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 January 31, 1996
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 0-12927
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NATIONAL HOME HEALTH CARE CORP.
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(Exact name of Registrant as Specified in Its Charter)
Delaware 22-2981141
- ------------------------------- ---------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
700 White Plains Road, Scarsdale, New York 10583
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(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number Including Area Code: 914-722-9000
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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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of March 15, 1996 was
4,744,907.
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 1996
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of January 31, 1996
and July 31, 1995 (unaudited) 3-4
Consolidated Statements of Operations for the three
months ended January 31, 1996 and January 31, 1995
and six months ended January 31, 1996 and January 31,
1995 (unaudited) 5
Consolidated Statements of Cash Flows for the six
months ended January 31, 1996 and January 31, 1995
(unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial 9-11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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<PAGE>
NATIONAL HOME HEALTH CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
January 31, 1996 July 31, 1995
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,735,000 $ 9,237,000
Investments 553,000 813,000
Accounts receivable -
less allowance for doubtful accounts
of $430,000 at January 31, 1996
and $99,000 at July 31, 1995 8,413,000 5,338,000
Notes receivable 339,000 349,000
Income taxes receivable 64,000 72,000
Prepaid expenses and other assets 471,000 354,000
Deferred taxes 190,000 80,000
------------- -------------
Total current assets 16,765,000 16,243,000
Furniture, equipment and leasehold
improvements, net 463,000 445,000
Notes receivable - noncurrent 521,000 690,000
Excess of cost over fair value of net
assets of businesses acquired, net 2,840,000 1,036,000
Other intangible assets, net 261,000 342,000
Deposits and other assets 121,000 109,000
------------- -------------
TOTAL $20,971,000 $18,865,000
============= =============
</TABLE>
(Continued)
-3-
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
January 31, 1996 July 31, 1995
---------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,191,000 $ 910,000
Estimated third-party payor settlements 901,000 - - -
Capital lease obligations-current 27,000 27,000
------------- -------------
Total current liabilities 2,119,000 937,000
Capital lease obligations-noncurrent - - - 14,000
------------- -------------
Total liabilities 2,119,000 951,000
Stockholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued 5,678,673 shares
and 5,673,075 shares 6,000 6,000
Additional paid-in capital 15,567,000 15,552,000
Retained earnings 4,230,000 3,307,000
------------- -------------
19,803,000 18,865,000
Less treasury stock (955,000 shares) at cost (951,000) (951,000)
------------- -------------
Total stockholders' equity 18,852,000 17,914,000
------------- -------------
TOTAL $ 20,971,000 $ 18,865,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the three months ended For the six months ended
January 31, January 31,
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Patient service revenues $ 9,965,000 $ 6,044,000 $ 20,039,000 $ 11,774,000
------------- ------------- ------------- -------------
Operating expenses:
Cost of revenues 6,162,000 3,684,000 12,709,000 7,219,000
General and administrative 2,963,000 1,803,000 5,655,000 3,543,000
Amortization 73,000 36,000 146,000 72,000
------------- ------------- ------------- -------------
Total operating expenses 9,198,000 5,523,000 18,510,000 10,834,000
------------- ------------- ------------- -------------
Income from operations 767,000 521,000 1,529,000 940,000
Interest income 99,000 89,000 203,000 165,000
------------- ------------- ------------- -------------
Income before taxes 866,000 610,000 1,732,000 1,105,000
Provision for income taxes 395,000 275,000 809,000 505,000
------------- ------------- ------------- -------------
NET INCOME $471,000 $335,000 $923,000 $600,000
============= ============= ============= =============
Net income per share of
common stock $0.10 $0.07 $0.20 $0.13
============= ============= ============= =============
Weighted average shares
outstanding 4,719,109 4,779,075 4,718,592 4,779,075
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For the six months ended January 31,
------------------------------------
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 923,000 $ 600,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 247,000 151,000
Provision for state income tax settlement - - - 33,000
Deferred tax - - - 120,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable (147,000) (270,000)
Decrease in income taxes receivable 287,000 108,000
(Increase) in prepaid expenses and other (115,000) (18,000)
assets
(Decrease) in accounts payable and
accrued expenses (517,000) (27,000)
(Decrease) in estimated third party
payor settlements (971,000) - - -
----------- -----------
Net cash (used in ) provided by operating
activities (293,000) 697,000
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (54,000) (51,000)
Proceeds (purchase) of investments 260,000 (2,239,000)
Purchase of Nurse Care, Inc., net of cash acquired (2,595,000) - - -
----------- -----------
Net cash (used in) investing activities (2,389,000) (2,290,000)
----------- -----------
Cash flows from financing activities:
Decrease in notes receivable 179,000 66,000
Principal payments under capital lease obligations (14,000) (16,000)
Proceeds from exercise of stock options 15,000 - - -
----------- -----------
Net cash provided by financing activities 180,000 50,000
----------- -----------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,502,000) (1,543,000)
Cash and cash equivalents-beginning of period 9,237,000 5,017,000
----------- -----------
CASH AND CASH EQUIVALENTS-END OF
PERIOD $6,735,000 $3,474,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period
for:
Taxes $985,000 $277,000
Interest 11,000 6,000
</TABLE>
See accompanying notes to consolidated financial statements
-6-
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended
January 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended July 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended July 31, 1995.
NOTE 2 - ACQUISITION
On August 4, 1995, the Company acquired all of the outstanding common
shares of Nurse Care, Inc., the parent company of New England Home Care, Inc.
("New England"). New England is a licensed Medicare certified home health care
agency providing services in Fairfield and New Haven counties in the State of
Connecticut. The purchase price of $3,150,000 was generated from internal funds.
The acquisition was accounted for as a purchase and the excess of purchase price
over the fair value of the assets acquired, $1,869,000, was allocated to
goodwill and is being amortized over a twenty year period.
The following unaudited pro forma consolidated statement of operations
information gives effect to the acquisition described above as though it had
occurred on August 1, 1994, after giving effect to certain adjustments.
Unaudited Unaudited
Three months ended Six months ended
January 31, 1995 January 31, 1995
---------------- ----------------
Patient service revenue $ 10,042,000 $ 19,770,000
Operating expenses 9,364,000 18,516,000
------------- -------------
Income from operations $ 678,000 $ 1,254,000
Net income $ 387,000 $ 703,000
============= =============
Net income per share $ .08 $ .15
============= =============
-7-
<PAGE>
NOTE 3 - RECLASSIFICATION
Certain amounts in the January 31, 1995 consolidated statements of
operations have been reclassified to conform to the January 31, 1996
consolidated statements of operations.
NOTE 4 - INCOME TAXES
The Internal Revenue Service is currently conducting an examination of
federal tax returns for the years ended July 31, 1991 through July 31, 1994. The
Company received a refund of approximately $2,100,000 during the fiscal year
ended July 31, 1995 as a result of net operating loss carryback claims made in
fiscal year ended July 31, 1994 and the years affected by the claims are now
being examined. No assessment has been made to date.
-8-
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations and Effects of Inflation
- ----------------------------------------------
For the three months ended January 31, 1996, revenues increased by
$3,921,000, or 65%, from $6,044,000 for the three months ended January 31, 1995
to $9,965,000 for the three months ended January 31, 1996. Approximately
$3,430,000 or 87% of this increase is attributable to the acquisition of New
England. In addition, revenues from Health Acquisition Corp., the subsidiary
providing home health care services in the New York metropolitan area, increased
$510,000 or 11% from the corresponding period of 1995. This increase was the
result of additional volume from existing contracts with certified home health
care agencies and other long-term provider programs, as well as the expansion of
services to include home care pediatric skilled nursing services for medically
fragile children and their families.
Cost of revenues as a percentage of revenue increased from 61% for the
three months ended January 31, 1995 to 62% for the three months ended January
31, 1996. This increase is primarily attributable to the acquisition of New
England, which has higher cost of revenues as a result of its revenue generated
from Medicare patients being limited to cost reimbursement principles.
General and administrative expenses as a percentage of revenue was 30% for
both the three months ended January 31, 1996 and the three months ended January
31, 1995. General and administrative expenses excluding those relating to New
England increased $93,000 or 5% from the three months ended January 31, 1995.
This increase is attributable to certain non-recurring expenses incurred in the
quarter ended January 31, 1996.
Amortization increased from $37,000 to $73,000 for the three months ended
January 31, 1996 as a result of the goodwill associated with the acquisition of
New England.
As a result of the foregoing, net income for the three months ended January
31, 1996 was $471,000 as compared to a net income of $335,000 for the three
months ended January 31, 1995.
For the six months ended January 31, 1996, revenues increased by
$8,265,000, or 70% from $11,774,000 for the six months ended January 31, 1995 to
$20,039,000 for the six months ended January 31, 1996. Approximately $7,122,000
or 86% of this increase is attributable to the acquisition of New England.
Revenues from Health Acquisition Corp. increased $1,146,000 or 11% from the six
months ended January 31, 1995. This increase is explained in the above three
month discussion.
Cost of revenues as a percentage of revenue increased from 61% for the six
months ended January 31, 1995 to 63% for the six months ended January 31, 1996.
This increase is primarily attributable to the acquisition of New England, which
has higher cost of revenues as a result of its revenue generated from Medicare
patients being limited to cost reimbursement principles.
General and administrative expenses as a percentage of revenue decreased
from 30% of revenue for the six months ended January 31, 1995 to 28%
for the six months ended January 31, 1996. General and administrative
excluding those related to New England decreased $13,000 from
-9-
<PAGE>
the corresponding period of 1995. New England's general and administrative
expenses as a percentage of revenue for the six months ended January 31, 1996
was 29%.
Amortization intangibles increased from $72,000 to $146,000 for the six
months ended January 31, 1996 as a result of the goodwill associated with the
acquisition of New England.
As a result of the foregoing, net income for the six months ended January
31, 1996 was $923,000 as compared to a net income of $600,000 for the six months
ended January 31, 1995.
The rate of inflation had no material effect on operations for the six
months ended January 31, 1996.
Financial Condition and Capital Resources
- -----------------------------------------
Current assets and current liabilities increased to $16,765,000 and
$2,119,000, respectively, at January 31, 1996 representing an increase of
$522,000 and $1,182,000, respectively, over July 31, 1995. The current ratio
decreased to 7.91x at January 31, 1996 from 17.34x at July 31, 1995. This
decrease is primarily attributable to the acquisition of New England.
The Company used net cash in operating activities of $293,000 for the six
months ended January 31, 1996 as compared to net cash provided by operating
activities of $697,000 for the six months ended January 31, 1995. The decrease
in cash flows from operating activities between the periods is attributable to a
decrease in estimated third party payor settlements of $971,000 in the six
months ended January 31, 1996. Historically, the Company has financed its
working capital requirements through cash flows from operating activities. Net
cash used in investing activities for the six months ended January 31, 1996
reflects the purchase of equipment and the purchase of Nurse Care, Inc., offset
by proceeds from the sale of investments. For the six months ended January 31,
1995, net cash used in investing activities consists of the purchase of
equipment and the purchase of investments. Net cash provided by financing
activities for the six months ended January 31, 1996 and 1995 primarily reflect
the decrease in notes receivable.
The Company believes that it has sufficient cash to fund its operations for
at least the ensuing twelve month period. The Company has available a $2,000,000
secured offering line of credit with the Bank of New York. In addition, New
England has a secured advised line of credit with the Bank of New York, the
maximum amount of which shall not exceed the lesser of eligible accounts
receivable or $2,000,000. Both facilities are at the alternate base commercial
lending rate of the bank and expire December 31, 1996. As of January 31, 1996,
there were no outstanding balances under either line of credit.
The Company recently filed a registration statement with the Securities and
Exchange Commission relating to the proposed initial public offering by SunStar
Healthcare, Inc. ("SunStar"), a wholly-owned subsidiary of the Company
consisting of its Florida outpatient medical center operations. The proposed
initial public offering by SunStar consists of 1,200,000 shares of common stock,
plus an over-allotment option granted to the underwriter, Richter & Co., Inc.,
to purchase an additional 180,000 shares, at a proposed price per share of
$5.00.
-10-
<PAGE>
Although such registration statement has been filed with the Securities and
Exchange Commission, it has not yet been declared effective. The offered shares
may not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This does not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of the
shares in any State in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any State.
Upon successful completion of the offering, without giving effect to the
over-allotment option, the public would own approximately 47%, and the Company
would retain approximately 35%, of the common stock of SunStar on a
fully-diluted basis.
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
10.1 Letter Agreement dated December 27, 1995
providing Secured Advised Line of Credit from
Bank of New York for National Home Health Care
Corp.
10.2 Letter Agreement dated December 27, 1995
providing Secured Advised Line of Credit from
Bank of New York for New England Home Care, Inc.
(b) Reports on Form 8-K:
None
-12-
<PAGE>
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.
National Home Health Care Corp.
Date: March 14, 1996 /s/ ROBERT P. HELLER
--------------------------------
Robert P. Heller
Vice President of Finance,
Chief Financial
and Accounting Officer
-13-
EXHIBIT 10.1
<PAGE>
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
8 EAST PARKWAY, SCARSDALE, NEW YORK 10583
December 27, 1995
Mr. Robert E. Heller, Vice President &
Chief Financial Officer
National Home Health Care Corp.
700 White Plains Road, Suite 363
Scarsdale, New York 10583
Dear Bob:
This letter confirms that The Bank of New York (the "Bank") holds available a
$2,000,000 secured advised line of credit to National Home Health Care Corp.
Advances under the line of credit shall be payable on demand and bear interest
at a rate per annum equal to the alternate base commercial lending rate of the
Bank as publicly announced to be in effect from time to time (the "Alternate
Base Rate"), such rate to change on the effective date of any change in the
Alternate Base Rate.
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the higher of (i) the Prime Rate in effect on
such and (ii) the Federal Funds Rate in effect on such day
plus 1/2 of 1%.
For purposes of this definition:
"Prime Rate" shall mean, for any day, the weighted average
of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or if such day is
not a business day, for the next preceding business day) by
the Federal Reserve bank of New York, or if such rate is not
so published foR any day which is a business day, the
average of quotations for such day on such transactions
received by the Bank from three Federal funds brokers of
recognized standing selected by the Bank.
<PAGE>
Page 2
12/27/95
Robert E. Heller
NHHCC
All advances and all principal payments hereunder shall be endorsed by the Bank
on the sheet attached to the Promissory Grid Note and shall be secured by all
assets of the borrower pursuant to a security agreement. The borrower authorizes
the Bank to accept telephonic instructions from a duly authorized representative
of the borrower, as indicated by the latest Corporate Resolution on file with
the Bank, to make an advance or receive a repayment hereunder and to endorse the
sheet attached to this Promissory Grid Note accordingly. All advances made
hereunder shall be credited to the Borrower's deposit account referred to above,
which credits shall be confirmed to the borrower by standard advice of credit.
The borrower agrees that the actual crediting of the sum of money so borrowed to
the borrower's deposit account shall constitute conclusive evidence that the
advance was made, and the failure of the Bank to endorse the amount of any
advance on the sheet attached to this note or to forward to the borrower an
advice of credit shall not affect the obligation of the borrower to repay such
advance.
In addition, all advances under the line of credit shall be jointly and
severally guaranteed by Health Acquisition Corp. and First Health, Inc. and
Brevard Medical Center, Inc. Each guarantee shall be secured by all assets of
the respective guarantors pursuant to a security agreement. The form of note,
security agreement and guarantee to be furnished to the Bank shall be in form
and substance acceptable to the Bank and its counsel.
Advances under the line of credit are subject to the Bank's satisfaction with
(i) the specific purpose and expected time and source of repayment of each
advance, and (ii) the Borrower's and the guarantors' financial condition,
business prospects and operations at the time of each advance. As you know,
lines of credit may be cancelled by either party at any time, however, unless
cancelled earlier, the line of credit shall be held available until December 31,
1996. outstanding advances under the line of credit shall be reduced to zero for
a period of 30 consecutive days during each twelve (12) month calendar period in
which the line of credit is held available.
Very truly yours,
Additionally, all
THE BANK OF NEW YORK
/S/ JOHN GUSCIORA
John Gusciora
Vice President
EXHIBIT 10.2
<PAGE>
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
8 EAST PARKWAY, SCARSDALE, NEW YORK 10583
December 27, 1995
New England Home Care, Inc.
c/o National Home Health Care Corp.
700 White Plains Road, Suite 363
Scarsdale, New York 10583
RE: The Bank of New York to New England Home Care, Inc.
$2,000,000.00 Secured Advised Line of Credit
---------------------------------------------------
Gentlemen:
The Bank of New York (the "Bank") is pleased to advise you that it is
prepared to offer a secured advised line of credit (the "Line") to New England
Home Care, Inc. (the "Company") pursuant to the terms and conditions herein set
forth. Under the Line, the Bank will consider making loans (the "Loans") to the
Company of which the aggregate principal amount of Loans at any one time
outstanding, shall not exceed the lesser of the Borrowing Base (as hereinafter
defined) or $2,000,000.00. This Line means that the Bank will perform an ongoing
credit review to enable it to respond quickly to any request for Loans which the
Company may make. The issuance of this letter and the Line is not a commitment
and does not in any way obligate the Bank to make loans or grant any credit.
Any Loan extended under the Line will be subject to the terms and
conditions herein contained and such additional terms and conditions as the Bank
may require at the time the Company requests a Loan and must be evidenced by
documents in form and substance satisfactory to the Bank.
Prior to the making of any Loan hereunder, the Bank must have received, at
minimum, the following support, in form and content satisfactory to the Bank,
which must remain in place as long as any Loan is outstanding and the Company
must be in compliance with the following terms and conditions:
1. Security:
a. Receipt by the Bank of a perfected first priority security
interest in all of the personal property and assets of the Company and
of National Home Health Care Corp. and Nurse Care, Inc.;
<PAGE>
Page 2
12/27/95
New England Home Care, Inc.
b. Receipt by the Bank of the joint and several, unconditional
corporate guaranties of payment (the "Guaranties") of National Home
Health Care Corp. and Nurse Care, Inc. collectively the "Corporate
Guarantors") of all indebtedness and obligations of the Company to the
Bank.
2. Financial Statements. To enable the Bank to carry out an ongoing
financial review, the Company must furnish the following:
a. within 90 days after the end of each fiscal year of the Company
and the Corporate Guarantors, an audited consolidated and internal
consolidating financial statement, a balance sheet of the Company and
the Corporate Guarantors as of the end of such fiscal year and an
income statement and statements of cash flows and retained earnings
for such fiscal year, all in reasonable detail and stating in
comparative form the figures for the corresponding date and period in
the prior fiscal year audited by independent certified public
accountants selected by the Company and acceptable to the Bank;
b. within 60 days after the end of each quarter of the Company and
the Corporate Guarantors, an unaudited consolidated and internal
consolidating financial statement, a balance sheet of the Company and
the Corporate Guarantors as of the end of such interim period and an
income statement and statements of cash flows and retained earnings
for such interim period, all in reasonable detail and stating in
comparative form the figures for the corresponding date and period in
the prior interim period audited by independent certified public
accountants selected by the Company and acceptable to the Bank;
c. no later than the 5th day of each month and, together with any
request for a Loan hereunder, a detailed listing prepared by the
Company of all accounts receivable outstanding with a summary of the
dates due, and confirmation of the value of inventory held by the
Company;
d. no later than the 5th day of each month and together with any
request for a Loan hereunder, a Borrowing Base Certificate in the form
attached hereto as Exhibit A;
e. promptly after the commencement thereof, notice of all actions,
suits, and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Company or Corporate Guarantor or any of their
Subsidiaries which, if determined adversely to the Company or any such
Corporate Guarantor or any such Subsidiary could have a material
<PAGE>
Page 3
12/27/95
New England Home Care, Inc.
adverse effect on the financial condition, properties, or operations
of the Company, any Corporate Guarantor or such Subsidiary;
f. prior to the payment thereof, notice of any intended payment
of dividends to shareholders as permitted by the provisions of this
agreement;
g. such other information respecting the condition or operations,
financial or otherwise, of the Company and the Corporate Guarantors as
the Bank may from time to time reasonably request.
3. LOANS. All Loans made under the Line shall be evidenced by a credit
line grid note prepared by the Bank's counsel in form and content
satisfactory to the Bank. The Bank shall have the right to make notations
on the note evidencing all loans and prepayments made under the Line and
the Bank's notations shall be deemed correct absent manifest error. Each
Loan under the Line shall be made subject to the terms and conditions
contained herein to the Company in increments of not less than $25,000.00
and upon at least one (1) business day prior written notice to the Bank.
4. INTEREST RATE AND CHARGES. Interest on the Loans made under this Line
shall accrue on each Loan from and including the date of each advance to,
but excluding, the date of repayment in full of such amount, in lawful
money of the United States, and in immediately available funds, payable on
the first day of each calendar month, at a floating interest rate per annum
(the "Floating Rate") equal at all times to the Alternate Base Rate. For
the purposes of this letter, the term "Alternate Base Rate" shall mean, for
any day, a rate per annum equal to the higher of (i) the Prime Commercial
Lending Rate of the Bank as publicly announced to be in effect from time to
time, such rate to be adjusted automatically, without notice, on the
effective date of any change in such rate, and (ii) the Federal Funds Rate
in effect on such day plus1/2of 1%. For the purposes of this letter, the
term "Prime Commercial Lending Rate" shall mean that rate of interest from
time to time announced by The Bank of New York as its prime commercial
lending rate. Any change in the interest rate resulting from a change in
the Prime Commercial Lending Rate or the Federal Funds Rate shall be
effective at the beginning of the day on which such change in the Prime
Commercial Lending Rate or the Federal Funds Rate becomes effective.
The principal of any Loan, if not paid down when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest from and including
the date due to but excluding the date paid in full at the rate of 5% plus the
Floating Rate set forth above.
<PAGE>
Page 4
12/27/95
New England Home Care, Inc.
The Bank shall have the right to impose a late charge of 4% of any
installment if any payment under any Loan is received 15 days or more after it
is due. No acceleration of the Loans will be required in order to impose this
rate. This rate will be in addition to and not in lieu of any other rate
imposition.
5. PREPAYMENTS. Except for borrowings which exhaust the full remaining
amount of the Line, and prepayments which result in the prepayment of all
loans outstanding under the Line, each borrowing or prepayment of principal
under the Line shall be in an amount at least equal to $25,000.00. The
Company shall have the right to prepay the Loans and re-borrow under the
Line, subject to the conditions set forth herein, at any time or from time
to time prior to the Expiration Date (as hereinafter defined).
6. FINANCIAL COVENANTS.
a. The Company and the Corporate Guarantors agree that, so long
as the Line is in effect and any of the Loans remain outstanding, the
Company and the Corporate Guarantors, on a consolidated basis, will
maintain a Minimum Net Worth of $1,000,000. The term "Minimum Net
Worth" shall mean the excess of Assets over Liabilities which includes
common stock, additional paid in capital and retained earnings.
b. The Company and the Corporate Guarantors shall not, without the
Bank's prior written consent incur any additional indebtedness with
any other institutional lender.
7. BORROWING BASE. The amount of Loans outstanding under the Line shall
not exceed the Lesser of the Borrowing Base or $2,000,000.00 at any time.
As used herein, the term "Borrowing Base" shall mean (a) eighty percent
(80%) of the Company's Eligible Accounts Receivable not more than 90 days
past due from time to time outstanding plus (b) fifty (50%) of the
Company's Estimated Unbilled Accounts Receivable for the Company's previous
month. For the purposes of this letter, the term "Eligible Accounts
Receivable" shall mean those accounts arising out of the sale or lease of
goods or the rendering of services by the Company in the ordinary course of
business to persons or entities other than the Corporate Guarantors or
subsidiaries which have been outstanding for not more than 90 days from
invoice date. For the purposes of this, letter, the term "Estimated
Unbilled Accounts Receivable" shall mean estimated unbilled accounts
receivable for the immediately preceding month for which the calculation of
the Borrowing Base is being made. The Borrowing Base shall be calculated
pursuant to the Borrowing Base Certificate set forth on Exhibit A attached
hereto. In the event that the amount of Loans outstanding hereunder ever
exceed the Borrowing Base, the Company shall, within five (5) days of
written notice thereof from the
<PAGE>
Page 5
12/27/95
New England Home Care, Inc.
Bank, prepay the outstanding Loans in such an amount as would be necessary
to bring the amount outstanding under the Line in compliance with the terms
and conditions hereof.
8. EXPIRATION. Notwithstanding anything to the contrary contained herein
provided, the Line shall be reviewed by the Bank on December 31, 1996 (the
"Expiration Date"). At such time, the Bank shall have the right,
exercisable in our sole discretion, to make no additional advances under
the Line and to demand immediate payment in full of the outstanding
principal balance of all Loans advanced hereunder, together with all
accrued interest thereon.
9. MATURITY. In addition to the monthly payments of interest hereinabove
set forth and the other provisions contained herein pursuant to which the
Bank shall have the right to accelerate repayment of the Loans, the
outstanding principal balance of Loans under the Line and any accrued and
unpaid interest shall be due and payable, unless extended by the Bank in
their sole and absolute discretion, on the Expiration Date.
10. DEFAULTS. If (a) there shall be any material adverse change in the
business or property of the Company or the Corporate Guarantors; or (b) the
Company or any of the Corporate Guarantors shall default under or fail to
comply with any of the terms and conditions contained herein or in any
note, security agreement, guaranty or other document executed in connection
herewith (the "Facility Documents"); or (c) an Event of Default shall occur
under any other document or instrument executed and delivered by the
Company or the Corporate Guarantors to the Bank in connection with this or
any other financing; or (d) the Company's medicare and/or medicaid
certification shall be discontinued (all of the foregoing of which shall be
collectively referred to as an "Event of Default") then, in such event, the
Bank shall have the right, without notice and without regard to the other
provisions contained herein, to decline to make any other Loans hereunder
and to declare all Loans outstanding hereunder immediately due and payable.
This Line is issued subject to the terms and conditions herein contained
and to the Bank, in its sole discretion, continuing to be satisfied with the
Company's and the Corporate Guarantors' financial condition and economic
prospects; and the Company's and the Corporate Guarantors' maintenance of a
satisfactory relationship with the Bank.
This letter is for the Company's information only and is not to be shown to
or relied upon by third parties. This letter constitutes the entire
understanding between the Bank and the Company, and supersedes all prior
discussion.
<PAGE>
Page 6
12/27/95
New England Home Care, Inc.
Please acknowledge your understanding of the above by signing and returning
the original copy of this letter.
THE BANK OF NEW YORK
By: /S/ JOHN GUSCIORA
----------------------------
John Gusciora
Vice President
ACKNOWLEDGED AND CONSENTED TO:
NEW ENGLAND HOME CARE, INC.
By:/s/ THOMAS SMITH, PRESIDENT
-------------------------------
NATIONAL HOME HEALTH CARE CORP.
By:/s/ ROGER P. HELLER, C.F.O.
-------------------------------
NURSE CARE, INC.
By:/s/ STEVEN FALCON
-------------------------------
<PAGE>
EXHIBIT A
---------
BORROWING BASE CERTIFICATE
--------------------------
THIS CERTIFICATE IS A PART OF AND SUBJECT TO THE TERMS AND CONDITIONS SET FORTH
IN A CERTAIN LINE LETTER DATED DECEMBER 27, 1995 (THE "LETTER"), BY AND BETWEEN
THE BANK OF NEW YORK (THE "BANK") AND NEW ENGLAND HOME CARE, INC. (THE
"COMPANY").
TERMS USED IN THIS CERTIFICATE SHALL HAVE THE SAME MEANING AS ASCRIBED THERETO
IN THE LETTER.
THE UNDERSIGNED OFFICERS OF THE COMPANY CERTIFY THAT THE INFORMATION FURNISHED
HEREIN AS OF ______________________________, 199__ AS TO ELIGIBLE ACCOUNTS
RECEIVABLE AND AS OF _______, 199__ AS TO ESTIMATED UNBILLED ACCOUNTS RECEIVABLE
IS TRUE AND CORRECT AND THAT AS OF THE DATE HEREOF NO EVENT OF DEFAULT, OR EVENT
WHICH AFTER NOTICE OR LAPSE OF TIME OR BOTH WOULD BE AN EVENT OF DEFAULT EXISTS
UNDER THE LETTER.
I. COMPUTATION OF BORROWING BASE
A. ELIGIBLE ACCOUNTS RECEIVABLE $_____________
B. 80% OF LINE A $_____________
C. VALUE OF ESTIMATED UNBILLED
ACCOUNTS RECEIVABLE FOR THE MONTH
OF _______________ (THE MONTH
IMMEDIATELY PRECEDING THE MONTH OF
THIS CERTIFICATE) $_____________
D. 50% OF LINE C $_____________
E. BORROWING BASE (LINE B +
LINE D) $_____________
II. AGGREGATE PRINCIPAL BALANCE OF
LOANS OUTSTANDING $_____________
III. COMMITMENT AVAILABLE OR AMOUNT DUE
A. IF LINE II IS GREATER THAN
LINE I(E), AMOUNT DUE. IF
LINE II IS LESS THAN LINE
IE, AMOUNT AVAILABLE $____________
NEW ENGLAND HOME CARE, INC.
By:_______________________________
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<NAME> NATIONAL HOME HEALTH CARE CORP.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 6,735,000
<SECURITIES> 553,000
<RECEIVABLES> 8,843,000
<ALLOWANCES> (430,000)
<INVENTORY> 0
<CURRENT-ASSETS> 16,765,000
<PP&E> 2,209,000
<DEPRECIATION> (1,746,000)
<TOTAL-ASSETS> 20,971,000
<CURRENT-LIABILITIES> 2,119,000
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 18,846,000
<TOTAL-LIABILITY-AND-EQUITY> 20,971,000
<SALES> 20,039,000
<TOTAL-REVENUES> 20,039,000
<CGS> 0
<TOTAL-COSTS> 18,510,000
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<INTEREST-EXPENSE> (203,000)
<INCOME-PRETAX> 1,732,000
<INCOME-TAX> 809,000
<INCOME-CONTINUING> 923,000
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923,000
<EPS-PRIMARY> .20
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