H.L.N. Corporation, Frontlines
Homecare, Inc., E.T.H.L., Inc., Phoenix Homelife Nursing,
Inc., and Pacific Rim Health Care Services, Inc., former home
care licensees (franchisees) of the Company for the territory
comprising certain counties in and around Los Angeles,
California and their holding company, instituted an action
against the Company's subsidiaries, Staff Builders, Inc.,
Staff Builders International, Inc. and Staff Builders
Services, Inc., and certain executive officers of the Company
in the Superior Court for the State of California, County of
Los Angeles. The action was removed to United States District
Court for the Central District of California on December 22,
1998. Plaintiffs filed a First Amended Complaint in the
Central District on January 8, 1999 and September 1, 1999,
respectively, to challenge the termination of the four
franchise agreements between the Company and certain of the
named plaintiffs, seeking damages for violations of California
franchise law, breach of contract, fraud and deceit, unfair
trade practices, claims under the RICO, negligence,
intentional interference with contractual rights, declaratory
and injunctive relief and a request for an accounting.
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Plaintiffs seek an unspecified amount of damages. Discovery
is currently in process.
On July 17, 1998, the Federal government ordered that a
complaint filed by Ali Waris, the former owner of a home
health care agency purchased by the Company in 1993, be
unsealed and served upon Staff Builders, Inc. and Targa Group,
Inc., a former licensee (franchisee) of the Company. The
government has elected not to intervene in the action, in
which Mr. Waris claimed damages for alleged violations of the
False Claims Act by the Company in connection with payments
claimed by the Company on its cost report for consulting
services. The case was dismissed pursuant to the Company's
motion and Mr. Waris appealed. The appeal has been stayed by
the Court pending finalization of a proposed settlement,
whereby the cost report issues will be settled directly with
the United States Government in exchange for the withdrawal of
Mr. Waris' lawsuit.
On April 30, 1999, Nursing Services of Iowa, Inc., Helen
Kelly, Geri-Care Home Health, Inc. and Jacquelyn Klooster, two
former home health care (franchisees) of the Company and their
principals in Des Moines and Sioux City, Iowa, respectively,
commenced an action in the United States District Court for
the Southern District of Iowa, Central Division against the
Company's subsidiaries Staff Builders International, Inc.,
Staff Builders Services, Inc. Staff Builders, Inc., and
certain executive officers of the Company. The action alleges
claims under the RICO, claiming a series of deliberate and
illegal actions designed to defraud Staff Builders'
franchisees, as well as claims for negligence, breach of
fiduciary duty, breach of contract, fraudulent
misrepresentation and violation of the Iowa franchise law. The
complaint seeks unspecified money damages, a claim for
treble damages on the RICO claims and punitive and exemplary
damages. Pursuant to the Company motion, all of the RICO
counts except for one count were dismissed by the Court.
The Company is a defendant in several civil actions which
are routine and incidental to its business. The Company
purchases insurance in such amounts which management believes
to be reasonable and prudent.
Although the Company cannot estimate the ultimate cost of
its open legal matters with precision, it has recorded a loss
accrual at May 31, 2000 and February 29, 2000 for the
aggregate, estimated amount to litigate or resolve such
matters. In the opinion of management, the outcome of pending
litigation will not have a material adverse effect on the
Company's consolidated financial position or results of
operations. However, unfavorable resolutions of these actions
could have an adverse impact on liquidity.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition.
This discussion should be read in conjunction with the Condensed
Consolidated Financial Statements appearing in Item 1.
Results of Operations
Total revenues decreased by $13.4 million, or 19.2%, to $56.7
million for the three months ended May 31, 2000 ("the 2000 period")
from $70.1 million for the three months ended May 31, 1999 ("the
1999 period"). The decrease in the Company's revenues reflect a
decrease in the number of locations to 93 as of May 31, 2000 as
compared to 125 locations as of March 1, 1999.
The following are the Company's service revenues by payment source:
Three Months Ended
May 31,
2000 1999
Medicare 46.2% 43.0%
Medicaid and other local government
programs 39.6 37.8
Insurance and individuals 13.3 18.4
Other 0.9 0.8
Total 100.0% 100.0%
Direct service costs were 62.0% and 63.6% of service revenues for
the 2000 and 1999 periods, respectively. The decrease in operating
costs as a percentage of service revenues was primarily due to the
reduction in service wages as a percentage of related service
revenues.
General and administrative costs were $22.0 million and $27.2
million and were 38.9% and 38.8% of related service revenues in the
2000 and 1999 periods, respectively. The decrease in general and
administrative costs was primarily due to the decrease in the
number of operating locations.
Interest expense was approximately $3.3 million in the 2000 period
as compared to $400 thousand in the 1999 period. The increase in
interest expense in the 2000 period was primarily due to the
increase in the level of borrowings under the Company's secured
financing facility and an increase in interest expense related to
the Company's Medicare liabilities which are being paid pursuant to
a five-year repayment plan.
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Health Care Reform
HCFA has issued final rules to implement the prospective payment
system ("PPS") effective beginning October 1, 2000. Such rules
incorporate a national 60 day episode payment to cover all the
reasonable costs of services furnished to an eligible beneficiary
under a Medicare home health plan of care. The Company is
continuing its operational readiness program to facilitate an
orderly transition from the current cost based reimbursement
interim payment system to PPS. This program is designed to assist
branch operating locations, together with regional management, to
prepare for new procedures required by PPS.
Liquidity and Capital Resources
On December 13, 1999, the Company obtained new financing for its
operations to replace its then existing line of credit facility
which was due to expire on February 29, 2000. The new financing is
an accounts receivable purchase program under which the Company may
sell to an entity, which provides health care accounts receivable
financing, up to $60 million of the Company's eligible receivables.
On July 11, 2000, the Company was notified in writing by HCFA that
a moratorium was granted to the Company whereby no payments will be
required under the Medicare repayment plan until November 2000, at
which time the Company will be required to pay principal and
interest aggregating $1.0 million per month through March 2001.
All remaining liabilities as of April 2001 for periods covered by
this repayment plan including accrued interest, will then be paid
in equal monthly installments over the remaining 42 months of the
repayment plan through September 2004.
On May 31, 2000, the Company received $1.0 million from an outside
investor. As consideration for the amount received, TLCS issued a
subordinated promissory note payable in the amount of $1.0 million
and warrants to purchase 333,333 shares of TLCS common stock. The
note payable bears interest at 8% per annum and requires 36 monthly
principal payments of approximately $12 thousand from January 2002
through December 2004 with the remaining principal balance of
approximately $571 thousand payable on January 1, 2005. Interest
is accrued commencing May 31, 2000 and is payable monthly from
January 2001 until the outstanding principal is paid. The warrants
are exercisable at $.20 per share and expire on January 1, 2005.
During the 2000 period, the Company's net trade accounts receivable
increased by approximately $5.9 million to $61.1 million at May 31,
2000 from $55.2 million at February 29, 2000. This increase was
primarily attributable to conversion to the Company's new billing
system.
The Company's continued losses from operations, uncertainties
regarding changes in third-party reimbursement and uncertainties as
to the continuation of credit extensions by vendors, raise doubt
about the ability of the Company to continue as a going concern. As
a result, management continues to pursue various strategies,
including but not limited to, obtaining additional financing, cost
reductions, change in revenue mix and negotiating with new and
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existing payor sources to render additional services at optimum
reimbursement rates. Additionally, while the Company has obtained
a new financing arrangement under which the Company sells its trade
accounts receivable, the financing facility is not obligated to
continually purchase such receivables. Further, the Company has
obtained favorable extended payment terms with some of its trade
creditors and is continuing to negotiate extended payment terms
with other vendors. However, there can be no assurance that the
Company's creditors will not demand immediate payment for amounts
in arrears or that they will continue to extend additional credit
to the Company. There can be no assurance that the Company's
actions will be successful to provide adequate funds for its
current level of operations and to pay the Company's past-due
obligations.
Forward-Looking Statements
Certain statements in this report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
typically identified by the inclusion of phrases such as "the
Company anticipates", "the Company believes" and other phrases of
similar meaning. These forward looking statements are based on the
Company's current expectations. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance or achievements of
the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-
looking statements. The potential risks and uncertainties which
could cause actual results to differ materially from the Company's
expectations include the impact of further changes in the Medicare
reimbursement system, including any changes to the current interim
payment system and/or the ultimate implementation of a prospective
payment system; government regulation; health care reform; pricing
pressures from third-party payors, including managed care
organizations; retroactive Medicare audit adjustments; Year 2000
failures; changes in laws and interpretations of laws or
regulations relating to the health care industry; and inability to
obtain financing on satisfactory terms.
GOVERNMENT REGULATION. As a home health care provider, the Company
is subject to extensive and changing state and Federal regulations
relating to the licensing and certification of its offices and the
sale and delivery of its products and services. The Federal
government and Medicare fiscal intermediaries have become more
vigilant in their review of Medicare reimbursements to home health
care providers generally, and are becoming more restrictive in
their interpretation of those costs for which reimbursement will be
allowed to such providers. Changes in the law and regulations as
well as new interpretations enforced by the relevant regulatory
agencies could have an adverse effect on the Company's operations
and the cost of doing business.
THIRD-PARTY REIMBURSEMENT AND MANAGED CARE. Because the Company is
reimbursed for its services primarily by the Medicare/Medicaid
programs, insurance companies, managed care companies and other
third-party payors, the implementation of alternative payment
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methodologies for any of these payors could have an impact on
revenues and profit margins. Generally, managed care companies
have sought to contain costs by reducing payments to providers.
Continued cost reduction efforts by managed care companies could
adversely affect the Company's results of operations.
HEALTH CARE REFORM. The BBA resulted in significant changes to cost
based reimbursement for Medicare home health care providers. The
BBA retained a cost based reimbursement system but reduced the cost
limits and implemented a per-beneficiary limit. The BBA provided
for an interim payment system ("IPS") which became applicable for
the Company on March 1, 1998 and will remain in effect until the
adoption of a new prospective payment system ("PPS") which is
scheduled to be effective for all home health care agencies after
October 1, 2000. The effect of the changes under IPS is to reduce
the limits for the amount of costs that are reimbursable to home
health care providers under the Medicare program. Home health care
providers have an opportunity to generate profits under PPS if
costs are contained under the per-episode reimbursement amounts.
However, unforeseen changes in health care reimbursement
regulations could adversely affect the Company's ability to
generate a profit under PPS. While on June 30, 2000 HCFA has
stated that PPS will commence on October 1, 2000, there can be no
assurance that it will be implemented at such time. Further, HCFA
has provided notification that PIP will cease effective October 1,
2000, regardless of whether PPS is then implemented.
As Congress and state entities assess alternative health care
delivery systems and payment methodologies, the Company cannot
predict which additional reforms may be adopted or what impact they
may have on the Company. Additionally, uncertainties relating to
the nature and outcomes of health care reforms have also generated
numerous realignments, combinations and consolidations in the
health care industry which may also have an adverse impact on the
Company's business strategy and results of operations. The Company
expects that in addition to industry consolidation generally, there
may be consolidations within the Company's company-owned and
licensed locations, as evidenced by the reduction in the number of
the Company's operating locations.
BUSINESS CONDITIONS. The Company must continue to establish and
maintain close working relationships with physicians and physician
groups, managed care organizations, hospitals, clinics, nursing
homes, social service agencies and other health care providers.
There can be no assurance that the Company will continue to
establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the
increasing market demand for the type of services offered.
ATTRACTION AND RETENTION OF LICENSEES AND EMPLOYEES. Maintaining
quality licensees, managers and branch administrators will play a
significant part in the future success of the Company. The
Company's professional nurses and other health care personnel are
also key to the continued provision of quality care to the
Company's patients. The possible inability to attract and retain
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qualified licensees, skilled management and sufficient numbers of
credentialed health care professionals and para-professionals and
information technology personnel could adversely affect the
Company's operations and quality of service.
SATISFACTORY FINANCING. Proceeds from the Company's new financing
program provided some working capital and the ability to pay
portions of certain accumulated indebtedness. The Company has
negotiated deferred payment terms for certain of its Medicare and
Medicaid liabilities and has made or is in the process of making
arrangements with many of its other creditors to either reduce its
liability to them, defer and/or extend payment of the liability, or
a combination of all. Management cannot provide assurance that any
or a sufficient number of such arrangements can be attained or that
the Company's vendors will continue to extend credit. In such
event, or if the Company's revenues do not meet expectations or its
costs escalate, the Company may be unable to pay its debts as they
become due. Pursuant to the Company's agreement with HCFA to repay
accumulated Medicare liabilities, the Company will be required to
pay excess periodic interim payments received as well as certain
Medicare liabilities through September 2004. United Government
Services collects amounts due under the repayment plan by
offsetting against current remittances due to the Company.
If no Medicare accounts receivable are available for offset as
amounts become due under the repayment plan, then all amounts owed
pursuant to this repayment plan may become immediately due and
payable.
YEAR 2000. The Company has made upgrades to substantially all of
its computer systems and equipment. Such upgrades served to
satisfy the anticipated impacts of the so-called Year 2000 issue on
our information technology systems. As of July 15, 2000, the
Company has not experienced any materially important business
disruptions or system failures as a result of Year 2000 issues, nor
is it aware of any Year 2000 issues that have impacted its payor
sources, suppliers or other significant third parties to an extent
significant to the Company.
However, Year 2000 compliance has many elements and potential
consequences, some of which may not be foreseeable or may be
realized in future periods. Consequently, there can be no
assurance that unforeseen circumstances may not arise, or that the
Company will not in the future identify equipment or systems which
are not Year 2000 compliant.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - See Note 5 in PART I. - ITEM 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit No. Description
3.1 Amended and Restated Certificate of Incorporation of
the Company, filed with the Secretary of State of
Delaware on October 14, 1999. (A)
3.2 Amended and Restated By-laws of the Company. (A)
4.1 Common Stock Purchase Warrant between the Company
and Medline Industries, Inc. dated May 25, 2000.
10.1 First Amendment to Sale and Subservicing Agreement
by and between the Company and NPF XII, Inc. and
National Premier Financial Services, Inc. dated
April 2000.
10.2 Securities Purchase Agreement between the Company
and Medline, Industries, Inc. dated May 15, 2000.
NOTES TO EXHIBITS
(A) Incorporated by reference to the Company's Form
10-Q (File No. 0-25777) filed with the Commission
on October 20, 1999.
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended May 31, 2000.
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SIGNATURES
Pursuant to the requirements 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.
Tender Loving Care Health Care,
Services, Inc.
Dated: July 20, 2000 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board,
and Chief Executive Officer,
(Principal Executive Officer)
and Director
Dated: July 20, 2000 By: /s/ Dale R. Clift
Dale R. Clift
President and Chief Operating
Officer
Dated: July 20, 2000 By: /s/ Willard T. Derr
Willard T. Derr
Chief Financial Officer, Sr.
Vice President, Corporate
Controller, and Treasurer
(Principal Financial and
Accounting Officer)
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