U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 0-9836
EXTENDED FAMILY CARE CORPORATION (Formerly Cosmetic Sciences, Inc.)
(Exact name of small business issuer as specified in its charter)
New York 22-2210547
(State of Incorporation) (I.R.S. Employer Identification No.)
One Old Country Road, Suite 335, Carle Place, New York 11514
(Address of Principal Executive Office) (Zip Code)
(516) 248-2273
(Issuer's telephone number, including area code)
Check whether the issuer (1) has 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 PROCEEDING
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes _____ No X
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 37,602,201 common shares, $.01
par value, as of August 12, 1997.
Transitional Small Business Disclosure Format (check one): Yes _____ No X
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
SECOND QUARTER REPORT ON FORM 10-QSB
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
Part I - Financial Information
Item 1
Condensed Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996........................................3
Condensed Consolidated Statements of Operations (Unaudited)
for the three months and six months ended June 30, 1997 and 1996.........4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 30, 1997 and 1996...............................5
Notes to Condensed Consolidated Financial Statements (Unaudited)..............6
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................7
Part II - Other Information
Item 5
Other Information............................................................12
Item 6
Exhibits and Reports on Form 8-K.............................................12
Signatures...................................................................13
Exhibit Index................................................................14
<PAGE>
Extended Family Care Corporation and Subsidiary
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 300,825 $1,066,193
Accounts receivable, net of allowance for
doubtful accounts of $200,000 at June 30, 1997
and $100,000 at December 31, 1996 1,274,815 1,066,277
Prepaid expenses and other current assets 162,650 496,185
---------- ----------
Total current assets 1,738,290 2,628,655
Property and equipment, net 190,656 233,644
Other assets:
Deferred taxes 243,000 204,000
License, net 456,311 476,153
Other 29,410 29,410
---------- ----------
Total assets $2,657,667 $3,571,862
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses $1,086,548 $ 809,758
Payroll taxes payable 151,485 151,721
Notes payable 4,449 43,449
Other current liabilities 95,570 96,224
---------- ----------
Total current liabilities 1,338,052 1,101,152
---------- ----------
Non-current liabilities:
Long-term debt 33,500 36,500
Obligations under capital leases 58,294 69,717
---------- ----------
Total non-current liabilities 91,794 106,217
---------- ----------
Total liabilities 1,429,846 1,207,369
---------- ----------
COMMITMENTS AND CONTINGENCIES
Minority interest in subsidiary 126,528 139,649
---------- ----------
Shareholders' equity
Preferred stock, $.01 par value, 10,000,000 shares
authorized in 1996 - -
Common stock, $.01 par value per share,
50,000,000 shares authorized, 30,000,000 in 1996;
32,000,226 shares issued and outstanding 320,002 320,002
Additional paid-in capital 1,013,358 1,763,348
Retained earnings (232,067) 141,494
---------- ----------
Total shareholders' equity 1,101,293 2,224,844
---------- ----------
Total liabilities and shareholders' equity $2,657,667 $3,571,862
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Extended Family Care Corporation and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net patient service revenue $2,339,283 $2,218,113 $4,661,222 $4,203,005
---------- ---------- ---------- ----------
Cost of services 1,443,161 1,398,508 2,968,219 2,644,772
---------- ---------- ---------- ----------
Gross profit 896,122 819,605 1,693,003 1,558,233
Selling, general and
administrative expenses 959,982 769,975 1,713,576 1,608,487
Merger costs 308,131 -- 308,131 --
Provision for doubtful accounts 75,000 -- 100,000 --
---------- ---------- ---------- ----------
Income (loss) from operations (446,991) 49,630 (428,704) (50,254)
Interest income (expense) 654 (918) 3,022 (3,261)
---------- ---------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes
and minority interest (446,337) 48,712 (425,682) (53,515)
Provision (benefit) for income taxes (52,000) 18,500 (39,000) (20,000)
--------- --------- ----------- ----------
Net income (loss) before minority
interest (394,337) 30,212 (386,682) (33,515)
Minority interest in subsidiary net
income (loss) (14,741) 5,289 (13,121) (5,391)
----------- ---------- ----------- ----------
Net income (loss) $ (379,596) $ 24,923 $ (373,561) $ (28,124)
=========== =========== ========== ==========
Net income (loss) per common share:
Primary $ (0.0119) $ 0.0008 $ (0.0117) $ (0.0015)
=========== =========== ========== ===========
Fully diluted $ (0.0119) $ 0.0008 $ (0.0117) $ (0.0015)
=========== =========== ========== ===========
Weighted average number of common shares outstanding:
Primary 32,000,226 29,551,207 32,000,226 19,200,228
========== ========== ========== ==========
Fully diluted 32,000,226 29,551,207 32,000,226 19,200,228
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
Extended Family Care Corporation and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Cash flow from operating activities:
- ------------------------------------
Net loss $ (373,561) $ (28,124)
------------ ------------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Allowance for doubt accounts 100,000 --
Depreciation and amortization 42,988 28,774
Amortization of intangible assets 19,842 19,840
Benefit for income taxes (39,000) (20,000)
Minority interest in subsidiary (loss) (13,121) (5,391)
Change in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (308,538) (161,930)
Prepaid expenses and other current assets 333,535 47,268
Other assets -- (18,213)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 276,790 (2,471)
Payroll taxes payable (236) 54,723
Other liabilities (654) (65)
----------- ------------
Net cash provided by (used in) operating activities 38,045 (85,589)
----------- ------------
Cash flow from investing activities:
- ------------------------------------
Purchase of property and equipment -- (106,265)
----------- ------------
Net cash used in investing activity -- (106,265)
----------- ------------
Cash flow from financing activity:
- ----------------------------------
Payment of dividends (749,990) --
Payment of obligations under capital leases (11,423) (7,040)
Repayment of loans (42,000) (9,000)
----------- ------------
Net cash used in financing activities (803,413) (16,040)
----------- ------------
Net decrease in cash (765,368) (207,894)
Cash at beginning of period 1,066,193 511,563
---------- -------------
Cash at end of period $ 300,825 $ 303,669
========== ============
Supplemental disclosures:
Equipment acquired under capital lease obligation $ -- $ 70,223
========== ============
Cash paid during the period for:
Interest $ 49 $ 1,608
========== =============
Income taxes $ 2,586 $ 1,333
========== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
EXTENDED FAMILY CARE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Extended Family Care Corporation ("EFCC") and its 83% owned subsidiary, TPC Home
Care Services, Inc. ("TPC") (collectively, the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Regulation S-B.
Accordingly, these financial statements do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for a fair presentation (consisting of normal recurring accruals) have been
included. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the Company's audited
consolidated financial statements and notes thereto for the year ended December
31, 1996. TPC was merged into EFCC on August 8, 1997. See Note 3.
Note 2 - Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during each
period.
Note 3 - Merger
An Agreement and Plan of Merger (the "Star Merger Agreement"), was entered
into on January 3, 1997 between EFCC and Star Multi Care Services, Inc.
("Star"), pursuant to which Star will acquire 100% of the outstanding common
shares of EFCC (the "Star Merger"). Under the terms of the Star Merger
Agreement, EFCC's shareholders will receive $2,400,000 in cash or approximately
$.064 per share and $4,850,000 in Star common stock or approximately $.129 per
share for total consideration of $7,250,000 or approximately $.193 per share. As
part of the Star Merger Agreement, EFCC paid a $.0234 per share cash dividend on
January 21, 1997 to all its common shareholders of record on January 13, 1997.
Cumulative Star Merger related legal and other professional fees of $308,131
were all expensed in the quarter ending June 30, 1997.
It is anticipated that the Star Merger will be treated as a tax-free
reorganization for Federal income tax purposes to the extent of Star's common
stock received by EFCC's shareholders. The Star Merger is expected to be
completed by September 1997, subject to approval of EFCC's and Star's
shareholders, certain state regulatory boards and other conditions. Star's and
EFCC's shareholders have scheduled separate meetings on September 5, 1997 to
approve the Star Merger.
In connection with the Star Merger, EFCC and Star have entered into a
consulting agreement (the "Consulting Agreement") pursuant to which Star will
render to EFCC consulting and advisory services in connection with the
management, operation and supervision of EFCC. The term of the Consulting
Agreement shall end on the earlier of (i) one year from the signing of the Star
Merger Agreement, (ii) the closing of the Star Merger or (iii) the termination
of the Star Merger Agreement. In consideration for the consulting services to be
rendered by Star, EFCC will pay Star $25,000 per month payable (a) $15,000 in
arrears on the last day of each month and (b) the remaining $10,000 on the
earlier to occur of the closing date or the termination of the Star Merger
Agreement.
<PAGE>
Note 3 - Merger (continued)
On January 3, 1997, EFCC and Star also entered into a management agreement
(the "Management Agreement") pursuant to which Star agreed to act as manager of
EFCC. The Management Agreement will become effective upon approval of the
Commissioner of the New York State Department of Health (the "Commissioner").
Pursuant to the Management Agreement, Star will have the authority and
responsibility to conduct, supervise and effectively manage the day-to-day
operation of EFCC. Star will be expected to exercise the reasonable judgment of
a management company in its management activities.
The Management Agreement may be terminated by the Commissioner, without
financial penalty to the EFCC Board, not more than sixty (60) days after
notification to the parties of a determination that the management of EFCC is so
deficient that the health and safety of patients would be threatened by
continuation of the Management Agreement. The Management Agreement may be
terminated by EFCC for cause, on 14 business days' notice, and without cause, on
60 days' notice. Unless sooner terminated in accordance with terms of the
Management Agreement, or extended or renewed by mutual agreement of the parties
thereto, the Management Agreement will remain in effect until the closing date
of the Star Merger or December 31, 1998, whichever is sooner.
On March 18, 1997 EFCC entered into an Agreement and Plan of Merger (the
"TPC Merger Agreement") with its 83% owned subsidiary, TPC, pursuant to which
TPC will merge with and into EFCC and EFCC will be the surviving entity (the
"TPC Merger"). Pursuant to the TPC Merger Agreement, the minority shareholders
of TPC will receive 5,601,975 common shares of EFCC or 18.745545 common shares
of EFCC for each common share of TPC they own. TPC common stock owned by EFCC
will be canceled as a result of the TPC Merger and no EFCC stock shall be issued
to EFCC in connection therewith. The TPC Merger was completed on August 8, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain statements contained in this Report are not historical facts and
constitute forward looking statements that involve uncertainties and risk some
of which are discussed at appropriate points in the Report and are also
summarized below at "Forward Looking Statements - Cautionary Factors."
The following discussion and analysis provides information which the
Company's 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 Company's audited consolidated financial
statements and notes thereto for the year ended December 31, 1996.
Overview
The Company's revenues are derived from providing home health services to
individuals, in New York, New Jersey and Pennsylvania, through various contracts
with government agencies (under the Medicaid program) and to a lesser extent
hospitals, insurance companies, private pay and other third party payers.
<PAGE>
Results of Operations
Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996
Net Patient Service Revenue: Net patient service revenue increased $121,170 or 5
% to $2,339,283 for the quarter ended June 30, 1997 from $2,218,113 for the
quarter ended June 30, 1996. The addition of one new satellite branch from June
30, 1996 to June 30, 1997 and the continued growth of the branch opened in
February 1996 increased net patient service revenue by $308,944 or 14%. The
increase in net patient service revenue was partially offset by the sale of the
Jersey City branch in December 1996.
Cost of Services: Cost of services increased $44,653 or 3% to $1,443,161 for the
quarter ended June 30, 1997 from $1,398,508 for the quarter ended June 30, 1996.
The increase in cost of services is primarily due to increases in field staff
payroll costs resulting from the increase in net patient service revenue. The
Company's growth in the number of cases serviced increased the need for
additional field staff to service these cases.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $190,007 or 25% to $959,982 for the quarter
ended June 30, 1997 from $769,975 for the quarter ended June 30, 1996. Selling,
general and administrative expenses as a percentage of net revenues increased to
41% for the quarter ended June 30, 1997 from 35% for the quarter ended June
30, 1996. The increase in selling, general, and administrative expenses for the
quarter ended June 30, 1997 is primarily attributable to (i) severance costs
relating to the elimination of certain administrative positions, (ii) the early
termination of operating leases for the Company's Hempstead and East Orange
branches, as well as, the write-off of leasehold improvements, and (iii)
the payment of consulting fees to Star in connection with the Consulting
Agreement.
Merger Costs: Cumulative Star Merger related legal and other professional fees
of $308,131 were all expensed in the quarter ending June 30, 1997.
Provision For Doubtful Accounts: Provision for doubtful accounts for the quarter
ended June 30,1997 were $75,000 consisting of amounts recorded to the allowance
for doubtful accounts to reflect the net realizable value of the accounts
receivable balance at June 30, 1997.
Provision (Benefit) For Income Taxes: Provision for income taxes decreased by
$70,500 to a benefit for income taxes of ($52,000) for the quarter ended June
30, 1997 from an $18,500 provision for income taxes for the quarter ended June
30, 1996. The decrease in provision for income taxes for the quarter ended June
30, 1997 is primarily attributable to a decrease in earnings, offset by an
increase in permanent taxable differences relating to merger costs.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net Patient Service Revenue: Net patient service revenue increased $458,217 or
11 % to $4,661,222 for the six months ended June 30, 1997 from $4,203,005 for
the six months ended June 30, 1996. The addition of one new satellite branch
from June 30, 1996 to June 30, 1997 and six full months of operation during the
six months ended June 30, 1997 for a branch opened in February 1996 increased
net patient service revenue by $530,042 or 13%. The increase in net patient
service revenue was partially offset by the sale of the Jersey City branch in
December 1996.
Cost of Services: Cost of services increased $323,447 or 12 % to $2,968,219 for
the six months ended June 30, 1997 from $2,644,772 for the six months ended June
30, 1996. The increase in cost of services is primarily due to increases in
field staff payroll costs resulting from the increase in net patient service
revenue. The Company's growth in the number of cases serviced increased the need
for additional field staff to service these cases.
<PAGE>
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $105,089 or 7 % to $1,713,576 for the six
months ended June 30, 1997 from $1,608,487 for the six months ended June 30,
1996. The increase in selling, general, and administrative expenses for the six
months ended June 30, 1997 is primarily attributable to (i) severance costs
relating to the elimination of certain administrative positions, (ii) the early
termination of operating leases for the Hempstead and East Orange branches, as
well as, the write-off of leasehold improvements, (iii) the payment of
consulting fees to Star in connection with the Consulting Agreement, and (iv)
partially offset by the integration of certain administrative functions as a
result of the Consulting Agreement.
Merger Costs: Cumulative Star Merger related legal and other professional fees
of $308,131 were all expensed in the six months ending June 30, 1997.
Provision For Doubtful Accounts: Provision for doubtful accounts for the six
months ended June 30,1997 were $100,000 consisting of amounts recorded to the
allowance for doubtful accounts to reflect the net realizable value of the
accounts receivable balance at June 30, 1997.
(Benefit) For Income Taxes: Benefit for income taxes increased by $19,000 to
($39,000) for the six months ended June 30, 1997 from ($20,000) for the six
months ended June 30, 1996. The increase in benefit for income taxes for the six
months ended June 30, 1997 is primarily attributable to a decrease in earnings,
offset by an increase in permanent taxable differences relating to merger costs.
Inflation and Seasonality
Medicaid reimbursements, which represent the Company's principal source of
revenue, have historically been adjusted to keep pace with inflation. There can
be no assurance that future Medicaid reimbursement will keep pace with
inflation. See "Forward-Looking Statements - Cautionary Factors."
The Company's business is generally not subject to seasonal trends.
Liquidity and Capital Resources
The nature of the Company's business requires weekly payments of wages to
its personnel as they render services, while the Company receives payments for
services rendered over an extended period of time (30 to 90 days). At June 30,
1997 the Company's accounts receivable balance increased $208,538 to $1,274,815
from $1,066,277 at December 31, 1996. The increase in accounts receivable was
due to increased net patient service revenue offset by a decrease in days sales
in accounts receivable from approximately 54 to 45 days and an additional
$100,000 allowance for doubtful accounts.
At June 30, 1997 the Company had working capital of $400,238. Historically,
the Company's cash requirements have been met internally from operations. The
Company currently has no outstanding bank debt nor does it have any agreements
for a line of credit.
EFCC's working capital was reduced on January 21, 1997 as a result of the
payment of a special dividend in the amount of $749,990. EFCC's working capital
should be sufficient to fund existing operations for the next 12 months, but may
not be sufficient to fund expanded activities if the Star Merger is not
consummated. If the Star Merger is consummated, EFCC's capital requirements
would be provided by Star.
Net cash provided by (used in) operating activities for the Company was
$38,045 for the six months ended June 30, 1997 and ($85,589) for the six months
ended June 30, 1996. The change in cash provided by operating activities for the
quarter ended June 30, 1997, and cash used in operations for the quarter ended
June 30, 1996 was the result of increased gross profit offset by increased
selling, general and administrative expenses and a decrease in the number of
days sales in accounts receivable from approximately 54 days to 45 days.
<PAGE>
Forward Looking Statements - Cautionary Factors
Certain statements in this report are not historical facts and constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results of operations of EFCC and TPC to be materially different from historical
results or from any results expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include, but are not
limited to, the risks set forth below.
HEALTH CARE REFORM. As a result of the escalation of health care costs and
the inability of many individuals and employers to obtain affordable health
insurance, numerous proposals have been or may be introduced in the United
States Congress and state legislatures, and other proposals are being
considered, relating to health care reform. Such proposals have included, among
other things, provision of universal access to health care, reforming the
payment methodology for health care goods and services by both the public
(Medicare and Medicaid) and private sectors, and methods to control or reduce
public and private spending on health care. The ultimate timing or effect such
reforms may have on the Company cannot be predicted and no assurance can be
given that any such reforms will not have a material adverse effect on the
Company's revenues and/or earnings. Short-term cost containment initiatives may
vary substantially from long-term reforms and may have a material adverse effect
on the Company.
REGULATORY ENVIRONMENT. The Company's business is subject to substantial
regulation by state and local authorities. These regulations can cause
significant time delays, as well as additional costs, as the Company must comply
with state eligibility standards for licensing and/or accreditation as a Home
Care provider. The imposition of more stringent regulatory requirements or the
denial, revocation, or suspension of any license or accreditation necessary for
the Company to operate in a particular market could have a material adverse
effect on the Company's operations.
Medicaid reimbursement rates in New York and New Jersey are not negotiated
by the Company, but are established by these respective states. Recent budgetary
pressures at the federal and state governmental levels have, and may in the
future, reduce the allocation of federal and state budgetary dollars
appropriated for the Medicaid program. Such reductions may have a negative
impact on the Company's revenues and profitability. Federal and state budgetary
pressures may adversely impact the Company by: (1) reducing the Medicaid
reimbursement rates paid by the state; (2) reducing the number of hours that
will be reimbursed per case; and (3) reducing the funding of one or more public
assistance agencies with which the Company presently does business.
On July 9, 1996, authorities of the State of New Jersey met to discuss the
reduction of Medicaid reimbursement rates for the year July 1, 1996 to July 1,
1997. The meeting did not result in a material reduction in the Medicaid
reimbursement rates for the period July 1, 1996 to July 1, 1997. During the
quarter ended June 30, 1996, a reduction in authorized Medicaid reimbursable
hours per case was imposed by New York State. The results of this reduction did
not have a material adverse effect on the Company's results of operations for
the fiscal year ended December 31, 1996. However, if a similar Medicaid
reduction is imposed by the State of New Jersey, the results of this reduction
would have a material adverse effect on the Company's results of operation, as
the Company currently derives a majority of its revenues from New Jersey
Medicaid reimbursements. The Company cannot predict the magnitude of future
reductions, if any, in Medicaid reimbursement rates or reimbursable hours.
New York State requires approval of the Public Health Council of the New
York State Department of Health ("NYPHC") for any change in a "Controlling
Person" of an operator of a licensed health care services agency ("LHCSA").
Control of an entity is presumed to exist if any person owns, controls or holds
the power to vote 10% or more of the voting securities of such entity. To the
extent the Company may seek to acquire control of
<PAGE>
an LHCSA, the Company would have to be granted the approval of the NYPHC prior
to exercising control over such LHCSA. NYPHC approval is also required if any
entity seeks control of more than 10 percent of the voting securities of the
Company or TPC. The NYPHC has approved the change of control that occurred from
the acquisition by Coss of approximately 66 percent of EFCC's common stock and
the change of control which occurred when Arbor Home Health Care Holdings, LLC
("Arbor") acquired 40 percent of EFCC's common stock. An application to approve
Star's control over the Company pursuant to the Star Merger Agreement was
approved on June 27, 1997. See Note 3 to the Consolidated Financial Statements.
Health care is subject to laws and regulations of federal, state and local
governments. The failure to obtain, renew or maintain any of the required
regulatory approvals or licenses could adversely affect the business of the
Company and could prevent it from offering products or services to patients.
POSSIBLE NEED FOR ADDITIONAL FINANCING. The Company does not currently have
the benefit of a substantial amount of the $1.3 million in capital provided by
Arbor due to the payment of a special dividend of $750,000 in January 1997. If
the Company's business expands, significant additional financing may be
required. If the Company were unable to secure such financing on terms deemed
favorable by management, such inability would have a material adverse effect on
the Company's financial condition. If the Star Merger is consummated, the
Company's capital requirements would be provided by Star. See Note 3 to the
Consolidated Financial Statements.
POSSIBLE ADVERSE IMPACT IF STAR MERGER IS NOT CONSUMMATED. Certain
administrative functions of TPC have been performed by Star in furtherance of
the Star Merger Agreement, including the administration of certain patient
files. If, for any reason, the Star Merger were not to occur, transferring these
functions back to EFCC would be costly, time consuming and may not be completely
effective in returning EFCC to the status of its operations prior to entering
into the Star Merger and may have an adverse affect on EFCC.
<PAGE>
Part II: OTHER INFORMATION
Item 5. Other information:
On January 3, 1997, EFCC and Star entered into the Star Merger Agreement.
On March 18, 1997, EFCC and TPC entered into the TPC Merger Agreement. See Note
3 to the Consolidated Financial Statements.
Item 6. Exhibits and reports on Form 8-K.
a. Exhibits
See accompanying index to Exhibits.
b. EFCC did not file any reports on Form 8-K in the quarter reported
on.
All other items required in Part II are not applicable for the
quarter ended June 30, 1997.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
(Registrant) EXTENDED FAMILY CARE CORPORATION
Date: August 19, 1997 By:/s/ Joseph Heller
-------------------------------------------
Joseph Heller, Vice President, Acting Chief
Executive Officer, Controller, Principal
Financial Officer and Director
<PAGE>
INDEX TO EXHIBITS
Exhibits Page
2.1 Agreement and Plan of Merger, dated as of January 3, 1997 among Star,
EFCC Acquisition Corp. and EFCC, dated as of January 3, 1997. (1)
2.2 Plan and Agreement of Merger between TPC and EFCC dated March 18,
1997. (2)
27 Financial Data Schedule. 15
===============================================================================
(1) Included as Exhibit 1 to the Amended Schedule 13D filed by Stephen
Sternbach on January 17, 1997 and incorporated herein by reference
thereto.
(2) Filed as an Exhibit to EFCC's Form 10-KSB for the period ended
December 31, 1996 and incorporated herein by reference thereto.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 300,825
<SECURITIES> 0
<RECEIVABLES> 1,474,815
<ALLOWANCES> 200,000
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0
0
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</TABLE>
