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 NOVEMBER 30, 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 January 11,
2001 was 11,809,653 shares.
<PAGE>
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
November 30, 2000 and February 29, 2000 2
Condensed Statements of Consolidated
Operations - Three and nine months ended
November 30, 2000 and 1999 3
Condensed Statements of Consolidated Cash
Flows - Nine months ended November 30, 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 9-12
Factors Affecting the Company's Future
Performance 12-14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
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<TABLE>
<CAPTION>
TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
NOVEMBER 30, FEBRUARY 29,
2000 2000
(UNAUDITED)
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 3,623 $ 9,299
Accounts receivable, net of allowance
for doubtful accounts of $7,274 and
$5,900, respectively 62,824 55,221
Prepaid expenses and other current assets 2,554 3,056
Total current assets 69,001 67,576
FIXED ASSETS, net of accumulated depreciation
of $8,893 and $6,054, respectively 16,481 18,243
INTANGIBLE ASSETS, net of accumulated
amortization of $9,454 and $8,984,
respectively 5,115 4,489
OTHER ASSETS 2,750 3,203
TOTAL $ 93,347 $ 93,511
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 21,707 $ 23,784
Accrued payroll and related expenses 21,246 22,996
Current portion of Medicare and
Medicaid liabilities 12,298 10,401
Current portion of long-term debt 7,667 5,872
Total current liabilities 62,918 63,053
LONG-TERM DEBT 70,452 53,351
LONG-TERM MEDICARE AND MEDICAID LIABILITIES 40,569 43,936
OTHER LIABILITIES 2,396 3,162
TOTAL LIABILITIES 176,335 163,502
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - $.01 par value; 50,000,000
shares authorized; 11,809,653
outstanding at November 30, 2000 and
February 29, 2000 118 118
Additional paid-in capital 50,981 50,921
Accumulated deficit (134,087) (121,030)
Total stockholders' equity (deficit) (82,988) (69,991)
TOTAL $ 93,347 $ 93,511
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
CONTINUING OPERATIONS:
TOTAL REVENUES $ 59,694 $ 61,623 $172,552 $197,450
OPERATING EXPENSES:
Service costs 32,907 36,764 102,024 123,196
General and administrative costs 25,522 25,617 70,338 78,645
Total operating expenses 58,429 62,381 172,362 201,841
Income (loss) before interest,
depreciation, amortization and
income taxes 1,265 (758) 190 (4,391)
INTEREST AND OTHER EXPENSES:
Interest expense 3,876 1,413 10,505 3,282
Interest (income) (135) (195) (499) (567)
Depreciation and amortization 1,128 1,435 3,380 3,784
Other (income) expense, net (46) 1,860 (214) 1,332
Total interest and other expenses 4,823 4,513 13,172 7,831
(LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,558) (5,271) (12,982) (12,222)
PROVISION FOR INCOME TAXES 25 25 75 75
NET (LOSS) FROM CONTINUING OPERATIONS (3,583) (5,296) (13,057) (12,297)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS (NET OF INCOME TAXES) - (821) - 1,430
NET (LOSS) $ (3,583) $ (6,117) $(13,057) $(10,867)
INCOME (LOSS) PER COMMON SHARE-BASIC:
Continuing operations $ (.30) $ (.45) $ (1.11) $ (1.04)
Discontinued operations - (.07) - .12
Net (loss) $ (.30) $ (.52) $ (1.11) $ (.92)
INCOME (LOSS) PER COMMON SHARE-DILUTED:
Continuing operations $ (.30) $ (.45) $ (1.11) $ (1.04)
Discontinued operations - (.07) - .12
Net (loss) $ (.30) $ (.52) $ (1.11) $ (.92)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Basic 11,810 11,810 11,810 11,810
Diluted 11,810 11,810 11,810 11,810
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
TENDER LOVING CARE HEALTH CARE SERVICES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
November 30,
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $(13,057) $(10,867)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operations:
Depreciation and amortization of fixed assets 2,910 3,374
Amortization of intangibles and goodwill 470 410
Allowance for doubtful accounts 1,374 (2,995)
Income tax refund received - 1,733
Write-off of goodwill and other assets - 358
Write-off of fixed assets - 1,609
Gain on sale of assets (27) (779)
Increase (decrease) in other liabilities (766) 10,247
Change in operating assets and liabilities:
Accounts receivable (8,977) 159
Prepaid expenses and other current assets 502 (642)
Accounts payable and accrued expenses (2,077) 4,638
Accrued payroll and payroll related expenses (1,750) 1,003
Decrease in Medicare and Medicaid liabilities (1,470) (3,827)
Other assets (583) 133
Net assets of discontinued operations - (1,430)
Net cash provided by (used in) operating
activities (23,451) 3,124
Cash Flows from Investing Activities:
Proceeds from sale of assets 29 917
Additions to fixed assets, net (1,150) (1,780)
Net cash used in investing activities (1,121) (863)
Cash Flows from Financing Activities:
Borrowings under secured credit facility 21,246 -
Proceeds from note payable 1,000 -
Payments of notes payable and other
long-term liabilities (3,350) (887)
Net cash provided by (used in) financing
activities 18,896 (887)
Net Increase (decrease) in Cash and Cash
Equivalents (5,676) 1,374
Cash and Cash Equivalents, Beginning of Period 9,299 1,323
Cash and Cash Equivalents, End of Period $ 3,623 $ 2,697
Supplemental Data:
Cash paid (received) for:
Interest $ 9,950 $ 2,258
Income taxes, net $ (45) $ (1,318)
Acquisition of businesses through
issuance of notes payable $ - $ 310
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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TENDER LOVING CARE HEALTH CARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. HEALTH CARE REFORM - Effective October 1, 2000, the Federal
Health Care Financing Administration ("HCFA") enacted a new
payment methodology for providers of Medicare home health
services. This new methodology, the prospective payment
system ("PPS"), incorporated a 60-day episode of care for
services provided to each eligible beneficiary under a
Medicare home health plan of care. The payment for each
beneficiary is based upon an amount determined at the
beginning of each episode. Such amount is calculated
according to a HCFA standard formula, the home health resource
group ("HHRG"), which measures three dimensions of care:
clinical, functional status and service utilization. Home
health care providers have an opportunity to generate profits
under PPS if costs are contained under the per-episode payment
amounts.
For the quarter ended November 30, 2000, the Company has
recorded revenues of $23.0 million since enactment of PPS on
October 1, 2000. Approximately $32.8 million and $87.7
million of the Company's revenues were generated under the
Medicare program for the three and nine months ended November
30, 2000 as compared to $28.3 million and $89.8 million for
the three and nine months ended November 30, 1999,
respectively.
2. 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.
-5-
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 November 30, 2000 and
February 29, 2000 and the results of operations and the cash
flows for the nine months ended November 30, 2000 and 1999.
The results for the three and nine months ended November 30,
2000 and 1999 are not necessarily indicative of the results
for an entire year. It is suggested that these condensed
consolidated financial 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.
3. 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 11,809,694 shares for the three and nine months
ended November 30, 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 2). The
weighted average number of shares outstanding reflect the
Distribution as if it occurred as of March 1, 1999.
4. MEDICARE REPAYMENTS - 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 $52.9 million and $54.3
million at November 30, 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.
In July 2000, HCFA granted a moratorium to the Company whereby
no payments were required for the May through October 2000
-6-
period. In November 2000, the Company resumed monthly
payments of principal and interest aggregating $1.0 million
which are scheduled to continue through March 2001. United
Government Services ("UGS") collects amounts due under the
repayment plan by offsetting against current remittances due
to the Company. 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 13.875%
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.
5. CONTINGENCIES - 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.
Plaintiffs seek an unspecified amount of damages. Discovery
is currently in process.
On April 30, 1999, Nursing Services of Iowa, Inc., Helen
Kelly, Geri-Care Home Health, Inc. and Jacquelyn Klooster, two
former home health care licensees 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
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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.
Discovery is currently in process.
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 November 30, 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.
-8-
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 $1.9 million or 3.1% for the three
months ended November 30, 2000 to $59.7 million from $61.6 million
for the three months ended November 30, 1999. For the nine months
ended November 30, 2000 ("the 2000 period"), total revenues
decreased by $24.9 million or 12.6% to $172.6 million from $197.5
million for the nine months ended November 30, 1999 ("the 1999
period"). The decrease in total revenues in the 2000 period was
primarily due to a decrease in the number of locations to 90 as of
November 30, 2000 as compared to 105 as of November 30, 1999,
partially offset by an increase in Medicare revenues resulting from
increased rates under the prospective payment system ("PPS"), which
is a new payment methodology enacted as of October 1, 2000 by the
Federal Health Care Financing Administration ("HCFA").
The following are the Company's service revenues by payment
source:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Medicare 55.0% 45.9% 50.8% 45.6%
Medicaid and other local
government programs 24.9 25.4 26.1 26.6
Insurance and individuals 19.7 27.5 22.6 26.9
Other 0.4 1.2 0.5 0.9
Total 100.0% 100.0% 100.0% 100.0%
</TABLE>
Direct service costs were 55.1% and 59.7% of service revenues for
the three months ended November 30, 2000 and 1999, and 59.1% and
62.6% for the nine months ended November 30, 2000 and 1999,
respectively. These decreases in operating costs as a percentage
of service revenues were primarily due to the reduction in service
wages as a percentage of related service revenues. The reduction
in service wages reflects a change in revenue mix, continuing
improvement in service utilization and management of related
caregiver costs.
General and administrative costs were $25.5 million and $25.6
million for the three months ended November 30, 2000 and 1999 and
$70.3 million and $78.6 million, or 40.8% and 40.0% 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, as well as steps
taken to reduce operating costs.
-9-
Interest expense was approximately $3.9 million and $10.5 million
in the three and nine months ended November 30, 2000 as compared to
$1.4 million and $3.3 million in the comparable prior year periods,
respectively. These increases were 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.
Health Care Reform and Medicare/Medicaid Repayments
Effective October 1, 2000, HCFA enacted a new payment methodology
for providers of Medicare home health services. This new
methodology, "PPS", incorporated a 60-day episode of care for
services provided to each eligible beneficiary under a Medicare
home health plan of care. The payment for each beneficiary is
based upon an amount determined at the beginning of each episode.
Such amount is calculated according to a HCFA standard formula, the
home health resource group ("HHRG"), which measures three
dimensions of care: clinical, functional status and service
utilization. Home health care providers have an opportunity to
generate profits under PPS if costs are contained under the per-
episode payment amounts.
The Company's Medicare PIP liability increased to $19.0 million at
November 30, 2000 as compared to $18.6 million at February 29, 2000
resulting from additional excess amounts received of $2.1 million
offset by repayments and favorable adjustments aggregating $1.7
million.
During the nine months ended November 30, 2000, the Company paid an
aggregate amount of approximately $4.6 million for Medicare audit
liabilities and PIP repayments including $2.8 million and $1.8
million in principal and interest, respectively. The total
principal portion of Medicare and Medicaid liabilities was $52.9
million and $54.3 million at November 30, 2000 and February 29,
2000, respectively.
Liquidity and Capital Resources
The Company finances its operations through an accounts receivable
purchase program with an entity which provides health care accounts
receivable financing. During the quarter ended November 30, 2000,
the financing entity increased the maximum permitted amount of
accounts receivable which can be purchased to $85 million from $60
million.
In July 2000, HCFA granted a moratorium to the Company for the
repayment of certain of the Company's Medicare liabilities whereby
no payments were required for the May through October 2000 period.
In November 2000, the Company resumed monthly payments of principal
and interest aggregating $1.0 million which are scheduled to
continue through March 2001. United Government Services ("UGS")
collects amounts due under the repayment plan by offsetting against
-10-
current remittances due to the Company. 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.
Under PPS, the Company bills Medicare for each 60-day episode of
care. The Company is permitted to render such billing after the
first patient visit within the episode period has been made. The
Company receives 60% of such billing within approximately two weeks
after Medicare's receipt of the billing. After the 60-day episode
has ended, the Company renders a final bill for the entire episode.
Generally, the Company expects to receive payment of the remaining
40% of its bill from Medicare approximately two weeks after the
final bill is rendered. Medicare fiscal intermediaries are
implementing new systems which may result in slower payments than
otherwise anticipated. The Company began billing for the remaining
40% end-of patient episode amounts in December 2000. All final
billing must be received by Medicare within 120 days after the
first visit is rendered, to enable final collection of all amounts
receivable and retention of amounts received to date for each
episode of care. Under the prior IPS methodology which ended on
September 30, 2000, the Company was reimbursed according to the
lower of its actual costs, per-visit limits or annual per-
beneficiary limits.
On December 22, 2000, President Clinton signed into law a bill
entitled the Medicare, Medicaid and State Children's Health
Insurance Program Benefits Improvement Protection Act. The home
health care provisions of the bill include an additional 10%
increase to the PPS payments for services to home health patients
in rural areas between April 1, 2001 and April 1, 2003 and a one-
time PIP payment to home health agencies that were on PIP as of
September 30, 2000. Such payment is equal to the aggregate amount
of the most recent four bi-weekly PIP payments, which for the
Company approximates $12.0 million. Such payment is scheduled to
be made as soon as practicable, which the Company expects to be on
or before January 31, 2001.
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 each 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.
A significant concern for the Company is to maintain adequate cash
resources as it is progressing through the beginning phase under
PPS. As a result, management continues to pursue various
-11-
strategies, including but not limited to, obtaining additional
financing, cost reductions, increase in patient census and
negotiating with new and existing payor sources to render
additional services at optimum reimbursement rates. Further, the
Company continually reviews the collectibility of all receivables
and adjusts its business mix by payor source to maximize cash flow.
Additionally, while the Company has a financing arrangement
pursuant to 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 from 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 of 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
prospective payment system; government regulation; health care
reform; pricing pressures from third-party payors, including
managed care organizations; retroactive Medicare audit adjustments;
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.
-12-
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
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. A new prospective payment system ("PPS")
became effective for all home health care agencies on October 1,
2000. 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. In addition, because PPS
requires significant changes in billing methodology, the Company's
systems may not be able to adapt immediately or sufficiently to all
such changes. Further, Medicare fiscal intermediaries are
implementing new systems which may result in slower payments than
otherwise anticipated.
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.
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
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 financing
program provided some working capital and the ability to pay
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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.
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PART II - OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS
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. The Company has obtained a
settlement of the outstanding claims for approximately $609
thousand, which is being paid in equal monthly installments of
approximately $51 thousand over the twelve months ending
October 2001.
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 of the Company. The
government 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 Company has completed a settlement of the cost report
issues directly with the United States Government pursuant to
which the Company is paying an aggregate amount of $160
thousand, in monthly installments, over the twelve months
ending October 2001. As part of the settlement, Mr. Waris has
withdrawn his lawsuit.
ITEM 5. OTHER INFORMATION
On August 24, 2000, the Company entered into a
definitive Settlement Agreement with the United States
Government in connection with home health services and
related supplies submitted by the Company's former licensee
in Port St. Lucie, Florida in his illegal efforts to defraud
both the Company and the Federal Government. The $1.4
million that the Company has already paid back to the
Government represented single damages for the Government's
allegations of fraudulent billings that the licensee
submitted to the Company for submission in its cost reports
to Medicare. In connection with the settlement, the Company
has entered into a Corporate Integrity Agreement with the
Office of Inspector General of the Department of Health and
Human Services for a period of five years. Most of the
compliance activities set forth in the Integrity Agreement are
already a part of the Company's Compliance Program; in
addition to the procedures already followed under the
existing Corporate Compliance Program, the Company has hired
an independent review organization to review the findings made
by its Internal Audit Department in conducting random
billing reviews as well as an annual billing review of the
Port St. Lucie operation.
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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)
10.1 Settlement Agreement, dated September 22, 2000
between the Company, one of its subsidiaries,
Albert Gallatin Visiting Nurse Association and
the United States of America.
10.2 Settlement Agreement and Release, dated October
18, 2000 between the Company, Staff Builders,
Inc., a Delaware corporation, Targa Group, Inc.
(a former licensee), the United States of America
and Ali Waris.
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 for the
quarter ended November 30, 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: January 15, 2001 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board and
Chief Executive Officer
Dated: January 15, 2001 By: /s/ Dale R. Clift
Dale R. Clift
President and
Chief Operating Officer
Dated: January 15, 2001 By: /s/ Willard T. Derr
Willard T. Derr
Chief Financial Officer and
Senior Vice President,
Corporate Controller
(Principal Financial and
Accounting Officer)
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