SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Amendment No. 2 on FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: July 31, 1995. Commission File Number 0-12927
NATIONAL HOME HEALTH CARE CORP.
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(Exact name of registrant as specified in its charter)
Delaware 22-2981141
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK 10583
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-722-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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 registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of October 25, 1995, the aggregate market value of the Common Stock of the
Registrant, its only class of voting securities, held by non-affiliates of the
Registrant was approximately $10,258,540, calculated on the basis of the average
closing bid and asked prices of such stock on the National Association of
Securities Dealers Automated Quotation System on that date, as reported by the
National Association of Securities Dealers, Inc.
The number of shares outstanding of the Registrant's Common Stock on October 25,
1995 was 4,722,576.
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Portions of the Registrant's Proxy Statement for its 1995 Annual Meeting of
Stockholders (which Proxy Statement will be filed with the Securities and
Exchange Commission on or before November 28, 1995) are incorporated by
reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
GENERAL
National Home Health Care Corp. ("the Registrant") is a Delaware
corporation which was incorporated on July 27, 1983 under the name of Family
Medical Treatment Centers of America, Inc. Effective December 14, 1984, the
Registrant changed its name to National HMO Corp. and effective December 20,
1991, the Registrant changed its name to National Home Health Care Corp. The
Registrant completed its initial public offering in December 1983. The
Registrant is a provider of home health care and outpatient medical services.
The Registrant has four operating subsidiaries:
* Health Acquisition Corp., formerly Allen Health Care Services, Inc., a
New York corporation, of which Allen Health Care Services ("Allen
Health Care") is the sole operating division. The operations of Hitech
Home Care, formerly another operating division of Health Acquisition
Corp., were discontinued during the fiscal year ended July 31, 1993.
Accordingly, all operations relating to Hitech Home Care are shown as
discontinued operations in the financial statements and notes thereto
appearing elsewhere herein.
* Brevard Medical Center, Inc., a Delaware corporation ("Brevard Medical
Center"), which conducts business in Brevard County, Florida. Boro
Medical Corp., a Florida corporation, is a wholly-owned subsidiary of
Brevard Medical Center.
* First Health, Inc., a Florida corporation ("First Health"), which
conducts business in Volusia County, Florida.
* New England Home Care, Inc., a Connecticut corporation ("New
England"), which conducts business in the State of Connecticut.
HEALTH ACQUISITION CORP.
Allen Health Care Services
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Allen Health Care maintains its principal administrative office in Jamaica,
New York and has satellite offices in New York City, Farmingdale and Hempstead,
New York. The company provides personal home health care services, including
registered nurses, licensed practical nurses, personal care aides, home health
aides and homemakers in the following counties in the State of New York:
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Nassau, Suffolk, Queens, Kings, New York and the Bronx. All personnel are
licensed or are agency certified under a New York State approved program and can
be engaged on a full-time, part-time or live-in basis. Allen Health Care is a
participating provider in both the Nassau and Suffolk Counties Department of
Social Services Medicaid Programs. The Public Health Council of the State of New
York Department of Health has approved the application for licensure of Health
Acquisition Corp. d/b/a Allen Health Care with no limited life restrictions.
Allen Health Care received Joint Commission on Accreditation of Healthcare
Organizations (JCAHO) status in New York State. JCAHO, which is the accrediting
body for all health care providers, is associated with providing quality
services. This status is required by many of the certified home health care
agencies that Allen Health Care currently services. The company's accreditation
expires in May 1996, at which time a resurvey will be commenced. Reimbursement
for the division's services is primarily provided by the Department of Social
Services of both Nassau and Suffolk Counties, New York, as well as by certified
home health care agencies and long term health care provider programs which
contract with the division. In addition, in April 1995, services of this
subsidiary were expanded to include home care pediatric skilled nursing for
medically fragile children and their families.
Allen Health Care provides home health care services to its clients,
twenty-four hours per day, seven days per week. Although the company's offices
are open during normal business hours, personnel are available twenty-four hours
per day to respond to emergencies and to provide other service requests. The
registered nurses of Allen Health Care, in accordance with New York State
Department of Health Regulations and Contract Requirements, visit patients
regularly and review the records of service which are completed by home health
and personal care aides daily. These records are maintained by Allen Health
Care. In addition, the home care coordinator ensures that appropriate coverage
is maintained for all patients and acts as the liaison among family members,
aides and the professional staff.
To a large extent, Allen Health Care's growth potential depends upon its
ability to recruit and maintain qualified personnel. The company's training
programs for home health aides and personnel care aides have been approved by
the New York State Department of Health. The company believes that it offers
competitive salaries and fringe benefits and has been able to keep its home
health aides working on a steady basis.
Hitech Home Care
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In May 1992, Health Acquisition Corp. purchased substantially all of the
assets of Hitech Registered Nurses of New Jersey, Inc. ("Hitech"), a licensed
nursing agency that provided home intravenous infusion therapy and skilled
nursing in the adult, pediatric and high risk maternity areas in the State of
New Jersey. In addition, Health Acquisition Corp. entered into a three-year
employment agreement with each of the two former shareholders of Hitech. Each
employment
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agreement called for compensation to the employee during the three-year period
in the aggregate amount of $255,000, with an additional signing bonus of
$225,000 to each employee.
In July 1993, the Registrant discontinued the operations of Hitech Home
Care after determining that the time and financial commitment required to expand
its operations and to make it profitable would be too great to pursue. In
connection with such discontinuation, Health Acquisition Corp. entered into
agreements relating to the termination of the employment agreements of each of
the two key Hitech Home Care employees and the termination of the lease of
Hitech Home Care's office in Valhalla, New York. The agreements required the
payment of $30,000 in accrued bonuses and severance to one employee of
approximately $13,000. The lease termination required the one-time payment of
$75,000 and the forfeiture of a $30,000 security deposit in order to terminate
the lease, which would have required monthly payments of $5,687 per month until
April 1995. See "Notes to Financial Statements - Discontinued Operations."
NEW ENGLAND HOME CARE
On August 4, 1995, the Registrant consummated the acquisition of 100% of
the capital stock of Nurse Care, Inc. ("Nurse Care"), the parent company of New
England Home Care, Inc. ("New England") for $3,150,000 in cash. In addition, one
of the two former shareholders entered into a one-year employment contract as
the Administrator of New England with a base salary of $125,000. The other
former shareholder entered into a one-year consulting agreement to provide
certain consulting services with respect to the operations of New England in
consideration of $20,000 in consulting fees.
New England is a Medicare certified and licensed home health care company
in the State of Connecticut. The company provides a wide variety of home health
care services consisting of home health aides, skilled nursing, physical
therapy, speech therapy, occupational therapy and social work. New England
maintains its principal administrative office in Milford, Connecticut and has
branch offices in Norwalk, Hamden, Waterbury, Seymour and Danbury, Connecticut.
Although the company is currently undertaking the necessary steps to achieve
JCAHO status in the State of Connecticut, there can be no assurance that this
status will be obtained. Reimbursement for New England's services is primarily
provided by the Federal Medicare Program and the State of Connecticut Medicaid
Programs. Additional sources of revenue are from managed care programs, hospices
and commercial insurance carriers.
BREVARD MEDICAL CENTER
Brevard Medical Center provides out-patient multi-specialty and primary
medical care through its five outpatient medical offices located throughout
Brevard County, Florida. The company maintains its principal administrative
office in Melbourne, Florida.
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The services of the company include primary and specialty physician care,
diagnostic testing, laboratory and x-ray services, minor office surgery,
follow-up care relating to specific treatments as well as continuous care to
patients.
The company enters into contracts with primary care physicians who are
either Board Certified or Board Eligible in their primary care discipline. The
physician is also required to obtain and maintain local hospital admitting
privileges to provide continuity of care to Brevard Medical Center's patients,
both in and out of the hospital. The physicians render services in accordance
with quality assurance standards set by the American Medical Association and are
monitored by the company's Quality Improvement Committee. In addition, Brevard
Medical Center enters into agreements with specialty physicians to provide
Brevard Medical Center's patients with in-house consultations, consultations in
their own offices as well as acute care in the hospital for advanced diagnostic
testing and major surgery.
Brevard Medical Center contracts with employer groups, health plans,
preferred provider organizations and community health purchasing alliances
consisting of local health maintenance organizations. The company also
participates with various indemnity coverage programs.
In addition, Brevard Medical Center provides out-patient medical services
for its wholly-owned subsidiary, Boro Medical Corp. Boro Medical Corp. is the
holder of a prepaid cost reim bursement contract with the Health Care Financing
Administration of the Federal Government to provide certain out-patient medical
services to Medicare subscribers. In addition, Boro Medical Corp. is the holder
of a prepaid health clinic license (PHC), which is a certificate of authority
issued by the Florida Department of Insurance to provide certain outpatient
medical services to subscribers.
Although Brevard Medical Center has been able to recruit physicians, there
can be no assurance that it will successfully continue to do so. If it is
unsuccessful, it will then be necessary for the company to use temporary medical
personnel, which will increase the company's costs for physicians, the Company
believes, by approximately fifty (50%) percent.
FIRST HEALTH, INC.
First Health, which was incorporated in the State of Florida in April 1994,
provides outpatient medical services through its three outpatient medical
offices in Volusia County, Florida. In 1994, First Health purchased certain
fixed and intangible assets of Healthmark, P.A. and Atlantic Medical Associates,
P.A., which were engaged in providing outpatient medical services in Volusia
County.
First Health is a preferred provider for a health maintenance organization
under both Medicare and commercial provider agreements in all three of its
outpatient medical centers. The company contracts with primary care physicians
who are either Board Certified or Board Eligible in their primary care
discipline. The physician is also required to obtain and maintain local hospital
admitting privileges to provide continuity of care to First Health's patients,
both in and out of the hospital. The
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physicians render services in accordance with quality assurance standards set by
the American Medi cal Association and are monitored by the company's Quality
Improvement Committee.
Although First Health has been able to recruit physicians, there can be no
assurance that it will successfully continue to do so. If it is unsuccessful, it
will then be necessary for the company to use temporary medical personnel, which
will increase the company's costs for physicians, the Company believes, by
approximately fifty (50%) percent.
NATIONAL HMO (NEW YORK), INC.
On April 30, 1994, Boro Medical, P.C. and Boro Health Care of Union, P.C.
(collectively "Boro Medical"), a medical provider to which National HMO (New
York), Inc. ("National New York") and National HMO Corp. of Elizabeth, Inc.
("National Elizabeth") provided non-medical and administrative management
services, terminated its relationship with National New York and National
Elizabeth. In addition, on April 30, 1994, National New York and National
Elizabeth entered into an asset purchase agreement with Boro Medical. Under the
terms of the agreement, as consideration for the sale by National New York and
National Elizabeth of certain assets, Boro Medical agreed to pay a purchase
price of $750,000, as well as all outstanding management fees due to National
New York through April 30, 1994 in the aggregate amount of $500,000. Boro
Medical delivered at closing five-year and three-year promissory notes in the
aggregate amounts of $750,000 and $500,000, respectively, each at an interest
rate of seven percent. The leases at all of the medical offices subject to the
former relationship were assumed by Boro Medical and National New York and
National Elizabeth were released from any further obligations under the
applicable lease agreements. In addition, National New York, National Elizabeth
and certain of its officers and Boro Medical and certain of its officers
delivered mutual releases with respect to all prior claims that may have existed
between them relating to their former relationship and further agreed not to
compete with one another in certain operations and in specific areas relating to
their respective businesses.
For the fiscal year ended July 31, 1993, the revenue associated with Boro
Medical represented approximately 21% of the Registrant's consolidated revenues
from continuing operations for such year. In addition, in July 1994, National
New York terminated its management agreement with the dental practitioner to
which it also provided administrative and management services. Accordingly, the
Registrant has reclassified its financial statements to show separately the
results of the discontinued operations. See "Notes to Financial Statements -
Discontinued Operations".
INSURANCE
The Registrant maintains professional malpractice liability coverage on
professionals employed in the rendering of health care services in addition to
coverage for the customary risks inherent in the operation of businesses in
general. Health Acquisition Corp. and New England carry corporate malpractice
insurance policies providing coverage in an amount of up to $1,000,000 per
occurrence and up to $6,000,000 in the aggregate. Both Brevard Medical Center
and First Health carry a
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corporate malpractice insurance policy providing coverage in an amount of
$1,000,000 per occurrence and $3,000,000 in the aggregate. Recent market
conditions with respect to liability insurance have caused wide fluctuations in
the cost and availability of coverage. While the Registrant believes its
insurance policies are adequate in the amount and coverage for its current
operations, there can be no assurance that coverage will continue to be
available in adequate amounts or at a reasonable cost.
EMPLOYEES
As of October 27, 1995, the Registrant employed approximately 1,600 full
and part-time employees of whom 18 were employed in various management
capacities and 3 were employed in marketing activities.
Health Acquisition Corp., New England, Brevard Medical Center and First
Health recruit health service personnel principally through referral from
existing personnel and through newspaper advertisements. The Registrant has
standardized procedures for recruiting, interviewing and reference checking
prospective health care personnel. All nurses and physicians must be licensed by
the appropriate licensing authorities. Employees receive instruction in the
procedures and policies of the respective subsidiary corporations.
The Registrant's ability to attract a staff of highly trained personnel is
a material element of its business. There currently is intense competition for
qualified personnel and there can be no assurance that the Registrant will be
successful in maintaining or in securing additional qualified personnel. The
Registrant has no union contracts with any of its employees and believes that
its relationship with its employees is satisfactory.
COMPETITION
The home health care field is highly competitive. The Registrant is
competing with numerous other licensed as well as certified home health care
agencies. In addition, the Registrant competes with companies that, in addition
to providing health aid and skilled nursing services, also, unlike the
Registrant, provide pharmaceutical products and other home care services that
generate additional referrals.
The out-patient medical field is highly competitive as well. The Registrant
faces competition in securing patients and in recruiting qualified personnel
from hospitals, health maintenance organizations and other medical providers.
Many of the Registrant's competitors are larger and have greater experience and
financial resources which facilitates their ability to secure patients and
recruit personnel.
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CUSTOMERS
One or more customers have each accounted for more than 10% of the
Registrant's revenues. For the fiscal years ended July 31, 1995, 1994 and 1993,
VNS Home Care, a non-profit Medicare certified home health care agency,
accounted for 40%, 39% and 34%, respectively, and the State of New York,
Department of Social Service personal care aide program for the counties of
Suffolk and Nassau accounted for 13%, 17% and 21%, respectively, of the
Registrant's consolidated revenues from continuing operations. The total loss of
any of the foregoing customers would have a material adverse effect on the
Registrant.
GOVERNMENT REGULATIONS
General
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The health care industry is highly regulated, and the regulatory
environment in which the Registrant operates may change significantly in the
future, particularly in light of the many proposed changes of the current
administration. These changes include proposals to increase government
involvement in health care, lower Medicare and Medicaid reimbursement rates and
otherwise change the environment in which the Registrant operates. The
Registrant cannot predict with any certainty what impact, if any, proposals for
health care reforms might have on the Registrant's business. In addition,
certain third party payors of health care services (insurance companies,
Medicare and Medicaid) have significantly revised payment procedures in an
effort to contain health care costs. Although a majority of the Registrant's
revenues are currently generated through the provision of non-skilled services
(personal care aide and home health aide), factors affecting the health care
industry may have a significant impact on the Registrant's operating results.
Significant aspects of the Registrant's businesses are subject to local,
state and federal statutes and regulations governing, among other areas,
licensing, fee splitting, reimbursement under federal and state medical
assistance programs, financial relationships between healthcare providers and
potential referral sources, workplace health and safety and other matters. The
Registrant's businesses may also be affected by changes in ethical guidelines
and operating standards of professional and trade associations.
Many states require regulatory approval, including certificates of need,
before establishing certain types of health care facilities, offering certain
health care services or making expenditures in excess of statutory thresholds
for health care equipment, facilities or programs.
The ability of the Registrant to operate profitably will depend in part
upon the Registrant obtaining and maintaining all necessary licenses,
certificates of need and other approvals and operating in compliance with
applicable health care regulations.
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State Regulation
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State laws impose licensing requirements on health care professionals, and
on facilities operated by such professionals. In addition, state laws specify
who may practice medicine and limit the scope of relationships between medical
practitioners and other parties. Violations of these laws may result in civil
and criminal penalties.
Several states have adopted or are considering legislation that, if
enacted, would restrict or prohibit referrals by physicians to facilities in
which the physicians have an ownership interest or with which they have a
financial relationship. Violations of these laws may result in the loss of
healthcare provider licenses as well as fines and criminal penalties. On April
8, 1992, the State of Florida enacted a patient Self-Referral Act that severely
restricts patient referrals for certain services, prohibits mark-ups of certain
procedures, requires disclosure of ownership requirements and places other
regulations on health care providers. The Registrant believes that its Florida
offices fit within the group practice exemption contained in the Florida Act;
however, certain relationships are not explicitly sanctioned by the Act, but are
not believed to be prohibited. There can be no assurance that other states will
not adopt similar legislation or that the Registrant's offices will in all cases
be able to comply with such laws. Such statutes could restrict expansion of the
Registrant's operations into those jurisdictions.
Medicare Fraud and Abuse
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Provisions of the Social Security Act under Medicare and Medicaid generally
prohibit soliciting, receiving, offering or paying, directly or indirectly, any
form of remuneration in return for the referral of Medicare or state health care
program patients or patient care opportunities, or in return for the purchase,
lease or order of any facility item or service that is covered by Medicare or a
state health care program. In July 1991, the federal government published
regulations that provide exceptions, or "safe harbors," for business
transactions that will be deemed not to violate the anti-kickback statute.
Violations of the statute may result in civil and criminal penalties and
exclusion from participation in the Medicare and Medicaid programs.
The Registrant believes that its current operations are not in violation of
the anti-kickback statute. However, judicial decisions interpreting the statute
and the regulations promulgated thereunder, have resulted in varying and
ambiguous interpretations of the statute. Thus, the scope of the anti-kickback
statute is unclear. A determination that the contracts and relationships entered
into by the Registrant violated the anti-kickback statute would have a material
adverse impact on the business of the Registrant.
As medical providers, both Brevard Medical Center and First Health are
subject to the above mentioned regulations. If these companies were found to be
in violation of such regulations, the Registrant would be materially adversely
affected.
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Regulatory Compliance
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The Registrant believes that health care regulations will continue to
change and, therefore, regularly monitors developments in health care law. The
Registrant expects to modify its agreements and operations from time to time as
the business and regulatory environment changes. While the Registrant believes
it will be able to structure all its agreements and operations in accordance
with applicable law, there can be no assurance that its arrangements will not be
successfully challenged.
ITEM 6. SELECTED FINANCIAL DATA.
The following table, which presents selected financial data for the
Registrant for each of the last five fiscal years, has been derived from the
Consolidated Financial Statements of the Registrant, which have been audited by
Richard A. Eisner & Company, LLP, independent auditors.
The data set forth below should be read in conjunction with the
Consolidated Financial Statements in Item 8 of this Report.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $24,556,000 $20,116,000 $18,059,000 $16,230,000 $11,396,000
Net Income from
continuing
operations 1,426,000 1,218,000 1,309,000 1,189,000 968,000
Net income from
continuing
operations per
share .30 .26 .27 .25 .20
Net income
(loss) from
discontinued
operations- -0- (3,472,000) (461,000) 658,000 641,000
Net income
(loss) per share
from dis-
continued
operations -0- (.73) (.09) .14 .14
Total Assets 18,865,000 17,926,000 20,309,000 19,106,000 17,356,000
Long Term
Obligations 14,000 40,000 77,000 146,000 ---
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis provides information which the
Registrant's management believes is relevant to an assessment and understanding
of the Registrant's results of operations and financial condition. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere herein.
On April 30, 1994, Boro Medical, a medical provider to which National New
York and National Elizabeth provided non-medical and administrative management
services, terminated its relationship with National New York and National
Elizabeth. In addition, in July 1994, National New York terminated its
relationship with the dental practitioner to which it also provided management
services. See "Business - National HMO (New York), Inc."
In July 1993, the Registrant discontinued the operations of Hitech Home
Care, the division of Health Acquisition Corp. that provided skilled nursing and
home intravenous therapy services. In management's opinion, there was not
sufficient growth potential in this market to make any further expenditures of
working capital.
The above transactions have been reflected in the financial statements as
discontinued operations. See "Notes to Financial Statements-Discontinued
Operations." The results of operations as discussed below relate to the
continuing operations of the Registrant.
RESULTS OF OPERATIONS
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YEAR ENDED JULY 31, 1995 AS COMPARED TO YEAR ENDED JULY 31, 1994
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Revenues increased by approximately $4,440,000, or 22%, from $20,116,000
for the fiscal year ended July 31, 1994 ("fiscal 1994") to $24,556,000 for the
fiscal year ended July 31, 1995 ("fiscal 1995"). Approximately $3,270,000 or 74%
of this increase is attributable to Health Acquisition Corp., the subsidiary
that provides home health care services. Health Acquisition Corp. was again
successful in increasing volume with existing customers and secured eight (8)
new provider agreements during fiscal 1995. Services of this subsidiary were
also expanded in April 1995 to include home care pediatric skilled nursing for
medically fragile children and their families. Revenues generated from this
expansion of services approximated $293,000 for the period from April through
July 1995. Revenues from Brevard Medical Center, the subsidiary that operates
outpatient medical centers in Brevard County, Florida, increased approximately
$358,000, or 9% from fiscal 1994. As a result of the health care industry
shifting toward managed care, Brevard was successful in becoming preferred
providers for new managed care plans coming into the county. This increase in
revenues is the direct result of additional capitation business generated from
managed care
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plans, primarily from health maintenance organizations (HMO's), offset by a
reduction in traditional fee-for-service business. The Registrant expects these
trends to continue in the future. Although revenues increased over the previous
fiscal year, the loss of any of these new managed care contracts would have a
material adverse effect on the Registrant. Revenue from First Health, the
subsidiary that operates outpatient medical centers in Volusia County, Florida,
increased approximately $812,000 from the previous fiscal year, as only three
months were included in fiscal July 31, 1994 operations. The major source of
revenue is from a large health maintenance organization, to which First Health
is a preferred provider.
Revenues from home care services accounted for 79% of the Registrant's
consolidated revenues in the current fiscal year and has historically generated
the greatest operating margins for the Registrant. The Registrant's recent
acquisition of Nurse Care, Inc. and its wholly-owned subsidiary, New England
Home Care, Inc., is an example of the Registrant's commitment to devoting
significant resources to the expansion of home health care services. See
"Business -- New England Home Care."
Cost of revenue as a percentage of revenue was 61% for both fiscal 1995 and
1994. In preparation for becoming preferred providers for new managed care plans
in Florida, the Registrant increased its medical provider costs in fiscal 1995
in expectation of securing additional managed care revenues. The increase was
less than expectated, resulting in a higher cost of revenue as a percentage of
revenues from those operations. However, this higher percentage was offset by a
decline in the cost of revenue as a percentage of revenues from home health care
operations. General and administrative expenses increased to 29% of revenue in
fiscal 1995 from 28% of revenue in fiscal 1994. This slight increase is
primarily attributable to the added operating costs of the outpatient medical
centers.
Interest income increased approximately $249,000 or 155% from the previous
fiscal year. This increase is attributable to interest earned on both the notes
receivable from Boro Medical and the federal income tax refund received in the
current fiscal year of approximately $2,100,000 as a result of carryback claims.
The Registrant's effective tax rate decreased to approximately 44% in the
current fiscal year as compared to 47% in the previous fiscal year. This
decrease is primarily attributable to federal income tax credits utilized in the
current fiscal year.
As a result of the foregoing, net income for fiscal 1995 increased to
$1,426,000 from $1,218,000 for fiscal 1994.
YEAR ENDED JULY 31, 1994 COMPARED TO YEAR ENDED JULY 31, 1993
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Revenues increased by approximately $2,057,000, or 11%, from $18,059,000
for the fiscal year ended July 31, 1993 ("fiscal 1993") to $20,116,000 for
fiscal 1994. Health Acquisition Corp., the subsidiary that provides
paraprofessional home health care services accounted for $1,759,000, or 85%, of
the increase in revenues. This increase is attributable to Health Acquisition
Corp. securing six (6) new provider contracts from certified home health care
agencies and other long-term provider programs, as well as additional volume
with existing contracts. Revenues from Brevard Medical Center, the subsidiary
that operates outpatient
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medical centers in Brevard County, Florida, increased approximately $116,000, or
3%, from the previous fiscal year. This increase is attributable to Brevard
Medical Center securing additional revenue from preferred provider arrangements
offset by the decrease in fee-for-service revenue. As the health care industry
has been changing towards a managed care network, Brevard Medical Center has
secured additional prepaid or capitation revenue by becoming a preferred
provider for various health care alliances. It expects this trend to continue in
the future. In addition, in May 1994, the Registrant through a wholly-owned
subsidiary, First Health, commenced operations in Volusia County, Florida with
the acquisition of certain assets of three outpatient medical centers. Revenues
for the three months were approximately $182,000. Currently, the major source of
revenue is from a large health maintenance organization, to which First Health
is a preferred provider.
Cost of revenue as a percentage of revenue was 61% for both fiscal 1994 and
1993. In fiscal 1994, general and administrative expenses increased by $868,000,
or 18%, from fiscal 1993 as a result of the expansion of the Registrant's
outpatient medical center operations and the opening of three additional offices
in Florida of $279,000, additional administrative support services of Health
Acquisition Corp. of $389,000 and non-recurring legal fees of $200,000.
Interest income increased approximately $45,000, or 38%, from $116,000 in
fiscal 1993 to $161,000 in fiscal 1994 as a result of an increase in cash
provided by operating activities.
As a result of the foregoing, net income for fiscal 1994 decreased to
$1,218,000 from $1,309,000 for fiscal 1993.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
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At July 31, 1995 and prior to the acquisition of Nurse Care, Inc. and New
England Home Care, Inc., as described below, the Registrant had working capital
of $15,306,000 as compared to working capital of $13,484,000 at July 31, 1994.
The Registrant has historically financed its working capital requirements
through cash flow from operating activities.
Net cash provided by operating activities was $3,526,000 for fiscal 1995 as
compared to $2,855,000 for fiscal 1994. This increase was primarily attributable
to the decrease in income taxes receivable of $2,553,000, as a result of the
refund on tax carryback claims, offset by the state income tax provision which
used $300,000 of cash, an increase in accounts receivable which used $688,000 of
cash, (as a result of the increase in revenues) and an increase in prepaid
expenses and other assets which used cash of $130,000 of cash, principally
resulting from the payment of legal fees in connection with the acquisition of
Nurse Care, Inc.
In fiscal 1995, the Registrant generated $681,000 from investing activities
as a result of the sale of investments, that were converted to highly liquid
investments which resulted in $1,000,000 in proceeds and was offset by the
purchase of assets of businesses of $225,000 and the purchase of furniture and
equipment of $94,000. In fiscal 1994, the Registrant used $1,262,000 in
investing activities as a result of the purchase
-14-
<PAGE>
of investments of $865,000, the purchase of assets of business of $147,000, the
purchase of furniture and equipment of $76,000 and cash used by discontinued
operations of $174,000.
In fiscal 1995, the Registrant generated $13,000 from financing activities
as a result of principal payments received on notes receivable of $243,000 and
the proceeds from the exercise of stock options of $8,000, offset by the cash
used for the principal payments under capitalized lease obligations of $30,000
and the purchase of treasury shares of $208,000. In fiscal 1994, the Registrant
used $40,000 in financing activities as a result of principal payments under
capitalized lease obligations.
A majority of the Registrant's business (home health care services)
requires weekly payments to health care personnel at the time services are
rendered. Payment for these services is typically on a contracted basis of 90 to
120 days. However, reimbursement for the other portion of the Registrant's
business (outpatient medical services) is received each month in the form of
capitation payments. Accounts receivable represented 33% of current assets at
both July 31, 1995 and July 31, 1994. See "Notes to Financial Statements -
Acquisitions." For the fiscal year ended July 31, 1995 accounts receivable
turnover decreased to 79 days from 88 days in the previous fiscal year.
The Registrant has available a $2,000,000 secured line of credit with its
bank at the alternate base commercial lending rate of the bank. The line of
credit expires November 30, 1995 and is subject to renewal. As of July 31, 1995,
the Registrant had no outstanding balance under the line of credit.
The Registrant intends to meet both its short and long term liquidity needs
with its current cash balances, cash flow and available line of credit. The
acquisition on August 4, 1995 of Nurse Care, Inc. and New England Home Care,
Inc. for $3,150,000 was made in cash generated from internal funds. In addition,
New England Home Care, Inc. is currently seeking to secure a line of credit to
finance its own accounts receivable.
The Internal Revenue Service (the "IRS") is currently conducting an
examination of the Federal Tax Return filed by the Registrant for the fiscal
year ended July 31, 1993. The Registrant has been advised that it is standard
procedure for refund claims in excess of $1,000,000 to be reviewed by the IRS's
Joint Committee on Taxation after the IRS has conducted an examination to
determine that the refund amount is correct. Therefore, since the Registrant
received a refund claim approximating $2,100,000 as a result of net operating
loss carryback claims relating to the fiscal year ended July 31, 1994, the years
affected by the carryback (fiscal years ended July 31, 1991 through 1994) are
now being examined. No assessment has been made to date.
IMPACT OF INFLATION
- -------------------
The impact of inflation on the Registrant was not material during the year
ended July 31, 1995.
-15-
<PAGE>
ECONOMIC OUTLOOK
- ----------------
The home health care industry has become increasingly competitive and
management believes this trend will continue in the future. This competition has
lead to mergers between large well diversified home health care companies over
the past year. Further, such companies have more acquisition and growth
opportunities available to them. Additionally, there is tremendous competition
for qualified personnel in the home health care industry. Management believes
that it offers competitive salaries and benefit packages. There can be no
assurance, however, that the Registrant will be successful in attracting and
retaining qualified personnel. If unsuccessful, this could have a material
adverse effect on the Registrant's business.
There is also increased competition in Florida where the Registrant is a
provider of out-patient medical services. Competition comes from health
maintenance organizations, independent doctors' offices and out-patient
satellite offices of hospitals which have established networks of medical
treatment offices. In addition, as the delivery of medical services has shifted
to a managed care system, there is increased competition in becoming preferred
providers for many of the new health care alliances that are being formed.
Furthermore, there is tremendous competition in recruiting and retaining
qualified Board Certified primary care physicians. Primary care physicians are
the gatekeepers in a managed care network and are vital in securing and
maintaining managed care contracts. If the Registrant is unsuccessful in
attracting and retaining such physicians, it could have a material adverse
effect on the Registrant's business.
Other than as set forth herein, the Registrant has no material commitments
for capital expenditures as of July 31, 1995.
In the opinion of management there will be no material impact on the
financial statements of the Registrant from any recently issued accounting
standards.
-16-
<PAGE>
ITEM 3. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following represents a listing of all financial statements,
financial statement schedules and exhibits filed as part of this Report.
(1) Financial Statements (see index to the consolidated financial
statements).
(2) Financial Statement Schedules (see index to the consolidated financial
statements).
(3) Exhibits
Exhibit
Number Exhibit to this Report Method of Filing
- ------- ---------------------- ----------------
3.1 Certificate of Incorporation Incorporated by
of the Registrant reference to Exhibit
3(a) to Registration
Statement on Form S-1
(No. 2-86643) filed
September 20, 1983 (the
"1983 Registration
Statement").
3.2 Certificate of Amendment Incorporated by
to Certificate of reference to Exhibit 3.2
Incorporation of the to the Registrant's
Registrant Annual Report on Form
10-K for the year ended
July 31, 1992 (the "1992
Form 10-K").
3.3 By-Laws of the Registrant Incorporated by
reference to Exhibit
4(a) to the 1983
Registration Statement.
4.1 Specimen Stock Certificate Incorporated by
reference to Exhibit
4(a) to the 1983
Registration Statement.
-17-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing
- ------- ---------------------- ----------------
10.1 1992 Stock Option Plan of Incorporated by
the Registrant reference to Exhibit
10.1 to the Registrant's
Annual Report on Form
10-K for the year ended
July 31, 1993 (the "1993
Form 10-K").
10.2 Incentive Stock Option Plan Incorporated by
of the Registrant reference to Exhibit
10(b) to the 1983
Registration Statement.
10.3 Agreement between Allen Incorporated by reference
Health Care Services to Exhibit 10.3 to the
and VNS Home Care dated Registrant's Annual Report
January 1, 1994 on Form 10-K forthe fiscal
year ended July 31, 1994
(the "1994 Form 10-K").
10.4 Agreement between Boro Incorporated by
Medical Corp. and Brevard reference to Exhibit
Medical Center dated 10.25 to the
September 11, 1991 Registrant's Annual
Report on Form 10-K for
the year ended July 31,
1991 (the "1991 Form
10-K").
10.5 Employment Agreement Incorporated by
between the Registrant reference to Exhibit 10.7
and Steven Fialkow to the 1993 Form 10-K.
dated August 1993
10.6 Employment Agreement Incorporated by
between the Registrant reference to Exhibit 10.8
and Richard Garofalo to the 1993 Form 10-K.
dated August 1993
-18-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing
- ------- ---------------------- ----------------
10.7 Employment Agreement Incorporated by
between the Registrant reference to Exhibit 10.9
and Gerald Kline to the 1993 Form 10-K.
dated August 1993
10.8 Employment Agreement Incorporated by
between the Registrant reference to Exhibit
and Thomas Smith 10.10 to the 1993 Form
dated August 1993 10-K.
10.9 Employment Agreement between Incorporated by reference
the Registrant and Robert to Exhibit 10.9 to the
Heller dated August 1994 1994 Form 10-K.
10.10 Agreement between Division Incorporated by
of Social Services of reference to Exhibit
County of Suffolk and 10.35 to the 1991 Form
Health Acquisition Corp. 10-K.
d/b/a A Round The Clock
Temporary Services
10.11 Agreement between Nassau Incorporated by reference
County Department of Social to Exhibit 10.9 to the
Care Services and Allen Health 1992 Form 10-K.
Care Services
10.12 Agreement between Catholic Incorporated by reference
Medical Center of Brooklyn to Exhibit 10.14 to the
and Queens, Inc. on behalf 1994 Form 10-K.
of Mary Immaculate
Hospital Home Health
Agency and Allen Health
Care Services, dated
January 1, 1994
-19-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing
- ------- ---------------------- ----------------
10.13 Letter Agreement dated Previously filed.
March 15, 1995 securing
line of credit from the
Bank of New York
10.14 Letter dated June 1, 1992 Incorporated by reference
from Public Health Council to Exhibit 10.13 to the
of the State of New York 1992 Form 10-K.
Department of Health to
Health Acquisition Corp.
d/b/a Allen Health Care
Services
10.15 Employment Agreement Incorporated by
between the Registrant reference to Exhibit
and Frederick H. Fialkow 10.20 to the 1993
dated April 30, 1993; Form 10-K.
First Amendment to
Employment Agreement
dated August 1, 1993
10.16 Letter from Joint Commission Incorporated by
on Accreditation of reference to Exhibit
Healthcare Organizations 10.24 to the 1993
awarding accreditation to Form 10-K.
Allen Health Care,
dated September 20, 1993
10.17 1993 401(k) Plan Incorporated by
of the Registrant reference to Exhibit
10.25 to the 1993
Form 10-K.
10.18 Letter Agreement between Incorporated by
National HMO (New York), reference to Exhibit
Inc. and Boro Medical, 10.26 to the 1993
P.C. dated November 12, Form 10-K.
1993
-20-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing
- ------- ---------------------- ----------------
10.19 Asset Purchase Agreement Incorporated by reference
among National HMO (New to Exhibit 10.24 to the
York), Inc., National HMO 1994 Form 10-K.
Corp. of Elizabeth, Inc.,
Boro Medical, P.C. and Boro
Health Care of Union, P.C.
dated April 30, 1994
10.20 Asset Purchase Agreement Incorporated by reference
between First Health, Inc. to Exhibit 10.25 to the
and Healthmark P.A. and 1994 Form 10-K.
Cesar N. Abiera, Jr., M.D.
dated April 29, 1994
10.21 Asset Purchase Agreement Incorporated by reference
between First Health, Inc. and to Exhibit 10.26 to the
Atlantic Medical Associates, 1994 Form 10-K.
P.A. and Ernest Cook, Jr.,
M.D. dated June 1, 1994
10.22 Agreement for the Purchase of Incorporated by reference
the Stock of Nurse Care, Inc. to Exhibit 10.1 to the
and Related Transactions Registrant's Current
Report on Form 8-K dated
August 4, 1995.
10.23 Employment Agreement between Incorporated by reference
New England and Aileen to Exhibit 10.2 to the
O'Connell dated as of Registrant's Current
August 1, 1995 Report on Form 8-K dated
August 4, 1995.
10.24 Form of Employment Agreement Previously filed.
between Brevard Medical Center, Inc.
and Warren D. Stowell dated as of
November 1, 1995
22.1 List of Subsidiaries Previously filed.
23.1 Consent of Richard A. Eisner & Co. Filed herewith.
(b) Reports on Form 8-K. None have been filed during the last fiscal
quarter.
-21-
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FILED WITH THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K
PART II ITEM 8:
REPORT OF INDEPENDENT AUDITORS F- 2
CONSOLIDATED BALANCE SHEETS AS AT JULY 31, 1995
AND 1994 F- 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED JULY 31, 1995, 1994 AND 1993 F- 4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED JULY 31, 1995, 1994
AND 1993 F- 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED JULY 31, 1995, 1994 AND 1993 F- 6
NOTES TO FINANCIAL STATEMENTS F- 7
PART IV ITEM 14:
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE F-21
II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS
ENDED JULY 31, 1995, 1994 AND 1993 F-22
Schedules Omitted
Other schedules have been omitted as the conditions requiring their filing are
not present or the information required therein has been included in the notes
to consolidated financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York
We have audited the accompanying consolidated balance sheets of National
Home Health Care Corp. and subsidiaries as at July 31, 1995 and July 31, 1994,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended July
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of National Home
Health Care Corp. and subsidiaries at July 31, 1995 and July 31, 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the three-year period ended July 31, 1995, in conformity
with generally accepted accounting principles.
New York, New York
October 6, 1995
F-2
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma July 31,
July 31, ----------------------------
A S S E T S 1995 1995 1994
----------- ------ ------ ------
(Note 1)
(Unaudited)
Current assets:
<S> <C> <C> <C>
Cash (including cash equivalents of $5,272,000 (pro forma), $8,422,000
and $4,568,000) (Note 10) . . . . . . . . . . . . . . . . . . . . . . . $ 6,704,000 $ 9,237,000 $ 5,017,000
Investments - available for sale. . . . . . . . . . . . . . . . . . . . . 813,000 813,000 1,553,000
Accounts receivable - (less allowance for doubtful accounts of $439,000
(pro forma), $99,000 and $84,000) (Note 10) . . . . . . . . . . . . . . 8,266,000 5,338,000 4,823,000
Notes receivable (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . 349,000 349,000 271,000
Income taxes receivable (Note 7). . . . . . . . . . . . . . . . . . . . . 352,000 72,000 2,625,000
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 298,000 354,000 193,000
Deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000 80,000 200,000
------------ ------------ -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 16,972,000 16,243,000 14,682,000
Furniture, equipment and leasehold improvements (Notes 1 and 2). . . . . . . 510,000 445,000 512,000
Notes receivable - noncurrent (Note 3) . . . . . . . . . . . . . . . . . . . 690,000 690,000 1,011,000
Investment in certificate of deposit . . . . . . . . . . . . . . . . . . . . 260,000
Excess of cost over fair value of net assets of
businesses acquired (Notes 1 and 4) . . . . . . . . . . . . . . . . . . . 2,905,000 1,036,000 1,073,000
Other intangible assets (Note 5) . . . . . . . . . . . . . . . . . . . . . . 342,000 342,000 248,000
Deposits and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 116,000 109,000 140,000
------------ ------------ -----------
T O T A L. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,535,000 $18,865,000 $17,926,000
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . $ 1,708,000 $ 910,000 $ 867,000
Capital lease obligations - current (Note 6). . . . . . . . . . . . . . . 27,000 27,000 31,000
Reserve for state income tax settlement (Note 9). . . . . . . . . . . . . 300,000
Estimated third-party payor settlements . . . . . . . . . . . . . . . . . 1,872,000
------------ ------------ -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . 3,607,000 937,000 1,198,000
Capital lease obligations - noncurrent (Note 6). . . . . . . . . . . . . . . 14,000 14,000 40,000
------------ ------------ -----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 3,621,000 951,000 1,238,000
------------ ------------ -----------
Commitments, contingencies and other matters (Notes 9 and 12)
Stockholders' equity (Note 11):
Common stock, $.001 par value; authorized 20,000,000 shares, issued
5,673,075 (pro forma), 5,673,075 and 5,670,075 shares . . . . . . . . . 6,000 6,000 6,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . 15,552,000 15,552,000 15,544,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,307,000 3,307,000 1,881,000
------------ ------------ -----------
18,865,000 18,865,000 17,431,000
Less treasury stock (955,000 (pro forma), 955,000 and
891,000 shares) - at cost . . . . . . . . . . . . . . . . . . . . . . . (951,000) (951,000) (743,000)
------------ ------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 17,914,000 17,914,000 16,688,000
------------ ------------ ------------
T O T A L. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,535,000 $18,865,000 $17,926,000
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Net patient fee income
(Note 10) . . . . . . . . $24,556,000 $20,116,000 $18,059,000
------------ ------------ ------------
Operating expenses:
Cost of revenue. . . . . . . 15,032,000 12,178,000 10,849,000
General and administrative . 7,213,000 5,618,000 4,750,000
Amortization of intangibles. 169,000 186,000 196,000
------------ ------------ ------------
Total operating
expenses. . . . . . 22,414,000 17,982,000 15,795,000
------------ ------------ ------------
Income from operations. . . . . 2,142,000 2,134,000 2,264,000
Interest income . . . . . . . . 410,000 161,000 116,000
------------ ------------ ------------
Income from continuing
operations before taxes. . . 2,552,000 2,295,000 2,380,000
Provision for income taxes
(Note 9) . . . . . . . . . . 1,126,000 1,077,000 1,071,000
------------ ------------ ------------
Income from continuing
operations . . . . . . . . . 1,426,000 1,218,000 1,309,000
------------ ------------ ------------
Discontinued operations (Note 7):
Income (loss) from
operations (net of
income taxes of $40,000
and $290,000). . . . . . (32,000) 53,000
Loss on disposals (net of
income tax benefit of
$2,734,000 in 1994 and
deferred income tax
benefit of $319,000)
in 1993) . . . . . . . . (3,440,000) (514,000)
------------ ------------
T o t a l . . . . . . (3,472,000) (461,000)
------------ ------------
NET INCOME (LOSS) . . . . . . . $ 1,426,000 $(2,254,000) $ 848,000
------------ ------------ ------------
Net income (loss) per share of
common stock (Note 1):
Continuing operations. . . $.30 $ .26 $ .27
Discontinued operations. . (.73) (.09)
------------ ------------ ------------
Net income (loss). . . . . $.30 $(.47) $ .18
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------------- Additional ---------------------
Number of Paid-In Retained Number of
Shares Amount Capital Earnings Shares Cost
---------- ------- ------------ ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1992. . . . . . . . . . 5,670,075 $6,000 $15,544,000 $ 3,287,000 891,000 $(743,000)
Net income. . . . . . . . . . . . . . . . . 848,000
---------- ------- ------------ ----------- ------- ---------
Balance at July 31, 1993. . . . . . . . . . 5,670,075 6,000 15,544,000 4,135,000 891,000 (743,000)
Net (loss). . . . . . . . . . . . . . . . . (2,254,000)
---------- ------- ------------ ----------- ------- ---------
Balance at July 31, 1994. . . . . . . . . . 5,670,075 6,000 15,544,000 1,881,000 891,000 (743,000)
Net income. . . . . . . . . . . . . . . . . 1,426,000
Acquisition of treasury shares, $3.25
per share. . . . . . . . . . . . . . . . 64,000 (208,000)
Exercise of common stock options. . . . . . 3,000 8,000
---------- ------- ------------ ----------- ------- ---------
BALANCE AT JULY 31, 1995. . . . . . . . . . 5,673,075 $6,000 $15,552,000 $ 3,307,000 955,000 $(951,000)
---------- ------- ------------ ----------- ------- ---------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------
1995 1994 1993
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . $ 1,426,000 $ 1,218,000 $ 1,309,000
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 329,000 327,000 304,000
(Settlement) provision for state income taxes . . . . . . . . . . . . (300,000) 50,000
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . 173,000 141,000 76,000
Deferred tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 (20,000) (14,000)
Changes in operating assets and liabilities:
(Increase) decrease in management fee receivable. . . . . . . . . . (52,000) 22,000
(Increase) in accounts receivable . . . . . . . . . . . . . . . . . (688,000) (323,000) (1,141,000)
(Increase) in prepaid expenses and other assets . . . . . . . . . . (130,000) (146,000) (56,000)
Increase (decrease) in accounts payable, accrued expenses and
other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 43,000 230,000 (97,000)
(Increase) decrease in income taxes receivable/payable. . . . . . . 2,553,000 445,000 (455,000)
Cash provided by discontinued operations. . . . . . . . . . . . . . 985,000 832,000
----------- ------------ -----------
Net cash provided by operating activities . . . . . . . . . . . . 3,526,000 2,855,000 780,000
----------- ------------ -----------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements . . . . . . . (94,000) (76,000) (81,000)
Proceeds (purchase) of investments. . . . . . . . . . . . . . . . . . . . 1,000,000 (865,000) (250,000)
Purchase of assets of businesses. . . . . . . . . . . . . . . . . . . . . (225,000) (147,000)
Cash (used) by discontinued operations. . . . . . . . . . . . . . . . . . (174,000) (34,000)
----------- ------------ -----------
Net cash provided by (used in) investing activities . . . . . . . 681,000 (1,262,000) (365,000)
----------- ------------ -----------
Cash flows from financing activities:
Decrease in notes receivable. . . . . . . . . . . . . . . . . . . . . . . 243,000
Principal payments under capital lease obligations. . . . . . . . . . . . (30,000) (40,000) (24,000)
Purchase of treasury shares . . . . . . . . . . . . . . . . . . . . . . . (208,000)
Payments under capital lease obligations by discontinued operations . . . (21,000)
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . 8,000
----------- ------------ -----------
Net cash provided by (used in) financing activities . . . . . . . 13,000 (40,000) (45,000)
----------- ------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . 4,220,000 1,553,000 370,000
Cash and cash equivalents - beginning of year *. . . . . . . . . . . . . . . 5,017,000 3,464,000 3,094,000
----------- ------------ -----------
CASH AND CASH EQUIVALENTS - END OF YEAR. . . . . . . . . . . . . . . . . . . $9,237,000 $ 5,017,000 $ 3,464,000
----------- ------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,000 $ 12,000 $ 25,000
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618,000 651,000 1,562,000
</TABLE>
* Includes cash of discontinued operations in 1994 and 1993.
See accompanying notes to financial statements.
F-6
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND ACQUISITION:
[a] Nature of business and acquisition:
National Home Health Care Corp. and subsidiaries (the "Company") is a
provider of home health care services and outpatient medical services.
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 will be accounted for as a purchase and the excess of the
purchase price over the fair value of the assets acquired, $1,869,000, will be
allocated to goodwill.
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,
including amortization of goodwill of $93,000, decrease in interest income of
$189,000, elimination of former shareholder compensation of $250,000, benefit
from additional third-party reimbursement of $200,000 and income taxes of
$104,000. The unaudited pro forma financial information may not necessarily
reflect the results of operations that would have occurred had the acquisition
occurred on August 1, 1994.
Unaudited
Patient fee income . . . . . . . . . . . $ 40,547,000
Operating expenses . . . . . . . . . . . (37,777,000)
Income from continuing operations. . . . $ 2,770,000
Net income . . . . . . . . . . . . . . . $ 1,632,000
============
Net income per share . . . . . . . . . . $.34
====
The unaudited pro forma balance sheet gives effect to the acquisition as
though it had occurred on July 31, 1995, after giving effect to the purchase
price of $3,150,000, estimated costs of the acquisition of $63,000 and the
excess of purchase price over the fair value of assets acquired of $1,869,000.
(continued)
F-7
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (continued)
[b] Principles of consolidation:
The consolidated financial statements include the accounts of National Home
Health Care Corp. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
[c] Revenue recognition:
Net patient fee income represents the estimated net realizable amounts from
third party payors and patients. Certain revenues are based on a cost
reimbursement program and are subject to retroactive adjustment. In the opinion
of management, retroactive adjustments, if any, would not be material to the
financial position or results of operations of the Company.
[d] Cash equivalents:
For the purposes of the statements of cash flows, the Company considers all
highly liquid investment instruments purchased with a maturity of three months
or less to be cash equivalents.
[e] Furniture, equipment and leasehold improvements:
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation is being provided on the straight-line method over the estimated
useful lives of the assets (generally five to ten years). Amortization of
leasehold improvements is being provided on the straight-line method over the
various lease terms or estimated useful lives, if shorter.
[f] Excess of cost over fair value of net assets of business acquired:
The excess of cost over the fair value of net assets acquired (goodwill) is
principally being amortized over a period of 40 years on a straight-line basis.
Goodwill is evaluated periodically and adjusted if necessary, if events and
circumstances indicate that a permanent decline in value below the current
unamortized historical cost has occurred.
(continued)
F-8
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (continued)
[g] Earnings per common share:
Earnings per common share are computed using the weighted average number of
common shares and dilutive common stock equivalents (options) outstanding during
each period. During the three years ended July 31, 1995, the options were not
dilutive. The number of shares used in the calculation of earnings per share are
4,760,705 for the year ended July 31, 1995 and 4,779,075 for the years ended
July 31, 1994 and July 31, 1993.
[h] Investments:
During 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" which requires that, except for debt securities classified as
"held-to maturity securities", investments in debt and equity securities be
reported at fair value. Its implementation had no significant effect on the
results of operations of the Company.
Investment securities available for sale at July 31, 1995 are summarized as
follows:
Amortized
Cost (1)
---------
Certificate of deposit, maturing within one year . $260,000
Floating rate debentures issued by New York
State, maturing in one to five years. . . . . . 160,000
Floating rate debentures issued by New York
State, maturing in five to ten years. . . . . . 180,000
Floating rate debentures issued by New York
State, maturity after ten years . . . . . . . . 195,000
Other. . . . . . . . . . . . . . . . . . . . . . . 18,000
--------
$813,000
========
(1) Amortized cost approximates market value. Accordingly, there is no
unrealized holding gain or loss.
There were no significant realized gains or losses from the sales of
available-for-sale securities in 1993, 1994 and 1995. Proceeds from the sale of
available-for-sale securities in 1995 was $1,000,000. Realized gain or loss is
determined on a specific identification basis.
(continued)
F-9
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: (continued)
[i] Reclassifications:
Certain items in the 1993 and 1994 financial statements have been
reclassified to conform to the 1995 presentation.
(NOTE 2) - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements are stated at cost and are
summarized as follows:
July 31,
1995 1994
Equipment, furniture and fixtures . . . $1,562,000 $1,475,000
Leasehold improvements. . . . . . . . . 368,000 362,000
---------- ----------
1,930,000 1,837,000
Less accumulated depreciation and
amortization . . . . . . . . . . . . 1,485,000 1,325,000
---------- ----------
B a l a n c e . . . . . . . . $ 445,000 $ 512,000
========== ==========
The net book value of furniture and equipment held under capital leases was
$79,000 and $126,000 at July 31, 1995 and July 31, 1994, respectively.
Depreciation expense includes depreciation on assets held under capital leases.
(NOTE 3) - NOTES RECEIVABLE:
In April 1994, as a result of the sale of assets discussed in Note 7, the
Company received promissory notes aggregating $750,000. The Company also
received a promissory note for $500,000 for the balance of management fees
previously due it. The notes bear interest at 7% and principal payments are due
in equal monthly installments over 30 months (for the $500,000 note) and 66
months (for the $750,000 notes), beginning November 1, 1994. The aggregate
principal balance of the notes at July 31, 1995 and July 31, 1994 amount to
$1,025,000 and $1,250,000, respectively, $336,000 and $252,000 of which is
included as current in the balance sheet at July 31, 1995 and July 31, 1994,
respectively. The notes are collateralized by all present and future personal
property of the payor.
(continued)
F-10
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 4) - EXCESS OF COST OVER FAIR VALUE:
Changes in the excess of cost over fair value of net assets of
businesses acquired and discontinued during the three years ended July 31, 1995
are as follows:
Year Ended July 31,
--------------------------------------
1995 1994 1993
----------- ------------ -----------
Balance - beginning of
year. . . . . . . . . . . $1,073,000 $ 6,868,000 $7,102,000
Consideration for
acquisition . . . . . . . 5,000
Write-off due to
discontinued operations . (5,671,000) (12,000)
Amortization . . . . . . . . (37,000) (129,000) (222,000)
----------- ------------ -----------
Balance - end of year. . . . $1,036,000 $ 1,073,000 $6,868,000
=========== ============ ==========
(NOTE 5) - OTHER INTANGIBLE ASSETS:
Other intangible assets are as follows:
July 31,
1995 1994
Covenants not to compete. . . . . . . $485,000 $ 285,000
Personnel files . . . . . . . . . . . 478,000 453,000
Other . . . . . . . . . . . . . . . . 2,000 2,000
--------- ---------
965,000 740,000
Less accumulated amortization . . . . 623,000 492,000
--------- ---------
$342,000 $ 248,000
========= =========
Other intangible assets increased during fiscal 1995 and 1994 primarily as
a result of the noncompetition agreements described in Note 8. Other intangible
assets are being amortized using the straight-line method over a period of 3 to
5 years.
(continued)
F-11
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 6) - CAPITAL LEASE OBLIGATIONS:
At July 31, 1995 approximate future minimum lease payments under
capitalized lease obligations were as follows:
Year Ending
July 31, Amount
1996 . . . . . . . . . . . . . . . . . $30,000
1997 . . . . . . . . . . . . . . . . . 15,000
-------
Total minimum lease payments . . . . . 45,000
Less amounts representing interest . . 4,000
-------
Present value of future lease payments
at end of year . . . . . . . . . . . 41,000
Less amount due within one year. . . . 27,000
-------
Amounts due after one year . . . . . . $14,000
=======
(NOTE 7) - DISCONTINUED OPERATIONS:
[a] The Company's National HMO (New York), Inc. ("HMO") subsidiary provided
administrative and nonmedical management services for a medical group and a
dental group. In March 1994 the medical group informed the Company that it was
terminating the management arrangement between the parties. As a result, in
April 1994, the Company sold to the medical provider, the assets related to the
management business for notes receivable aggregating $750,000 (see Note 3). The
parties mutually agreed not to compete with one another for a period of two
years. Subsequently, the Company made a determination to discontinue all of its
management operation. The loss on disposal consists primarily of a write-off of
goodwill of approximately $5,700,000 net of a federal income tax benefit of
approximately $2,550,000.
(continued)
F-12
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 7) - DISCONTINUED OPERATIONS: (continued)
[a] (continued)
Results from discontinued operations related to HMO are as follows:
Year Ended July 31,
-------------------------
1994 1993
---- ----
Net revenue . . . . . . . . . . $ 3,521,000 $5,011,000
============ ==========
Income from operations
before taxes. . . . . $ 8,000 $ 806,000
Income tax provision. . . . . . 40,000 467,000
Income (loss) from
operations . . . . . . . . . (32,000) 339,000
Loss on disposal. . . . . . . . (6,174,000)
Income tax benefit. . . . . . . 2,550,000
Deferred income tax
benefit. . . . . . . . . . . 80,000
------------ ----------
Income (loss) from
discontinued
operations . . . . . . . . . $(3,576,000) $ 339,000
============ ==========
[b] In May 1992, the Company purchased certain assets and assumed certain
liabilities of Hitech Registered Nurses of New Jersey, Inc., ("Hitech") for
$250,000. In July 1993, the Company made a determination to discontinue these
operations, after concluding that the time and financial commitment needed to
turn around Hitech's operations (skilled nursing and home intravenous therapy)
would be too great for it to pursue. During the year ended July 31, 1993, in
connection with the decision to discontinue the operation, the Company recorded
a charge of $514,000 (net of a deferred tax benefit of $319,000), consisting of
a provision for estimated loss on disposition of Hitech's assets and a provision
for estimated operating losses through the expected time of disposition.
(continued)
F-13
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 7) - DISCONTINUED OPERATIONS: (continued)
[b] (continued)
Results from discontinued operations related to Hitech are as follows:
Year Ended July 31,
-------------------
1994 1993
---- ----
Net revenue . . . . . . . . . . $3,503,000
==========
(Loss) from operations
before income taxes. . . . . $ (463,000)
Income tax benefit. . . . . . . 177,000
----------
(Loss) from operations. . . . . (286,000)
Provision for loss on
disposal . . . . . . . . . . (833,000)
Income tax benefit. . . . . . . $ 423,000
Deferred income tax . . . . . . (319,000) 319,000
--------- ----------
Income (loss) from
discontinued
operations . . . . . . . . . $ 104,000 $ (800,000)
========= ==========
(NOTE 8) - Acquisitions:
See Note 1[a] for acquisition subsequent to year end.
In April and June 1994, the Company, through a newly formed wholly owned
subsidiary purchased certain assets of two companies engaged in providing
outpatient medical services in Volusia County, Florida for an aggregate purchase
price of $147,000.
In March 1995, the Company purchased certain assets of a company engaged in
home health care services for an aggregate purchase price of $250,000.
(continued)
F-14
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 8) - ACQUISITIONS: (continued)
The purchase price for the above acquisitions were allocated as follows:
1995 1994
Acquisition Acquisition
Furniture and equipment. . . . . . . . $ 25,000 $ 57,000
Excess of cost over fair value of
net assets of businesses acquired . 5,000
Covenant not to compete. . . . . . . . 200,000 85,000
Personnel files. . . . . . . . . . . . 25,000
--------
T o t a l. . . . . . . . . . $250,000 $147,000
========= ========
The above acquisitions have been accounted for utilizing purchase
accounting principles. Accordingly, the results of operations of the acquired
companies are included in the Company's consolidated statements of operations
since the dates of acquisition.
Had the operations of the company acquired in 1994 been acquired as of
August 1, 1992 and had the operations of the company acquired in 1995 been
acquired as of August 1, 1993, there would have been no material effect on the
consolidated operations of the Company for the years ended July 31, 1995, July
31, 1994 and July 31, 1993.
(NOTE 9) - INCOME TAXES:
The provision for income taxes for 1995, 1994 and 1993 applicable to
continuing operations is summarized as follows:
Year Ended July 31,
------------------------------
1995 1994 1993
---- ---- ----
Current:
Federal . . . . . $ 515,000 $ 688,000 $ 673,000
State . . . . . . 491,000 409,000 412,000
----------- ----------- ----------
1,006,000 1,097,000 1,085,000
Deferred . . . . . . 120,000 (20,000) (14,000)
----------- ----------- ----------
T o t a l . . . $1,126,000 $1,077,000 $1,071,000
=========== =========== ==========
(continued)
F-15
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - INCOME TAXES: (continued)
Deferred income taxes reflect the tax impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. The principal items
making up the deferred income tax expenses (benefit) are as follows:
Year Ended July 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
State tax . . . . . . $120,000 $(20,000)
Depreciation. . . . . $(14,000)
--------- --------- ---------
$120,000 $(20,000) $(14,000)
========= ========= =========
The deferred tax assets as of July 31, 1995, are as follows:
Assets
---------
Accrued liability and reserves. . . . . . . $ 80,000
State net operating loss carryforwards. . . 348,000
---------
428,000
Valuation allowance . . . . . . . . . . . . (348,000)
---------
$ 80,000
=========
Two subsidiaries of the Company have incurred losses which can be used to
offset their state taxable income through 2010. Total net operating losses
applicable to New York State and Florida amount to approximately $7,700,000 and
$3,700,000, respectively.
(continued)
F-16
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - INCOME TAXES: (continued)
The reconciliation of the statutory tax rate to the effective tax rate for
the three years ended July 31, 1995 is as follows:
Year Ended July 31,
------------------
1995 1994 1993
---- ---- ----
Statutory rate . . . . . . . . 34% 34% 34%
State and local taxes (net of
federal tax effect) . . . . 12 12 11
Federal tax credit . . . . . . (5)
Other. . . . . . . . . . . . . 3 1
--- --- ---
Effective rate . . . . . . . . 44% 47% 45%
=== === ===
In 1995, the Company and the New York State Department of Taxation and
Finance entered into a Stipulation of Discontinuance regarding all open taxable
years for which the Company previously had been assessed. In consideration for a
payment of approximately $333,000, this matter was settled. The Company
previously established a provision to cover the payment and interest.
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 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.
(NOTE 10) - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS:
Most of the Company's business is with customers and governmental agencies
who are in the health care industry.
The Company provides temporary health care personnel to in-home patients in
the New York City metropolitan area and outpatient services in Florida. Credit
losses relating to customers historically have been minimal and within
management's expectations.
(continued)
F-17
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 10) - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS:
(continued)
At July 31, 1995, the Company maintained approximately 58% of its cash and
cash equivalents with one financial institution.
Under certain third party contracts the Company received revenues
approximating, $3,125,000, $3,427,000 and $3,762,000 for the years ended July
31, 1995, 1994 and 1993, respectively, from a governmental agency and,
$9,933,000, $7,842,000 and $6,188,000 for the years ended July 31, 1995, 1994
and 1993, respectively, from a private company. At July 31, 1995 the Company had
an outstanding receivable from the private company of $2,473,000.
(NOTE 11) - STOCK OPTION PLAN:
In 1992, the stockholders approved the 1992 Stock Option Plan (the "1992
Plan") designed to provide an incentive to key employees (including directors
and officers who are key employees) and to Directors who are not employees of
the Company. The 1992 Plan authorizes the granting of both incentive and
nonqualified stock options to purchase up to 500,000 shares of the Company's
common stock.
The 1992 Plan is administered by the Compensation Committee which has the
authority to determine when options are granted, the term during which an option
may be exercised (provided no option has a term exceeding ten years), the
exercise price and the exercise period. The exercise price shall generally not
be less than the fair market value on the date of grant. No option may be
granted under the 1992 Plan after August 16, 2002.
During 1995, 283,502 options previously granted under another stock option
plan were cancelled upon termination of that plan and replaced with 283,502
options granted under the 1992 Plan.
At July 31, 1995, 497,000 shares of the Company's common stock have been
reserved for future issuance pursuant to the 1992 Plan.
(continued)
F-18
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 11) - Stock Option Plan: (continued)
Listed below is a summary of stock option activity for the three
years ended July 31, 1995.
Number of Shares Exercise
1995 1994 1993 Price
--------- -------- -------- ---------
Outstanding -
beginning of
period . . . . . . 300,502 313,502 196,000 $2.63 - $4.75
Options granted . . . 286,502 120,002 2.63 - 4.15
Options exercised . . (3,000) 2.63
Options forfeited . . (288,502) (13,000) (2,500) 2.63 - 4.75
--------- -------- -------
Options
outstanding. . . . 295,502 300,502 313,502 2.63 - 4.75
========= ======== =======
Options
exercisable. . 295,502 300,502 262,627
========= ======== =======
(NOTE 12) - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
[a] The Company has an Employee Savings and Stock Investment Plan organized
under Section 401(k) of the Internal Revenue Code. Under the plan, employees may
contribute up to 10% of their salary into the plan, limited to the maximum
amount allowable under federal tax regulations. The Company will match employee
contributions invested in Company common stock up to 5% of the employee's salary
and may also make additional contributions at its discretion. In addition to
investing in Company stock, an employee may invest in several mutual funds. The
Company's contribution for each of the years ended July 31, 1995, July 31, 1994
and July 31, 1993 was $59,000, $74,000 and $99,000, respectively.
[b] The Company and its subsidiaries have employment agreements with five
officers which provide for aggregate annual salaries of $681,000. The employment
agreements expire through April 1998. One of the agreements provides for
additional compensation of up to $150,000 based on 5% of pre-tax income, as
defined, in excess of $3,000,000.
[c] The Company rents various medical and office facilities through 1999
under the terms of several lease agreements which include escalation clauses.
(continued)
F-19
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE 12) - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
(continued)
At July 31, 1995, minimum annual rental commitments under noncancellable
operating leases are as follows:
Year Ending
July 31,
-----------
1996. . . . . . . . . . . . . $585,000
1997. . . . . . . . . . . . . 176,000
1998. . . . . . . . . . . . . 99,000
1999. . . . . . . . . . . . . 26,000
--------
T o t a l . . . . . $886,000
========
Rent expense (including discontinued operations) for the years ended July
31, 1995, 1994 and 1993 was approximately $584,000, $859,000 and $1,066,000,
respectively.
One lease is with a company controlled by the Company's Chief Executive
Officer. Rent expense under such lease approximates $108,000 per year.
[d] The Company has a line of credit with its bank totalling $2,000,000
available until November 30, 1995. Advances against the line are to be
collateralized by the assets of the Company. At July 31, 1995 the Company has no
outstanding balance under the line of credit.
[e] The Company is party to certain claims arising in the ordinary course
of business. In the opinion of management, all such claims are without merit or
involve amounts which would not have a significant adverse effect on the
financial position of the Company.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
Board of Directors and Stockholders
National Home Health Care Corp.
New York, New York
The audits referred to in our report dated October 6, 1995 on the
consolidated financial statements of National Home Health Care Corp. and
subsidiaries, which appears in Part II, includes Schedule II for each of the
years in the three-year period ended July 31, 1995. In our opinion, such
schedule presents fairly the information set forth therein in compliance with
the applicable accounting regulation of the Securities and Exchange Commission.
Richard A. Eisner & Company, LLP
New York, New York
October 6, 1995
F-21
<PAGE>
SCHEDULE II
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1995, JULY 31, 1994 AND JULY 31, 1993
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance (1) (2)
at Charged to Balance
beginning Charged to other at
of costs and accounts - Deductions - end of
Description period expenses describe describe period
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1995:
Reserve and allowance deducted from
asset account and allowance for
uncollectible accounts . . . . . . . . $84,000 $173,000 $(158,000) (1) $99,000
======== ========= ========== =======
Year ended July 31, 1994:
Reverse and allowance deducted from
asset account and allowance for
uncollectible accounts . . . . . . . . $54,000 $141,000 $(111,000) (1) $84,000
======== ========= ========== =======
Year ended July 31, 1993:
Reserve and allowance deducted from
asset account and allowance for
uncollectible accounts . . . . . . . . $74,000 $ 76,000 $ (96,000) (1) $54,000
======== ========= ========== =======
</TABLE>
(1) Represents actual write-offs.
See accompanying notes to financial statements.
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NATIONAL HOME HEALTH CARE CORP.
By:/S/ ROBERT P. HELLER
----------------------------
Robert P. Heller
Vice President of Finance and
Chief Financial Officer
Dated: March 22, 1996
<PAGE>
Commission File No. 0-12927
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
AMENDMENT NO. 2
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED JULY 31,1995
NATIONAL HOME HEALTH CARE CORP.
<PAGE>
<TABLE>
Exhibit
Number Exhibit to this Report Method of Filing Page No.
- ------- ---------------------- ---------------- --------
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference to
of the Registrant Exhibit 3(a) to Registration
Statement on Form S-1 (No.2-86643)
filed September 20, 1983 (the "1983
Registration Statement").
3.2 Certificate of Amendment to Incorporated by reference to
Certificate of Incorporation Exhibit 3.2 to the Registrant's
of the Registrant Annual Report on Form 10-K for the
year ended July 31, 1992 (the "1992
Form 10-K").
3.3 By-Laws of the Registrant Incorporated by reference to
Exhibit 4(a) to the 1983
Registration Statement.
4.1 Specimen Stock Certificate Incorporated by reference to
Exhibit 4(a) to the 1983
Registration Statement.
10.1 1992 Stock Option Plan Incorporated by reference to
of the Registrant Exhibit 10.1 to the Registrant's
Annual Report on Form 10-K for the
year ended July 31, 1993 (the "1993
Form 10-K).
10.2 Incentive Stock Option Plan Incorporated by reference to
of the Registrant Exhibit 10(b) to the 1983 Registration
Statement.
10.3 Agreement between Allen Incorporated by reference to
Health Care and VNS Home Care Exhibit 10.3 to the Registrant's
dated January 1, 1994 Annual Report on Form 10-K for the
year ended July 31, 1994
(the "1994 Form 10-K").
-2-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing Page No.
- ------- ---------------------- ---------------- --------
10.4 Agreement between Boro Incorporated by reference to
Medical Corp. and Brevard Exhibit 10.25 to the Report on
Medical Center dated Form 10- K for the year ended July
September 11, 1991 31, 1991 (the "1991 Form 10-K").
10.5 Employment Agreement Incorporated by reference to
between the Registrant and Exhibit 10.7 to the 1993 Form 10-K.
Steven Fialkow dated August 1993
10.6 Employment Agreement Incorporated by reference to
between the Registrant and Exhibit 10.8 to the 1993 Form 10-K.
Richard Garofalo dated
August 1993
10.7 Employment Agreement Incorporated by reference to
between the Registrant and Exhibit 10.9 to the 1993 Form 10-K
Gerald Kline dated
August 1993
10.8 Employment Agreement Incorporated by reference to
between the Registrant and Exhibit 10.10 to the 1993 Form 10-K.
Thomas Smith dated
August 1993
10.9 Employment Agreement Incorporated by reference to
between the Registrant and Exhibit 10.9 to the
Robert Heller dated 1994 Form 10-K.
August 1994
10.10 Agreement between Division Incorporated by reference to
of Social Services of County Exhibit 10.35 to the
of Suffolk and Health 1991 Form 10-K.
Acquisition Corp. d/b/a A
Round The Clock Temporary
Services
-3-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing Page No.
- ------- ---------------------- ---------------- --------
10.11 Agreement between Nassau Incorporated by reference to
County Department of Social Exhibit 10.9 to the
Services and Allen Health 1992 Form 10-K.
Care
10.12 Agreement between Catholic Incorporated by reference to
Medical Center of Brooklyn Exhibit 10.14 to the
and Queens, Inc. on behalf of 1994 Form 10-K.
Mary Immaculate Hospital
Home Health Agency and
Allen Health Care, dated
January 1, 1994
10.13 Letter Agreement dated Previously filed.
March 15, 1995 providing
secured line of credit
from The Bank of New York
10.14 Letter dated June 1, 1992 Incorporated by reference to
from Public Health Council of Exhibit 10.13 to the
the State of New York Department 1992 Form 10-K.
of Health to Health Acquisition
Corp. d/b/a Allen Health Care
10.15 Employment Agreement Incorporated by reference to
between the Registrant and Exhibit 10.20 to the
Frederick H. Fialkow dated 1993 Form 10-K.
April 30, 1993; First
Amendment to Employment
Agreement dated August 1,
1993
10.16 Letter from Joint Commission Incorporated by reference to
on Accreditation of Healthcare Exhibit 10.24 to the
Organizations awarding 1993 Form 10-K.
accreditation to Allen Health
Care, dated September 20, 1993
-4-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing Page No.
- ------- ---------------------- ---------------- --------
10.17 1993 401(k) Plan of the Incorporated by reference to
Registrant Exhibit 10.25 to the 1993 Form 10-K.
10.18 Letter Agreement between Incorporated by reference to
National HMO (New York), Exhibit 10.26 to the
Inc. and Boro Medical, P.C. 1993 Form 10-K.
dated November 12, 1993
10.19 Asset Purchase Agreement Incorporated by reference to
among National HMO (New Exhibit 10.24 to the
York), Inc., National HMO 1994 Form 10-K.
Corp. of Elizabeth, Inc., Boro
Medical, P.C. and Boro
Health Care of Union, P.C.
dated April 30, 1994
10.20 Asset Purchase Agreement Incorporated by reference to
between First Health, Inc. and Exhibit 10.25 to the
Healthmart P.A. and Cesar N. 1994 Form 10-K.
Abiera, Jr., M.D. dated April
29, 1994
10.21 Asset Purchase Agreement Incorporated by reference to
between First Health, Inc. and Exhibit 10.26 to the
Atlantic Medical Associates, 1994 Form 10-K.
P.A. and Ernest Cook, Jr.,
M.D. dated June 1, 1994
10.22 Agreement for the Purchase Incorporated by reference to
of the Stock of Nurse Care, Exhibit 10.1 to the Registrant's
Inc. and Related Transaction. Current Report on Form
8-K dated August 4, 1995.
10.23 Employment Agreement between Incorporated by reference to
New England and Arleen O'Connell Exhibit 10.2 to the Registrant's
dated as of August 11, 1995. Current Report on Form 8-K
dated August 4, 1995.
-5-
<PAGE>
Exhibit
Number Exhibit to this Report Method of Filing Page No.
- ------- ---------------------- ---------------- --------
10.24 Form of Employment Previously filed.
Agreement between Brevard
Medical Center, Inc. and
Warren D. Stowell dated as
of November 1, 1995.
22.1 List of Subsidiaries Previously filed.
23.1 Consent of Richard A. Eisner Filed herewith.
& Co.
</TABLE>
-6-
RICHARD A. EISNER & COMPANY, LLP
[Letterhead]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
of National Home Health Care Corp. on Form S-8, Registration No. 33-61315
pertaining to the 1992 Stock Option Plan and the 1993 401(k) Plan, as filed with
the Securities and Exchange Commission on July 26, 1995 of our report dated
October 6, 1995, with respect to the consolidated financial statements and
schedules of National Home Health Care Corp. and subsidiaries as at July 31,
1995 and July 31, 1994 and for each of the years in the three year period ended
July 31, 1995 included in its Annual Report on Form 10-K and as amended on Form
10-K/A, for the year ended July 31, 1995.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March 20, 1996
