SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 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
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(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 March 14, 2000 was
5,010,858.
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NATIONAL HOME HEALTH CARE CORP.
FORM 10-Q
FOR THE QUARTER ENDED JANUARY 31, 2000
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<CAPTION>
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheets as of January 31, 2000
and July 31, 1999 (unaudited) 3-4
Consolidated Statements of Operations for the three months ended
January 31, 2000 and January 31, 1999 and the six months
ended January 31, 2000 and January 31, 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the six months ended
January 31, 2000 and January 31, 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
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<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
January 31, 2000 July 31, 1999
---------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $4,527,000 $7,442,000
Investments 18,000 178,000
Accounts receivable - less allowance for doubtful
accounts of $609,000 at January 31, 2000 and
$392,000 at July 31, 1999 14,767,000 10,459,000
Income taxes receivable ---- 110,000
Prepaid expenses and other assets 364,000 181,000
Deferred taxes 417,000 417,000
------------ ------------
Total current assets 20,093,000 18,787,000
Furniture, equipment and leasehold
improvements, net 814,000 543,000
Excess of cost over fair value of net assets of
businesses acquired, net 7,197,000 5,334,000
Other intangible assets, net 1,101,000 1,239,000
Deposits and other assets 181,000 189,000
------------ ------------
TOTAL $29,386,000 $26,092,000
=========== ===========
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(continued)
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NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
January 31, 2000 July 31, 1999
---------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $1,801,000 $1,079,000
Estimated third-party payor settlements 224,000 ---
Income taxes payable 102,000 ---
----------- ----------
Total current liabilities 2,127,000 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 10,733,000 8,183,000
---------- ----------
29,264,000 26,714,000
Less treasury stock (1,202,578 and 1,124,936 shares) at cost (2,005,000) (1,701,000)
----------- -----------
Total stockholders' equity 27,259,000 25,013,000
---------- ----------
TOTAL $29,386,000 $26,092,000
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</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
For the three months ended For the six months ended
January 31, January 31,
--------------------------------- ------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net patient revenue $15,041,000 $10,022,000 $24,535,000 $19,227,000
----------- ----------- ----------- -----------
Operating expenses:
Cost of revenue 9,443,000 6,661,000 15,769,000 12,646,000
General and administrative 3,893,000 2,640,000 6,288,000 4,926,000
Bad debt expense 235,000 --- 235,000 ---
Amortization of intangibles 167,000 142,000 309,000 267,000
Total operating expenses 13,738,000 9,443,000 22,601,000 17,839,000
----------- ----------- ----------- -----------
Income from operations 1,303,000 579,000 1,934,000 1,388,000
Other income (loss):
Interest income 36,000 76,000 121,000 195,000
Gain resulting from sale of
subsidiary stock 659,000 --- 1,602,000 ---
(Loss) from equity investee --- (324,000) --- (674,000)
----------- ----------- ----------- -----------
Income before taxes 1,998,000 331,000 3,657,000 909,000
Provision for income taxes 539,000 246,000 1,107,000 38,000
----------- ----------- ----------- -----------
NET INCOME $1,459,000 $85,000 $2,550,000 $271,000
============ ============ ============== ==============
Net income per share:
Basic
$0.29 $0.02 $0.50 $0.05
============ ============ ============== ==============
$0.29 $0.02 $0.50 $0.05
============ ============ ============== ==============
Weighted average shares outstanding:
Basic 5,045,261 5,186,272 5,063,518 5,192,382
Diluted 5,051,394 5,264,730 5,069,822 5,265,243
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the six months ended January 31,
------------------------------------
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $2,550,000 $271,000
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 413,000 329,000
Gain resulting from sale of subsidiary stock (1,602,000) ---
Provisions for doubtful accounts 235,000 ---
Loss from equity investee --- 674,000
Changes in:
Accounts receivable (2,058,000) (1,589,000)
Income taxes receivable/payable (8,000) (157,000)
Prepaid expenses and other assets (191,000) (66,000)
Accounts payable, accrued expenses and other liabilities 722,000 240,000
Estimated third party payor settlements 224,000 (93,000)
------------- -------------
Net cash provided by (used in) operating activities 285,000 (391,000)
------------- ------------
Cash flows from investing activities:
Proceeds from sale of subsidiary stock 1,602,000 ---
Proceeds of investments 160,000 170,000
Purchase of property, plant and equipment (168,000) (62,000)
Purchase of assets of business (4,490,000) (1,913,000)
Purchase of Accredited Health Services, Inc. net of cash acquired --- (1,701,000)
------------- ------------
Net cash (used in) investing activities (2,896,000) (3,506,000)
------------- ------------
Cash flows from financing activities:
Purchase of treasury shares (304,000) (137,000)
Repayment of notes payable
--- (421,000)
------------- ------------
Net cash (used in) financing activities (304,000) (558,000)
------------- ------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,915,000) (4,455,000)
Cash and cash equivalents - beginning of period 7,442,000 10,992,000
------------- ------------
CASH AND CASH EQUIVALENTS-END OF PERIOD $4,527,000 $6,537,000
============= ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Taxes $894,000 $946,000
Interest 1,000 1,000
</TABLE>
See accompanying notes to consolidated financial statements.
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NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended
January 31, 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 six months ended January 31, 2000, the
Company sold 259,510 shares of SunStar with sales proceeds approximating
$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 January 31, 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 had taken over SunStar's main subsidiary due
to significant deficiencies in statutory capital and would 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 business acquired. The purchase price was generated from internal
funds of the Company. The acquisition expanded the geographic
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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 in calendar
1997.
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 of the Company.
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. (together, 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 United States Bankruptcy
Court for the District of Massachusetts. The assets acquired included certain,
but not all, machinery, equipment intangibles and accounts receivable and the
purchase price was allocated as follows: $2,250,000 to accounts receivable,
$250,000 to furniture and equipment and $2,035,000 to excess of cost over fair
value of net assets of the 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.
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NOTE 4 - PER SHARE DATA
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<CAPTION>
For the three months ended
January 31,
------------------------------------------------------------------------
2000 1999
---- ----
Income Shares Income Shares
<S> <C> <C> <C> <C>
Basic EPS:
Net income $1,459,000 5,045,261 $85,000 5,186,272
Effect of dilutive securities -
common stock options --- 6,133 --- 78,848
--------- --------- -------- ---------
Diluted EPS $1,459,000 5,051,394 $85,000 5,264,730
========== ========== ======== ==========
For the six months ended
January 31,
------------------------------------------------------------------------
2000 1999
---- ----
Income Shares Income Shares
Basic EPS:
Net income $2,550,000 5,063,518 $271,000 5,192,382
Effect of dilutive securities -
common stock options --- 6,304 --- 72,861
--------- --------- -------- -----------
Diluted EPS $2,550,000 5,069,822 $271,000 5,265,243
========== ========== ======== ===========
</TABLE>
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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, and with the Company's audited 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 will
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
reimbursement 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
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be no 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 January 31, 2000 Compared to Three Months Ended January 31,
1999
For the three months ended January 31, 2000, net patient revenue
increased $5,019,000, or 50%, to $15,041,000 from $10,022,000 for the three
months ended January 31, 1999. This increase is attributable to $5,648,000 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 the same source net patient
revenue of ($629,000). 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 $4,348,000, or 182.8%, to $6,726,000 for the three
months ended January 31, 2000 from $2,378,000 for the three months ended January
31, 1999. 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 $1,300,000 for the
three months ended January 31, 2000 as compared to $0 for the three months ended
January 31, 1999. Over the periods, net patient revenue from Health Acquisition,
the subsidiary providing home health care services in the New York metropolitan
area, decreased ($435,000) or (6.9%), to $5,877,000 from $6,312,000. 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. Over the periods, net patient revenue from Accredited,
the subsidiary providing home health care services in the state of New Jersey,
decreased ($194,000), or (14.6%) to $1,138,000 from $1,332,000. This decrease is
attributable to 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 62.8% for the three months ended January 31, 2000 from 66.5% for the three
months ended January 31, 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 $1,253,000, or
47.5%, to $3,893,000 for the three months ended January 31, 2000 from $2,640,000
for the three months ended January 31, 1999. This increase is attributable to
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 25.6% for the three months ended January 31, 2000 from 26.3% for the three
months ended January 31, 1999.
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The Company recorded a provision of $235,000 in bad debt expense
for the three months ended January 31, 2000 as compared to $0 for the three
months ended January 31, 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 $167,000 for the three
months ended January 31, 2000 from $142,000 for the three months ended January
31, 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
$724,000, or 125%, to $1,303,000 for the three months ended January 31, 2000
from $579,000 for the three months ended January 31, 1999.
Interest income decreased (52.6%) to $36,000 for the three months
ended January 31, 2000 from $76,000 for the three months ended January 31, 1999.
This decrease is attributable to the cash used in investing activities resulting
from the acquisition of certain assets of the Optimum Entities.
During the three months ended January 31, 2000, the Company
recorded a gain from the sale of subsidiary stock in the amount of $659,000
resulting from the sale of 113,103 shares of SunStar. During the three months
ended January 31, 1999, the Company recorded a loss from equity investee of
($324,000), representing the Company's share of the net loss reported by SunStar
for the same period.
The Company's effective tax rate decreased to 26.9% for the three
months ended January 31, 2000 from 74.3% for the three months ended January 31,
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 three months ended
January 31, 1999. Excluding the gain on sale of subsidiary stock in the current
three-month period and the tax effect of loss from equity investee in the prior
period, the effective tax rate increased to 45.6% for the three months ended
January 31, 2000, as compared to 37.6% for the three months ended January 31,
1999. This increase is attributable to higher state tax provisions in the
current three-month period.
Six Months Ended January 31, 2000 Compared to Six Months Ended January 31, 1999.
- --------------------------------------------------------------------------------
For the six months ended January 31, 2000, net patient revenue
increased $5,308,000, or 27.6%, to $24,535,000 from $19,227,000 for the six
months ended January 31, 1999. This increase is attributable to $6,356,000 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
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Entities from the bankruptcy trustee and the successful penetration of the
available market share, offset by the decline in the same source net patient
revenue of ($1,048,000). As a result of such expansion, net patient revenue from
New England increased $4,073,000, or 81.1%, to $9,092,000 for the six months
ended January 31, 2000 from $5,019,000 for the six months ended January 31,
1999. Also as a result of such expansion, net patient revenue from Ct. Staffing
was $1,300,000 for the six months ended January 31, 2000 as compared to $0 for
the six months ended January 31, 1999. Over the periods, net patient revenue
from Health Acquisition decreased ($1,048,000), or (8.9%) to $11,829,000 from
$12,877,000. This decrease is explained in the above three-month discussion.
Over the periods, net patient revenue from Accredited increased $983,000 to
$2,314,000 from $1,331,000. This increase is attributable to six months revenue
included in the current six-month period as compared to three months revenue in
the prior six-month period, as Accredited was acquired on November 1, 1998.
Cost of revenue as a percentage of net patient revenue decreased
to 64.4% for the six months ended January 31, 2000 from 65.8% for the six months
ended January 31, 1999. This increase is attributable to higher reimbursement
rates generated from the acquisition of certain assets of Optimum Entities.
General and administrative expenses increased $1,362,000, or
27.6%, to $6,288,000 for the six months ended January 31, 2000 from $4,926,000
for the six months ended January 31, 1999. This increase is attributable to
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 remained
at 25.6% for both six-month periods.
The Company recorded a provision of $235,000 in bad debt expense
for the six months ended January 31, 2000 as compared to $0 for the six months
ended January 31, 1999. This increase is explained in the above three-month
discussion.
Amortization of intangibles increased to $309,000 for the six
months ended January 31, 2000 from $267,000 for the six months ended January 31,
1999. This increase is attributable to the acquisition of the stock of
Accredited and the acquisition of certain assets of the Optimum Entities.
As a result of the foregoing, income from operations increased
$546,000, or 39.3%, to $1,934,000 for the six months ended January 31, 2000 from
$1,388,000 for the six months ended January 31, 1999.
Interest income decreased (37.9%) to $121,000 for the six months
ended January 31, 2000 from $195,000 for the six months ended January 31, 1999.
This decrease is attributable to cash used in investing activities resulting
from the acquisition of certain assets of the Optimum Entities.
During the six months ended January 31, 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
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SunStar. During the six months ended January 31, 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.
The Company's effective tax rate decreased to 30.3% for the six
months ended January 31, 2000 from 70.2% for the six months ended January 31,
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 six months ended
January 31, 1999. Excluding the gain on sale of subsidiary stock in the current
six-month period and the tax effect of loss from equity investee in the prior
period, the effective tax rate increased to 45.1% for the six months ended
January 31, 2000, as compared to 40.3% for the six months ended January 31,
1999. This increase is attributable to higher state tax provisions in the
current six-month period.
The rate of inflation had no material effect on operations for the
six months ended January 31, 2000.
Financial Condition and Capital Resources
- -----------------------------------------
Current assets increased to $20,093,000 and current liabilities
increased to $2,127,000, respectively, at January 31, 2000. This resulted in an
increase in working capital of $258,000 from $17,708,000 at July 31, 1999 to
$17,966,000 at January 31, 2000. Cash and cash equivalents decreased
($2,915,000) to $4,527,000 at January 31, 2000 from $7,442,000 at July 31, 1999.
The decrease in cash is primarily attributable to the acquisition of certain
assets of the Optimum Entities on November 1, 1999 at a cost of $4,490,000 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
$285,000 for the six months ended January 31, 2000 as compared to net cash used
in operating activities of ($391,000) for the six months ended January 31, 1999.
The increase in operating cash flow of $676,000 is primarily attributable to the
net changes in current assets and current liabilities of $354,000, and the
increase of $322,000 in cash flow from operations over the comparable period of
1999. Net cash used in investing activities for the six months ended January 31,
2000 reflects the acquisition of certain assets of the Optimum Entities and the
purchase of equipment, offset by the proceeds from the sale of subsidiary stock
and proceeds of investments. Net cash used in investing activities for the six
months ended January 31, 2000 reflects acquisitions made by the Company and
purchase of equipment, offset by the proceeds of investments. Net cash used in
financing activities for the six months ended January 31, 2000 reflects the
purchase of treasury shares. Net cash used in financing activities for the six
months ended January 31, 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 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
-14-
<PAGE>
lending rate of the bank and expire January 31, 2001. At January 31, 2000, there
was no outstanding balance under either line of credit. The Company is currently
considering 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.
-15-
<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 in the same court
against SunStar and its management. These complaints assert 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the Company (the "Meeting")
was held on December 7, 1999. Proxies for the Meeting were solicited pursuant to
Rule 14A of the Securities Exchange Act of 1934, as amended, and there was no
solicitation in opposition.
At the Meeting, Frederick H. Fialkow, Bernard Levine, M.D.,
Steven Fialkow, Ira Greifer, M.D. and Robert C. Pordy, M.D. were elected as
directors of the Company to serve until the Company's next annual meeting of
stockholders and until their respective successors are elected and qualified.
The votes for each director were as follows:
For Withheld
--- --------
Frederick H. Fialkow 4,072,658 12,944
Bernard Levine, M.D. 4,072,658 12,944
Steven Fialkow 4,072,658 12,944
Ira Greifer, M.D. 4,072,658 12,944
Robert C. Pordy, M.D. 4,072,658 12,944
Also at the Meeting, the stockholders approved the Company's 1999
Stock Option Plan (the "Plan"). The votes cast in favor of the Plan were
2,934,251, the votes cast against the Plan were 130,812, the abstentions were
2,655,000 and the broker non-votes were 1,017,884.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
-16-
<PAGE>
10.1 Letter Agreement dated February 20, 2000 providing a
Secured Advised Line of Credit from The Bank of New
York to National Home Health Care Corp.*
10.2 Letter Agreement dated February 20, 2000 providing a
Secured Advised Line of Credit from The Bank of New
York to New England Home Care, Inc.*
27.1 Financial Data Schedule.*
- ---------------------------------
* Filed herewith
(b) Reports on Form 8-K
1. Form 8-K dated November 1, 1999, Item 2: Acquisition by the
Company of certain assets of Optimum Care Services of
Connecticut, Inc., Optimum Home Health of Connecticut, Inc.
and Optimum Home Health Care of Connecticut, Inc.
-17-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
National Home Health Care Corp.
Date: March 15, 2000 /s/ Robert P. Heller
----------------------------------------
Robert P. Heller
Vice President of Finance (chief financial
and accounting officer)
-18-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
10.1 Letter Agreement dated February 20, 2000 providing a Secured
Advised Line of Credit from The Bank of New York to National
Home Health Care Corp.
10.2 Letter Agreement dated February 20, 2000 providing a Secured
Advised Line of Credit from The Bank of New York to New
England Home Care, Inc.
27.1 Financial Data Schedule.
-19-
EXHIBIT 10.1
THE BANK OF NEW YORK
New York's First Bank o Founded 1784 by Alexander Hamilton
February 20, 2000
Mr. Robert P. Heller, Vice President &
Chief Financial Officer
National Home Health Care Corp.
700 White Plains Road, Suite 275
Scarsdale, New York 10583
Dear Bob:
This letter confirms that The Bank of New York (the "Bank") holds available a
$2,000,000 secured advised line of credit to National Home Health Care Corp.
(the "Borrower").
Advances under the line of credit shall be payable on demand and bear interest
at a rate per annum equal to the alternate base commercial lending rate of the
Bank as publicly announced to be in effect from time to time (the "Alternate
Base Rate"), such rate to change on the effective date of any change in the
Alternate Base Rate.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
to the higher of (i) the Prime Rate in effect on such day and (ii) the
Federal Funds Rate in effect on such day plus 1/2 of 1%.
For purposes of this definition:
"Prime Rate" shall mean, for any day, the weighted average of the rates
on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a business day, for the next preceding
business day, the average of quotations for such day on such
transactions received by the Bank from three Federal funds brokers of
recognized standing selected by the Bank.
All advances and all principal payments hereunder shall be endorsed by the Bank
on the sheet attached to the Promissory Grid Note and shall be secured by all
assets of the Borrower pursuant to a security agreement. The Borrower authorizes
the Bank to accept telephonic instructions from a duly authorized representative
of the Borrower, as indicated by the latest Corporate Resolution on file with
the Bank, to make an advance or receive a repayment hereunder and to endorse the
sheet attached to this Promissory Grid Note accordingly. All advances made
hereunder shall be credited to the Borrower's deposit account referred to above,
which credits shall be confirmed to the Borrower by standard advice of credit.
<PAGE>
The Borrower agrees that the actual crediting of the sum of money so borrowed to
the Borrower's a deposit account shall constitute conclusive evidence that the
advance was made, and the failure of the Bank to endorse the amount of any
advance on the sheet attached to this note or to forward to the Borrower an
advice of credit shall not affect the obligation of the Borrower to repay such
advance.
In addition, all advances under the line of credit shall be jointly and
severally guaranteed by Health Acquisition Corp., New England Home Care, Inc.
and Accredited Health Services, Inc. Each guarantee shall be secured by all
assets of the respective guarantors pursuant to a security agreement. The form
of note, security agreement and guarantee to be furnished to the Bank shall be
in form and substance acceptable to the Bank and its counsel.
Advances under the line of credit are subject to the Bank's satisfaction with
(i) the specific purpose and expected time and source of repayment of each
advance, and (ii) the Borrower's and the guarantors' financial condition,
business prospects and operations at the time of each advance. As you know,
lines of credit may be canceled by either party at any time, however, unless
canceled earlier, the line of credit shall be held available until January 31,
2001.
Additionally, all outstanding advances under the line of credit shall be reduced
to zero for a period of 30 consecutive days during each twelve (12) month
calendar period in which the line of credit is held available.
Sincerely,
THE BANK OF NEW YORK
/s/ Vito Caraccio
- -----------------
Vito Caraccio
Vice President
EXHIBIT 10.2
THE BANK OF NEW YORK
New York's First Bank o Founded 1784 by Alexander Hamilton
February 20, 2000
Mr. Robert P. Heller, Vice President &
Chief Financial Officer
National Home Health Care Corp.
700 White Plains Road, Suite 275
Scarsdale, New York 10583
Dear Bob:
This letter confirms that The Bank of New York (the "Bank") holds available a
$2,000,000 secured advised line of credit to New England Home Care, Inc. (the
"Borrower").
Advances under the line of credit shall be payable on demand and bear interest
at a rate per annum equal to the alternate base commercial lending rate of the
Bank as publicly announced to be in effect from time to time (the "Alternate
Base Rate"), such rate to change on the effective date of any change in the
Alternate Base Rate.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
to the higher of (i) the Prime Rate in effect on such day and (ii) the
Federal Funds Rate in effect on such day plus 1/2 of 1%.
For purposes of this definition:
"Prime Rate" shall mean, for any day, the weighted average of the rates
on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such
day (or if such day is not a business day, for the next preceding
business day, the average of quotations for such day on such
transactions received by the Bank from three Federal funds brokers of
recognized standing selected by the Bank.
All advances and all principal payments hereunder shall be endorsed by the Bank
on the sheet attached to the Promissory Grid Note and shall be secured by all
assets of the Borrower pursuant to a security agreement. The Borrower authorizes
the Bank to accept telephonic instructions from a duly authorized representative
of the Borrower, as indicated by the latest Corporate Resolution on file with
the Bank, to make an advance or receive a repayment hereunder and to endorse the
sheet attached to this Promissory Grid Note accordingly. All advances made
hereunder shall be credited to the Borrower's deposit account referred to above,
which credits shall be confirmed to the Borrower by standard advice of credit.
<PAGE>
The Borrower agrees that the actual crediting of the sum of money so borrowed to
the Borrower's a deposit account shall constitute conclusive evidence that the
advance was made, and the failure of the Bank to endorse the amount of any
advance on the sheet attached to this note or to forward to the Borrower an
advice of credit shall not affect the obligation of the Borrower to repay such
advance.
In addition, all advances under the line of credit shall be jointly and
severally guaranteed by Health Acquisition Corp., National Home Health Care
Corp. and Accredited Health Services, Inc. Each guarantee shall be secured by
all assets of the respective guarantors pursuant to a security agreement. The
form of note, security agreement and guarantee to be furnished to the Bank shall
be in form and substance acceptable to the Bank and its counsel.
The amount of Loans outstanding under the line of credit shall not exceed the
lesser of the Borrowing Base or $2,000,000 at any time. As used herein, the term
"Borrowing Base" shall mean (a) eighty percent (80%) of the Borrower's Eligible
Accounts Receivable not more than 90 days past due from the invoice date plus
(b) fifty percent (50%) of the Borrower's Estimated Unbilled Accounts Receivable
for the Borrower's previous month. The Borrowing Base shall be calculated
pursuant to the Borrowing Base Certificate set forth on Exhibit A. In the event
that the amount of the Loans outstanding hereunder ever exceed the Borrowing
Base, the Borrower shall prepay the outstanding Loans in such an amount as would
be necessary to bring the amount outstanding under the line of credit in
compliance with the terms and conditions hereof.
Advances under the line of credit are subject to the Bank's satisfaction with
(i) the specific purpose and expected time and source of repayment of each
advance, and (ii) the Borrower's and the guarantors' financial condition,
business prospects and operations at the time of each advance. As you know,
lines of credit may be canceled by either party at any time, however, unless
canceled earlier, the line of credit shall be held available until January 31,
2001.
Additionally, all outstanding advances under the line of credit shall be reduced
to zero for a period of 30 consecutive days during each twelve (12) month
calendar period in which the line of credit is held available.
Sincerely,
THE BANK OF NEW YORK
/s/ Vito Caraccio
- -----------------
Vito Caraccio
Vice President
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