SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 2000
----------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________to ______________
Commission file number 0-12927
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NATIONAL HOME HEALTH CARE CORP.
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(Exact name of Registrant as Specified in Its Charter)
Delaware 22-2981141
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
700 White Plains Road, Scarsdale, New York 10583
------------------------------------------------
(Address of Principal Executive Offices with Zip Code)
Registrant's Telephone Number Including Area Code: 914-722-9000
------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes ____No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of June 14, 2000 was
4,969,908.
<PAGE>
NATIONAL HOME HEALTH CARE CORP.
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2000
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of April 30, 2000
and July 31, 1999 (unaudited) 3-4
Consolidated Statements of Operations for the three
months ended April 30, 2000 and April 30, 1999 and
the nine months ended April 30, 2000 and April 30,
1999 (unaudited) 5
Consolidated Statements of Cash Flows for the nine
months ended April 30, 2000 and April 30, 1999
(unaudited) 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
April 30, 2000 July 31, 1999
-------------- -------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $4,817,000 $7,442,000
Investments 18,000 178,000
Accounts receivable-less allowance
for doubtful accounts of
$635,000 at April 30, 2000
and $392,000 at July 31, 1999 15,370,000 10,459,000
Income taxes receivable ------ 110,000
Prepaid expenses and other assets 286,000 181,000
Deferred taxes 417,000 417,000
---------- ----------
Total current assets 20,908,000 18,787,000
Furniture, equipment and leasehold
improvements, net 810,000 543,000
Excess of cost over fair value of net assets of
businesses acquired, net 7,098,000 5,334,000
Other intangible assets, net 1,330,000 1,239,000
Deposits and other assets 186,000 189,000
---------- ----------
TOTAL $30,332,000 $26,092,000
=========== ===========
</TABLE>
(continued)
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<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
April 30, 2000 July 31, 1999
-------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable and accrued expenses $ 1,735,000 $ 1,079,000
Estimated third-party payor settlements 312,000 -------
Income taxes payable 343,000 -------
--------------- ------------------
Total current liabilities 2,390,000 1,079,000
--------------- ------------------
Stockholders' equity:
Common stock, $.001 par value; authorized
20,000,000 shares, issued 6,228,746 shares 6,000 6,000
Additional paid-in capital 18,525,000 18,525,000
Retained earnings 11,510,000 8,183,000
--------------- ------------------
30,041,000 26,714,000
Less treasury stock (1,225,328 and 1,124,936 shares)
at cost (2,099,000) (1,701,000)
--------------- ------------------
Total stockholders' equity 27,942,000 25,013,000
--------------- ------------------
TOTAL $30,332,000 $26,092,000
===================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
April 30, April 30,
----------------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net patient revenue $15,245,000 $9,645,000 $39,780,000 $28,872,000
----------- ---------- ----------- -----------
Operating expenses:
Cost of revenue 9,647,000 6,238,000 25,416,000 18,884,000
General and administrative 3,859,000 2,741,000 10,147,000 7,667,000
Bad debt expense 235,000 ----- 470,000 -----
Amortization of intangibles 170,000 142,000 479,000 409,000
----------- ---------- ----------- -----------
Total operating expenses 13,911,000 9,121,000 36,512,000 26,960,000
----------- ---------- ----------- -----------
Income from operations 1,334,000 524,000 3,268,000 1,912,000
Other income (loss):
Interest income 47,000 95,000 168,000 290,000
Gain resulting from sale of ----- ----- 1,602,000 -----
subsidiary stock
(Loss) from equity investee ----- ----- ----- (674,000)
----------- ---------- ----------- -----------
Income before taxes 1,381,000 619,000 5,038,000 1,528,000
Provision for income taxes 604,000 199,000 1,711,000 837,000
----------- ---------- ----------- -----------
NET INCOME $777,000 $420,000 $3,327,000 $ 691,000
=========== ========== =========== ===========
Net income per share:
Basic $0.16 $0.08 $0.66 $0.13
=========== ========== =========== ===========
Diluted $0.15 $0.08 $0.66 $0.13
=========== ========== =========== ===========
Weighted average shares outstanding:
Basic 5,010,892 5,148,647 5,046,232 5,178,124
Diluted 5,024,117 5,239,987 5,050,640 5,257,145
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended April 30,
-----------------------------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $ 3,327,000 $ 691,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 639,000 502,000
Gain resulting from sale of subsidiary stock (1,602,000) -----
Provision for doubtful accounts 243,000 -----
Loss from equity investee ----- 674,000
Gain on sale of assets (6,000) (3,000)
Changes in:
Accounts receivable (2,904,000) (1,186,000)
Income taxes receivable/payable 453,000 93,000
Prepaid expenses and other assets (102,000) 139,000
Accounts payable, accrued expenses and other liabilities 656,000 67,000
Estimated third party payor settlements 312,000 93,000
----------------- ----------------
Net cash provided by operating activities 1,016,000 1,070,000
----------------- ----------------
Cash flows from investing activities:
Proceeds from sale of subsidiary stock 1,602,000 -----
Proceeds of investments 160,000 175,000
Purchase of property, plant and equipment (225,000) (127,000)
Purchase of assets of business (4,790,000) (1,943,000)
Purchase of Accredited Health Services, Inc., net of cash acquired ----- (1,733,000)
Proceeds from sale of assets 10,000 6,000
----------------- ----------------
Net cash (used in) investing activities (3,243,000) (3,622,000)
----------------- ----------------
Cash flows from financing activities:
Purchase of treasury shares (398,000) (355,000)
Repayment of notes payable ----- (421,000)
----------------- ----------------
Net cash (used in) financing activities (398,000) (776,000)
------------------ -----------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,625,000) (3,328,000)
Cash and cash equivalents-beginning of period 7,442,000 10,992,000
----------------- ----------------
CASH AND CASH EQUIVALENTS-END OF PERIOD $ 4,817,000 $ 7,664,000
================= ================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Taxes $ 1,275,000 $ 605,000
Interest 2,000 -----
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
April 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending July 31, 2000. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended July 31, 1999.
NOTE 2 - INITIAL PUBLIC OFFERING OF SUNSTAR HEALTHCARE, INC.
On May 21, 1996, the initial public offering of common stock by SunStar
Healthcare, Inc. ("SunStar") was consummated. SunStar, formerly a wholly owned
subsidiary of the Company, had comprised the Company's Florida outpatient
medical center operations. During the nine months ended April 30, 2000, the
Company sold 259,510 shares of SunStar with sales proceeds approximately
$1,602,000. The Company currently owns approximately 21.6% of SunStar and has
been utilizing the equity method of accounting for its investment in SunStar. As
of April 30, 2000, the Company's carrying value of its investment in SunStar is
$0.
On February 2, 2000, SunStar issued a press release stating that the
Florida Department of Insurance has taken over SunStar's main subsidiary due to
significant deficiencies in statutory capital and will liquidate it immediately
thereafter.
NOTE 3 - ACQUISITIONS
On August 10, 1998, the Company, through its wholly owned subsidiary
Health Acquisition Corp. ("Health Acquisition"), acquired, for $1,943,000 in
cash, including acquisition costs of $8,000, certain assets of Bryan Employment
Agency, Inc., d/b/a Bryan Home Care Services ("Bryan Home Care"), a New York
licensed home health care company which provides home care services in
Westchester County, New York. The acquisition was accounted for as a purchase
and the cost was allocated as follows: $285,000 to personnel files, $285,000 to
patient files, $30,000 to furniture and equipment, $200,000 to covenant not to
compete and $1,143,000 to excess of cost over fair value of net assets of
businesses acquired. The purchase price was generated from internal funds. The
acquisition expanded the geographic presence of the Company and enabled Health
Acquisition to become a participating provider in the Westchester County
Department of Social Services Medicaid Program. Annual revenues for Bryan Home
Care approximated $5,700,000 in calendar 1997.
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<PAGE>
On November 1, 1998, the Company acquired all of the outstanding common
shares of Accredited Health Services, Inc. ("Accredited"). Accredited is a
licensed home health care company that provides home health aide services in
Bergen, Hudson, Passaic, Essex, Morris, Union, Somerset and Middlesex Counties,
New Jersey. The purchase price of approximately $1,949,000 in cash, including
acquisition costs of $85,000, was generated from internal funds. The acquisition
was accounted for as a purchase. The allocation of purchase price was as
follows: $1,119,000 to total current assets, $59,000 to furniture and equipment,
$40,000 to other assets, $550,000 to total current liabilities, $4,000 to other
liabilities and $1,285,000 to the excess of purchase price over the fair value
of assets acquired. Revenues from Accredited approximated $5,300,000 for the
fiscal year ended March 31, 1998.
On November 1, 1999, the Company acquired, through wholly owned
subsidiaries in Connecticut, certain assets of Optimum Care Services of
Connecticut, Inc., Optimum Home Health of Connecticut, Inc. and Optimum Home
Care of Connecticut, Inc. (the "Optimum entities"). The assets were acquired
from a court-appointed Chapter 7 Trustee for a purchase price of $4,490,000 in
cash, including acquisition costs of $90,000, which amount was generated from
internal funds of the Company. The final purchase price was determined through
an auction process conducted at the Untied States Bankruptcy Court for the
District of Massachusetts. The assets acquired included certain, but not all,
machinery, equipment intangibles and accounts receivable and was allocated as
follows: $2,250,000 to accounts receivable, $205,000 to furniture and equipment
and $2,035,000 to excess of cost over fair value of net assets of business
acquired. The acquisition represented the Company's opportunity to expand its
Connecticut operations into additional areas in the state. The Company is
operating the acquired assets under the Company's pre-existing subsidiary in
Connecticut, New England Home Care, Inc, ("New England"), and a recently formed
subsidiary, Connecticut Staffing Works Corp. ("Ct. Staffing").
The Optimum Entities had been engaged in the business of providing home
health care, staffing and related services in Connecticut, including a Medicare
certified and licensed home health care agency and an affiliate providing
staffing services.
On April 14, 2000, the Company acquired, through a wholly owned
subsidiary, certain assets of the Connecticut operations of U.S. HomeCare Corp.
("U.S. HomeCare-Connecticut") for $300,000 in cash. The acquisition was
accounted for as a purchase and the cost was allocated as follows: $150,000 to
personnel files and $150,000 to patient files. The purchase price was generated
from internal funds of the Company. The acquisition complemented the Company's
existing operations in the state of Connecticut. Revenues of U.S.
HomeCare-Connecticut approximated $3,500,000 in 1999.
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<PAGE>
NOTE 4 - PER SHARE DATA
<TABLE>
<CAPTION>
For the three months ended
April 30,
--------------------------
2000 1999
---- ----
Income Shares Income Shares
------ ------ ------ ------
Basic EPS:
<S> <C> <C> <C> <C>
Net income $ 777,000 5,010,892 $420,000 5,148,647
Effect of dilutive securities -
common stock options ----- 13,255 ----- 91,340
---------- --------- -------- ---------
Diluted EPS $ 777,000 5,024,117 $420,000 5,239,987
========== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended
April 30,
--------------------------
2000 1999
---- ----
Income Shares Income Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic EPS:
Net income $3,327,000 5,046,232 $691,000 5,178,124
Effect of dilutive securities -
common stock options ----- 4,408 ----- 79,021
---------- --------- -------- ---------
Diluted EPS $3,327,000 5,050,640 $691,000 5,257,145
========== ========= ======== =========
</TABLE>
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<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the attached consolidated financial
statements and notes thereto for the fiscal year ended July 31, 1999.
This discussion contains forward-looking statements that are subject to
a number of known and unknown risks that, in addition to general economic,
competitive and other business conditions, could cause actual results,
performance and achievements to differ materially from those described or
implied in the forward-looking statements.
The Company is subject to significant external factors that could
significantly impact its business, including changes in Medicare and Medicaid
reimbursement, government fraud and abuse initiatives and other such factors
that are beyond the control of the Company. These factors, as well as future
changes in reimbursement, could cause future results to differ materially from
historical results.
The Balanced Budget Act of 1997, as amended (the "Act"), was signed
into law on August 5, 1997. Under the Act, for cost reports beginning on or
after October 1, 1997, Medicare-reimbursed home health agencies are currently
reimbursed under an interim payment system ("IPS") for a two-year period prior
to the implementation of a prospective payment system. Under IPS, home health
care providers are reimbursed the lower of (i) their actual costs, (ii) cost
limits based on 105% of median costs of freestanding home health agencies, or
(iii) an agency-specific per patient cost limit, based on 98% of 1994 costs
adjusted for inflation. Prior to the implementation of IPS, Medicare reimbursed
providers on a reasonable cost basis subject to program-imposed cost per visit
limitations. The Act calls for payments to Medicare providers for cost reporting
periods beginning on or after October 1, 2000 to be made in accordance with a
prospective payment system to be established by the Secretary of the Department
of Health and Human Services.
The new IPS cost limits were applied to the Company's Connecticut-based
Medicare certified nursing agency for the cost reporting period beginning July
1, 1998. The Company determined that these new limits would reduce reimbursement
for the Medicare services it provides. Accordingly, in May 1998, the Company
combined its operations in Connecticut by merging its Medicare certified
subsidiary with its licensed agency subsidiary to increase operational
efficiencies.
The implementation of IPS has resulted in a decrease in Medicare
revenue from the Company's Medicare certified agency. In addition, the Company's
operations in New York and New Jersey are dependent upon referrals, primarily
from Medicare certified home health care agencies, whose reimbursement has been
adversely affected. Accordingly, there can be no
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<PAGE>
assurance that the Company's future referrals will not result in reduced
reimbursement rates or reduced volume of business.
Results of Operations and Effects of Inflation
----------------------------------------------
Three Months Ended April 30, 2000 Compared to Three Months Ended April 30, 1999
For the three months ended April 30, 2000, net patient revenue
increased $5,600,000, or 58.1%, to $15,245,000 from $9,645,000 for the three
months ended April 30, 1999. This increase is attributable to $5,970,000 of net
patient revenue realized from the expansion of the Company's operations in
Connecticut through the opportunity represented by the liquidation of the
Optimum Entities, the acquisition on November 1, 1999 of certain assets of the
Optimum Entities from the bankruptcy trustee and the successful penetration of
the available market share, offset by the decline in same source net patient
revenue of ($370,000). As a result of such expansion, net patient revenue from
New England, the subsidiary that is Medicare certified and licensed in the state
of Connecticut, increased $4,782,000, or 206.6%, to $7,097,000 for the three
months ended April 30, 2000 from $2,315,000 for the three months ended April 30,
1999. To a lesser degree, net patient revenue generated from New England also
benefited from the acquisition on April 14, 2000 of certain assets of U.S.
HomeCare-Connecticut. Also as a result of such expansion, net patient revenue
from Ct. Staffing, the Company's new subsidiary that provides supplemental
staffing in the state of Connecticut, generated net patient revenue of
$1,188,000 for the three months ended April 30, 2000 as compared to $0 for the
three months ended April 30, 1999. Over the periods, net patient revenue from
Health Acquisition, the subsidiary providing home health care services in the
New York metropolitan area, decreased ($137,000), or (2.3%), to $5,885,000 from
$6,022,000. This decrease is attributable to the continued decline in hours,
and, in some cases, a decrease in reimbursement rates from the Medicare
certified home health care agencies that Health Acquisition contracts with, as a
result of the implementation of IPS. On October 26, 1999, Health Acquisition had
been notified by Visiting Nurse Service of New York that it would not continue
to subcontract home health aides from Health Acquisition commencing in the year
2000. Notwithstanding the previous notification, Health Acquisition has had its
contract renewed with Visiting Nurse Service of New York for one year. Net
patient revenue from Visiting Nurse Service of New York was $4,206,000 for the
nine months ended April 30, 2000 as compared to $4,638,000 for the comparable
period of 1999. Over the periods, net patient revenue from Accredited, the
subsidiary providing home health care services in the state of New Jersey,
decreased ($233,000), or (17.8%), to $1,075,000 from $1,308,000. This decrease
is attributable to the Company reducing certain geographic areas where it
provides home health aide services, as a result in both the decline in hours
from the Medicare certified agencies that Accredited contracts with, along with
the shortage of available home health aide workers to staff cases.
Cost of revenue as a percentage of net patient revenue decreased to
63.2% for the three months ended April 30, 2000 from 64.7% for the three months
ended April 30, 1999. This decrease is attributable to the higher reimbursement
rates generated from the expansion into the market previously served by the
Optimum Entities.
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<PAGE>
General and administrative expenses increased $1,118,000, or 40.9%, to
$3,859,000 for the three months ended April 30, 2000 from $2,741,000 for the
three months ended April 30, 1999. This increase is attributable to the
additional general and administrative expenses incurred in connection with the
expansion into the market previously served by the Optimum Entities. As a
percentage of net patient revenue, general and administrative expenses decreased
to 25.3% for the three months ended April 30, 2000 from 28.4% for the three
months ended April 30, 1999.
The Company recorded a provision of $235,000 in bad debt expense for
the three months ended April 30, 2000 as compared to $0 for the three months
ended April 30, 1999. As the Company does not have experience with many of the
new payor sources that it now contracts with as a result of the expansion into
the market previously served by the Optimum Entities, the Company has set up a
reserve against its accounts receivable. In addition, the Company has seen
increases in accounts receivable balances with many of the Medicare certified
agencies that it contracts with. Accordingly, the Company is reserving against
accounts receivable in the event that some of these accounts will have to be
written off. The Company is closely monitoring the credit terms being extended
these agencies.
Amortization of intangibles increased to $170,000 for the three months
ended April 30, 2000 from $142,000 for the three months ended April 30, 1999.
This increase is attributable to the acquisition of certain assets of the
Optimum Entities.
As a result of the foregoing, income from operations increased
$810,000, or 154.6%, to $1,334,000 for the three months ended April 30, 2000
from $524,000 for the three months ended April 30, 1999.
Interest income decreased (50.5%) to $47,000 for the three months ended
April 30, 2000 from $95,000 for the three months ended April 30, 1999. This
decrease is attributable to the cash used in investing activities resulting from
the acquisition of certain assets of the Optimum Entities and U.S.
HomeCare-Connecticut.
The Company's effective tax rate increased to 43.7% for the three
months ended April 30, 2000 from 32.1% for the three months ended April 30,
1999. This increase is the result of a benefit recorded in the three months
ended April 30, 1999 for an overaccrual of taxes recorded in fiscal 1998.
Nine Months Ended April 30, 2000 Compared to Nine Months Ended April 30, 1999.
For the nine months ended April 30, 2000, net patient revenue increased
$10,908,000, or 37.8%, to $39,780,000 from $28,872,000 for the nine months ended
April 30, 1999. This increase is attributable to $12,092,000 of net patient
revenue realized from the expansion of the Company's operations in Connecticut
through the opportunity represented by the liquidation of the Optimum Entities,
the acquisition on November 1, 1999 of certain assets of the Optimum Entities
from the bankruptcy trustee and the successful penetration of the available
market share, offset by the decline in same source net patient revenue of
($1,184,000). As a result of such expansion, net patient revenue from New
England increased $8,855,000, or 120.8%, to
-12-
<PAGE>
$16,188,000 for the nine months ended April 30, 2000 from $7,333,000 for the
nine months ended April 30, 1999. Also, as a result of such expansion, net
patient revenue from Ct. Staffing was $2,488,000 for the nine months ended April
30, 2000 as compared to $0 for the nine months ended April 30, 1999. Over the
periods, net patient revenue from Health Acquisition decreased ($1,184,000), or
(6.3%) to $17,715,000 from $18,899,000. This decrease is explained in the above
three-month discussion. Over the periods, net patient revenue from Accredited
increased $749,000 to $3,389,000 from $2,640,000. This increase is attributable
to nine months revenue included in the current nine-month period as compared to
six months revenue in the prior nine-month period, as Accredited was acquired on
November 1, 1998.
Cost of revenue as a percentage of net patient revenue decreased to
63.9% for the nine months ended April 30, 2000 from 65.4% for the nine months
ended April 30, 1999. This decrease is attributable to the higher reimbursement
rates generated from the expansion into the market previously served by the
Optimum Entities.
General and administrative expenses increased $2,480,000, or 32.3%, to
$10,147,000 for the nine months ended April 30, 2000 from $7,667,000 for the
nine months ended April 30, 1999. This increase is attributable to the
additional general and administrative expenses incurred in connection with the
expansion into the market previously served by the Optimum Entities. As a
percentage of net patient revenue, general and administrative expenses decreased
to 25.5% for the nine months ended April 30, 2000 from 26.6% for the nine months
ended April 30, 1999.
The Company recorded a provision of $470,000 in bad debt expense for
the nine months ended April 30, 2000, as compared to $0 for the nine months
ended April 30, 1999. This increase is explained in the above three-month
discussion.
Amortization of intangibles increased to $479,000 for the nine months
ended April 30, 2000 from $409,000 for the nine months ended April 30, 1999.
This increase is attributable to the acquisition of the stock of Accredited and
the acquisitions of certain assets of the Optimum Entities.
As a result of the foregoing, income from operations increased
$1,356,000, or 70.9%, to $3,268,000 for the nine months ended April 30, 2000
from $1,912,000 for the nine months ended April 30, 1999.
Interest income decreased (42.0%) to $168,000 for the nine months ended
April 30, 2000 from $290,000 for the nine months ended April 30, 1999. This
decrease is attributable to cash used in investing activities resulting from the
acquisition of certain assets of the Optimum Entities and U.S.
HomeCare-Connecticut.
During the nine months ended April 30, 2000, the Company recorded a
gain on sale of subsidiary stock in the amount of $1,602,000 resulting from the
sale of 259,510 shares of SunStar. During the nine months ended April 30, 1999,
the Company recorded a loss from equity investee of ($674,000), representing the
Company's share of the net loss reported by SunStar for the same period.
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<PAGE>
The Company's effective tax rate decreased to 34.0% for the nine months
ended April 30, 2000 from 54.8% for the nine months ended April 30, 1999. This
decrease is attributable to the Company's share of SunStar's net loss, in which
no income tax benefit was recorded for the nine months ended April 30, 1999.
Excluding the gain on sale of subsidiary stock in the current nine-month period
and the tax effect of loss from equity investee in the prior period, the
effective tax rate increased to 44.6% for the nine months ended April 30, 2000,
as compared to 38.0% for the nine months ended April 30, 1999. This increase is
the result of a benefit recorded in the nine months ended April 30, 1999 for an
overaccrual of taxes recorded in fiscal 1998.
The rate of inflation had no material effect on operations for the nine
months ended April 30, 2000.
Financial Condition and Capital Resources
-----------------------------------------
Current assets increased to $20,908,000 and current liabilities
increased to $2,390,000, respectively, at April 30, 2000. This resulted in an
increase in working capital of $810,000, from $17,708,000 at July 31,1999 to
$18,518,000 at April 30, 2000. Cash and cash equivalents decreased ($2,625,000),
to $4,817,000 at April 30, 2000 from $7,442,000 at July 31, 1999. The decrease
in cash is primarily attributable to the acquisitions made by the Company of
certain assets of the Optimum Entities and U.S. HomeCare-Connecticut for an
aggregate purchase price of $4,790,000 in cash, offset by the proceeds from sale
of subsidiary stock in the amount of $1,602,000.
The Company provided net cash from operating activities of $1,016,000
for the nine months ended April 30, 2000 as compared to net cash provided by
operating activities of $1,070,000 for the nine months ended April 30, 1999. The
decrease in operating cash flow of ($54,000) is primarily attributable to the
net changes in current assets and current liabilities of ($794,000), offset by
the increase of $740,000 in cash flow from operations over the comparable period
of 1999. Net cash used in investing activities for the nine months ended April
30, 2000 reflects the acquisitions of certain assets of the Optimum Entities and
U.S. HomeCare-Connecticut and the purchase of equipment, offset by the proceed
from the sale of subsidiary stock, proceeds of investments and sale of assets.
Net cash used in investing activities for the nine months ended April 30, 1999
reflects acquisitions made by the Company and purchase of equipment, offset by
the proceeds of investments and sale of assets. Net cash used in financing
activities for the nine months ended April 30, 2000 reflects the purchase of
treasury shares. Net cash used in financing activities for the nine months ended
April 30, 1999, reflects the purchase of treasury shares and the repayment of
notes payable to the former officers of Accredited.
The Company has available a $2,000,000 secured line of credit with its
bank. In addition, a subsidiary of the Company has a secured line of credit. The
maximum amount that can be borrowed under the subsidiary's secured line of
credit may not exceed the lesser of eligible accounts receivable or $2,000,000.
Both credit facilities bear interest at the alternate base commercial lending
rate of the bank and expire January 31, 2001. At April 30, 2000, there was no
outstanding balances under either line of credit. The Company is currently
considering
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<PAGE>
increasing its credit facilities so that it may continue to make acquisitions in
the home health care field.
The Company intends to meet its short and long term liquidity needs
with its current cash balances, cash flow from operations and available lines of
credit.
The Company has continued for an additional year its program to
repurchase its Common Stock. Purchases in the aggregate amount of up to
$1,000,000 in purchase price during the one-year extension would be made from
time to time in the open market and through privately negotiated transactions,
subject to general market and other conditions. The buyback program will be
financed out of existing cash or cash equivalents.
Year 2000 Compliance
--------------------
The Year 2000 issue is the result of date-sensitive devices, systems
and computer programs that were deployed using two digits rather than four to
define the applicable year. Any such technologies may recognize a year
containing "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculation causing disruption of operations including,
among other things, a temporary inability to process transactions or engage in
similar normal business activities.
The Company did not experience any significant malfunctions or errors
in its information or business systems when the date changed from 1999 to 2000.
Based on its operations since January 1, 2000, the Company does not expect any
significant problems related to the Year 2000 issue. However, it is possible
that the full impact of the date change has not been fully recognized. For
example, it is possible that Year 2000 or similar issues, such as leap-year
related problems, may occur with financial closings. The Company believes that
any such problems will be minor and easily corrected. In addition, the Company
could still be negatively impacted if the Year 2000 or similar issues adversely
affect its customers or suppliers. Currently, the Company is not aware of any
significant Year 2000 or similar problems that have arisen with its customers or
suppliers.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
---------------------------------------------------------------------
Except for historical information contained in this report on Form
10-Q, certain matters set forth herein are forward-looking statements that are
dependent on certain risks and uncertainties, including such factors, among
others, as market acceptance, market demand pricing, changing regulatory
environment, changing economic conditions, risks in new product and service
development, the effect of the Company's accounting policies, risks in
connection with acquisitions and other risks detailed in the Company's filings
with the Securities and Exchange Commission.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Several class action complaints have been filed in the United
States District Court for the Middle District of Florida against the Company,
its directors who were directors of SunStar and another party. In addition, the
Company understands that related complaints have been filed against SunStar and
its management. These complaints assets claims under the Securities Exchange Act
of 1934 relating to SunStar and its subsidiary, SunStar Health Plans, Inc. (the
"HMO"), which is presently in liquidation. It is alleged in the complaints that
during the proposed class period, SunStar made material misstatements of fact or
omitted to disclose material information concerning the adequacy of reserves
maintained by the HMO, its estimates of outstanding and future medical claims
and delays in the processing of claims. The complaints against the Company and
its directors are based on the allegation that the Company and those directors
influenced the alleged conduct of SunStar. The company believes that the
complaints are without merit and intends to vigorously defend them.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
National Home Health Care Corp.
Date: June 14, 2000 /s/ Robert P. Heller
----------------------------
Robert P. Heller
Vice President of Finance and
Chief Financial Officer
(chief financial and accounting officer)
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