SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12992
NuMED HOME HEALTH CARE, INC.
(Name of small business issuer in its charter)
STATE OF NEVADA 34-1711764
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5770 Roosevelt Boulevard, Suite 700, Clearwater, Florida 34620
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (813) 524-3227
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
Redeemable Common Stock Purchase Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ X ]
Issuer's net revenue for its most recent fiscal year was $24,590,951.
The number of shares outstanding of the Issuer's Common Stock, $.001
par value, as of June 20, 1997, was 5,043,144 (exclusive of Treasury
Shares). The aggregate market value of the voting stock held by non-
affiliates computed by reference to the average of the bid and ask prices
of such Common Stock, as of June 20, 1997 was $5,579,810.
Transitional Small Business disclosure Format: Yes [ ] No [ X ]
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction
NuMED Home Health Care, Inc., (the "Company") is a holding company
that conducts operations through eight subsidiaries, seven of which offer
home health care services and temporary nursing staffing in selected
markets in Florida, Ohio and Pennsylvania. In addition, the Company
provides contract staffing of physical and occupational therapists and
speech/language pathologists in certain markets of Ohio, Pennsylvania,
Illinois, Indiana, Kentucky, Maryland and New Jersey through its
subsidiary NuMED Rehabilitation, Inc. ("NuMED Rehabilitation") organized
in connection with the April 4, 1995 acquisition of two wholly-owned
subsidiaries of Rehab America, Inc. See "Business-Acquisitions and
Dispositions."
The Company delivered approximately 141,000 intermittent home health
care visits in fiscal 1997 to clients of all ages. The Company provides
home health care for approximately 800 private duty clients and temporary
staffing of certified nurses aides, licensed practice nurses and
registered nurses for approximately 60 health care facilities. In
addition, the Company, through NuMED Rehabilitation, provides physical,
occupational, and speech/language therapy for approximately 70 health care
facilities.
The Company was formed in 1987 under the laws of the State of Nevada.
Its principal office is located at 5770 Roosevelt Boulevard, Suite 700,
Clearwater, Florida 34620, and its telephone number is (813) 524-3227.
Industry Overview
The Company's home health care and rehabilitation business is part of
an emerging and growing U.S. market for health care services primarily
driven by the general aging of the United States population and the
continuing focus on cost-effective use of health care dollars. The
Company's home health care business has benefitted from the increased use
of treatment at home as an alternative to hospitalization and the desire
of patients to be cared for at home rather than in a hospital. The fixed
amount of Medicare reimbursement to hospitals based upon a patient's
diagnosis, regardless of the cost of service or length of stay, has also
provided hospitals an incentive to minimize the length of a patient's stay
thereby increasing the utilization of home health care services. In
addition, advances in medical technology have enabled a growing number of
treatments to be provided on an outpatient basis, or in the patient's
home, nursing homes or clinics rather than in a hospital.
The current demand for temporary and contract staffing services is a
result of a shortage of therapists and nursing personnel trained in
certain specialty areas in addition to the cyclical staffing needs of
hospitals, nursing homes and clinics. Increases in the intensity of
required patient care and increases in labor intensive medical technology
has similarly increased the demand for nurses and other medical personnel
such as physical, occupational and respiratory therapists, speech/language
pathologists and radiological and surgical technicians. Temporary and
contract staffing accommodates the desire of hospitals and other health
care facilities to contain costs by having staff available only when
needed. Hospital budgetary cycles, the need for nurses and therapists
trained in particular specialties, and fluctuations in patient admissions
due to seasonal and other factors continue to require hospitals and other
health care facilities to obtain the services of temporary and long-term
contract staffing businesses.
The programs currently proposed to reform the United States health
care system and ongoing significant changes in the industry itself may
result in increased government involvement in health care, lower
reimbursement rates and may otherwise change the operating environment for
the Company's customers. Hospitals and other health care facilities are
now consolidating through mergers and acquisitions as a result of
increasing cost pressures and changes in reimbursement policies adopted by
federal, state and insurance company third party payors. The Company is
unable to predict with any degree of certainty how changes in the health
care industry will effect the Company's operations.
Business Strategy
The Company's strategy is to grow (i) by adding services to existing
locations (ii) by implementing targeted marketing to local health care
providers that cross sells the Company's home health care, staffing and
rehabilitation services, and (iii) adding locations through acquisitions
of home health care and rehabilitation businesses in geographic areas
which complement the Company's existing business.
A key component to the Company's strategy for growth is management's
belief that home health care providers must be capable of providing a
broad range of services to permit customers to obtain their home health
care and staffing needs from one source. By expanding the services which
the Company offers in each of its markets, the Company believes it can
more effectively offer the broad range of services required by its
customers. Because the Company's success is also dependent upon
developing and educating referral sources about the range and benefits of
the Company's services, the Company aggressively markets to local third
party payors and medical organizations in a manner that cross sells the
Company's home health care, staffing and rehabilitation services.
Management has focused its strategy for the Company's rehabilitation
operations on intermediate sized facility operators owning three to ten
long term care facilities. Management believes that this strategy allows
the Company to more effectively offer its specialized programs and
expertise and better respond to a specific community's needs. Also, with
the current trend towards managed care, the Company is increasing its
direct contracts with managed care providers as well as providing services
on a local basis to other companies that require additional service
capacity in meeting their contract requirements.
The Company has sought and continues to seek to expand its business
through strategic acquisitions of businesses which expand the Company
clients, services and referral sources in existing and new markets. The
Company believes that the nature of the home health care and
rehabilitation industry continues to provide a favorable environment for
such acquisitions.
Acquisitions and Dispositions
The Company commenced home health care and temporary nursing staffing
operations in 1991, when it acquired Whole Person Home Health Care, Inc.
("Whole Person PA") and Pennsylvania Medical Concepts, Inc. ("PA Medical
Concepts"). In August 1992, the Company acquired the capital stock of
Silver Moves, Inc., d/b/a Florida Nursing Services ("Florida Nursing").
This was followed by the September 1992 acquisition of substantially all
of the assets of Whole Person Home Health Care of Florida, Inc., d/b/a
Total Professional Health Care ("Total Professional"). In May 1993, the
Company acquired all of the capital stock of Advanced Systems and
Management, Inc. and approximately 99% of the capital stock of Countryside
Health Services, Inc. ("Countryside"). The acquisition of Florida
Nursing, Total Professional and Countryside significantly increased the
Company's revenues and expanded the Company's market into the Tampa/St.
Petersburg, Florida area.
On April 4, 1995, the Company, through its wholly-owned subsidiary
NuMED Rehabilitation, acquired substantially all of the assets of North
American Rehabilitation, Inc., and Care Management Services, Inc., two
wholly-owned subsidiaries of Rehab America, Inc. The total purchase price
for the acquisition of the assets was approximately $5.1 million in cash
plus 297,715 shares of Common Stock. The average bid and ask price per
share of the Common Stock on April 4, 1995 was $1.3125. North American
Rehabilitation, Inc. and Care Management Services, Inc. had aggregate
revenues of $11.3 million for the fiscal year ended September 30, 1994 and
$14.1 million in revenues for the fiscal year ended September 30, 1993.
As a result, approximately 50% of the Company's current business is
comprised of contract staffing of physical and occupational therapists and
speech/language pathologists to hospitals and long-term care facilities in
Ohio, Pennsylvania, Illinois, Indiana, Kentucky, Maryland and New Jersey.
Effective January 1, 1996, the Company acquired all of the
outstanding stock of Parke Home Health Care, Inc. ("Parke") for a total
purchase price of approximately $780,000, one-half of which was paid in
cash at closing with the remaining one-half payable over a period of 30
months with interest accruing on the unpaid principal balance at the rate
of eight percent (8%) per annum. Parke had revenues of approximately $2
million for the fiscal year ended December 31, 1995 and $1.7 million in
revenues for the fiscal year ended December 31, 1994. Parke offers home
health care services in the Cincinnati, Ohio market.
Services
The Company offers a broad range of health care related services from
delivering comprehensive health care in the client's home to providing
temporary staffing of nursing personnel and contractual long-term staffing
of physical and occupational therapists and speech/language pathologists
to hospitals, clinics, long-term care facilities, physician offices and
other health care facilities. Home health care is generally conducted on
a per visit basis while related staffing is generally performed on a
per-shift basis. The Company's rehabilitation business generally provides
its occupational and physical therapists and speech/language pathologists
on an annual basis. The following provides a brief description of the
types of services provided by personnel employed by the Company:
- Registered nurses provide a broad range of nursing care services,
including skilled observation and assessment, instruction of patients
regarding medical and technical procedures, direct hands-on
treatment, and communication and coordination with the attending
physician or other service agencies. Some specially trained
registered nurses provide extensive intravenous therapy
interventions, wound care, diabetic care, AIDS care psychiatric care
and pediatric care.
- Licensed practical nurses, under the supervision of a registered
nurse, perform technical nursing procedures, including injections,
dressing changes, assistance with ambulation and catheter care.
- Physical therapists provide rehabilitation services aimed at
improving functional mobility via use of strengthening/range of
motion exercises, training for ambulation, transfers and balance as
well as the application of physical agents to reduce pain, spasms and
edema.
- Occupational therapists assist patients in restoring their ability to
perform routine activities of daily living by offering instruction in
self care, discussing techniques for coping with physical disability
and suggesting the use of assistant devices or home adaption to make
living at home easier.
- Speech/language pathologists evaluate and treat patients who have
swallowing difficulties and assess and treat patients with speech,
language and voice disorders to improve their physical capabilities
or communication abilities.
- Licensed physical therapy assistants ("PTAs") and certified
occupational therapy assistants ("COTAs") work under the supervision
of a therapist and assist the therapist in implementing treatment
programs according to a physician's prescription. The scope of a
therapy assistant's job varies from state to state.
- Medical social workers help patients and their families deal with the
emotional, social, financial and personal problems that may occur as
a result of illness or disability, including the identification and
coordination of services with other community resources.
- Home health aides and certified nurse aides, working under the
supervision of a nurse, provide health related services and personal
care, such as assistance with ambulation, limited range-of-motion
exercises, monitoring of vital signs, non-sterile dressing changes
and bathing.
- Homemaker companions provide personal care and assistance with daily
living activities, including bathing, dressing, grooming, meal
preparation, light housekeeping and occasional shopping for essential
items.
The following chart sets forth the services provided by each of the
Company's eight wholly-owned subsidiaries and identifies those
subsidiaries that are Medicare certified:
Temporary
Home Health Care Medicare and Contract
Subsidiary Intermittent Private Duty Certified Staffing
NuMED Rehabilitation . . . . . . . . . . . . . . . . . . . . . x
Parke Home Health
Care, Inc . . . . . x . . . . . . x . . . . . x
Whole Person in PA . x . . . . . . . . . . . . . x
PA Medical Concepts . . . . . . . . . x . . . . . . . . . . . x
Whole Person in OH . x . . . . . . x . . . . . x
Florida Nursing . . . . . . . . . . . x . . . . . . . . . . . x
Total Professional . x . . . . . . . . . . . . . x
Countryside . . . . . . . . . . . . . x . . . . . . . . . . . x
Personnel
The Company's business is dependent upon its ability to recruit and
retain registered nurses, licensed practical nurses, nurses aides, home
health aides, homemaker companions, medical social workers, physical and
rehabilitation therapists, occupational therapists, speech/language
pathologists, PTAs and COTAs. There is intense competition for medical
personnel, and particularly for therapists and certified nurse aides and
home health aides. Due to the rehabilitation industry's limited number of
accredited academic therapy programs, there has been a chronic national
shortage of available therapists. As the Company expands, its needs for
qualified personnel will continue to increase. The Company faces
competition for personnel from both other agencies as well as other
providers of medical services, such as hospitals and long term care
facilities. Most of the Company's personnel are employed on a full-time or
regular-part time basis. A modest portion of the Company's personnel are
employed on a per diem basis depending upon client demand and are paid
only for the time they actually work or specific visits made.
Competition
The home health and rehabilitation industries are highly competitive
with limited barriers to entry. The Company faces competition from
hospitals that have their own home health care agencies, national and
local home health care and rehabilitation therapy organizations, and other
nursing home contract service providers, many of which have capital and
other resources substantially greater than those of the Company. The
Company believes that most home health care business is generated by
referrals from local third party payors and medical related organizations.
The Company competes in its home care markets by developing relationships
with referral sources. Home health care agencies compete based on the
ability to provide qualified personnel and service on a cost-effective and
timely basis. The Company competes in the rehabilitation therapy market
through direct marketing to long-term, acute care, and outpatient
facilities as well as school districts, emphasizing the Company's ability
to provide qualified personnel with specialized programs on a timely basis
and in a cost-effective manner. With the increasing trend towards managed
care, the Company is continuing to obtain accreditation from the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") and
intends to implement management information systems in order to provide
quantitative analyses necessary to compete in the managed care arena.
The Company's temporary staffing business competes with other
medical recruitment organizations which offer the same or similar services
as are provided by the Company. Many of these competitors have greater
capital and other resources than are available to the Company. Competition
is generally based on the ability to provide qualified personnel
on a timely basis and in a cost effective manner.
The Company believes that the key competitive factors in its
business include service, price and the ability to provide quality care
and outcome oriented data. The range of specialized services offered,
together with the ability to accommodate specific client needs are also
competitive factors in attracting clients. The Company has focused its
marketing efforts in suburban/urban areas with moderate populations of
persons over 65 years of age as well as certain other areas where there is
demand for the Company's specialized services. With the current trend
toward managed care, management also believes that the capacity to provide
clinical statistical and analytical support to managed care organizations
will be crucial to competing for managed care contracts.
Sales and Marketing
The Company provides its home care services generally to patients
placed through referrals from third parties, such as physicians,
podiatrists, managed care providers, case managers, and hospital discharge
planners. Key elements in the Company's strategy are to provide
compassionate quality care, delivered in a cost effective manner and
provide certain specialty skilled programs. The Company seeks to educate
its referral sources on the range, benefits and features of the Company's
services. The Company utilizes one-to-one education of referral sources,
as well as community educational programs presented by the Company's nurse
liaisons and discharge planners. The Company also actively markets its
rehabilitation therapy services directly to long-term care, acute care and
outpatient facilities through solicitation of directors of nursing,
administrators and owners emphasizing quality care delivered in a cost
effective manner.
Reimbursement and Customers
Payments for the Company's home health care services are derived
from a variety of sources. Payment for home health care services generally
comes from Medicare, local government health care programs, commercial
insurance carriers, health maintenance organizations, Medicaid and
individual patients. In instances where the patient has more than one
source of reimbursement, the portion of the Company's charges that is not
covered by a primary source may be covered by a secondary source of
reimbursement. Payment for the Company's temporary staffing and
rehabilitation services generally are derived directly from the Company's
customers who are reimbursed from Medicare and other third-party payors.
Medicare accounted for approximately $6.2 million (25%) and $6.1
million (25%), respectively, of the Company's net revenue for the fiscal
years ended March 31, 1997 and 1996. Medicare reimburses 100% of the
allowable cost of services up to certain limits. To the extent Medicare
limits exceed the provider's direct cost for a particular service, the
provider can seek reimbursement for certain indirect costs up to an
aggregate amount equal to the Medicare defined limits for that service.
The Company is designated to receive prospective interim payments ("PIP")
for its Medicare services rendered in the State of Florida. PIP allows
the Company to collect estimated payments every other week for Medicare
services, with an accounting after the quarter to verify the actual amount
of Medicare services rendered. There can be no assurance that the Company
will continue to be eligible to receive prospective interim payments. The
Company has generally received Medicare reimbursement sufficient to cover
substantially all of the costs of its services. If a Medicare audit
resulted in the Company not being reimbursed for a significant amount of
services which it had provided, it would have a material adverse effect on
the Company's financial position or results of operations. In fiscal 1997
and 1996, the Company recognized approximately 16% and 17%respectively of
its revenue from a single customer.
In fiscal 1997 and 1996, the Company recognized approximately 16%
and 17% respectively of its revenue from a single customer. This customer
terminated their relationship in fiscal 1998. (See Management's
Discussion and Analysis of Financial Condition and Results of Operations.)
Advisory Board
Certain of the Company's subsidiaries require advisory boards. The
Advisory Boards must consist of at least one physician, one registered
nurse and one representative of each professional discipline for which the
subsidiary is certified, including physical, occupational and speech
therapy and medical social work. The Advisory Boards establish and
annually review the subsidiary's budget and policies governing the scope
of services offered, admission and discharge policies, medical
supervision, plans of treatment, emergency care, clinical records,
personnel qualifications, program evaluations, and patient care policies
and procedures. In addition, each Advisory Board assists management in
identifying consumer needs and educating consumers of the services
provided by the subsidiary. Each Advisory Board meets four times each year
and conducts an overall evaluation of the subsidiary's business every
year.
Seasonality
Historically, the Company's business has been seasonal, with a
higher proportion of revenues derived in the fall and winter months.
Since the addition of NuMED Rehabilitation, historical seasonality has
continued. The Company's third and fourth fiscal quarters will continue
to generate greater home health revenues due to increased demand for these
services in all regions during these months.
Regulations
The health care industry is highly regulated at the federal, state
and local levels. Several programs have been proposed to reform the United
States health care system. These programs include proposals to increase
governmental involvement in health care, lower reimbursement rates and
otherwise change the operating environment for the Company and its
customers. Management believes that the adoption of comprehensive health
care reform may have a significant impact on the Company's business,
although different aspects of the Company's business may be affected in
different ways, either positively or negatively, by the adoption of such
legislation. There can be no assurance that the Company will be able to
capitalize on the effect of such legislation or that such legislation will
not have a negative impact on the Company's operations. The following is a
summary of the key regulatory provisions which currently affect the
Company's operations.
Medicare Certification and Licensing. Home health care agency
certification by HCFA is required to enable the Company to receive
reimbursement for services from Medicare. HCFA requires, as a condition to
participation as a home health care agency in the Medicare program, the
satisfaction of certain standards with respect to personnel, services and
supervision, appropriation of annual budgets, cost reports and capital
expenditure plans, and the establishment of a professional advisory group.
Many states also require an entity to obtain a certificate of need ("CON")
in order for the entity to provide Medicare and Medicaid services. Under
CON laws, a health care provider generally is required to substantiate the
need for, and financial feasibility of, certain expenditures relative to
such services. In states requiring a CON, HCFA will only grant
certification to those providers who have obtained a CON. Florida is the
only state in which the Company currently operates a home health care
business which requires a CON. Total Professional has received a CON from
the State of Florida to provide Medicare services in Districts V and VI,
which include Pasco and Pinellas counties and Hardee, Highlands,
Hillsborough, Manatee, and Polk counties. The Company is presently
licensed to provide such Medicare services in Hillsborough, Pasco and
Pinellas counties.
Medicare Anti-Kickback Provisions. The Medicare Anti-Kickback
Statute (the "Anti-Kickback Statute") prohibits the offering, payment,
solicitation or receipt of any form of remuneration in return for the
referral of Medicare or Medicaid patients or the ordering of services that
is covered by Medicare or Medicaid. Violation of the Anti-Kickback Statute
is punishable by substantial fines, imprisonment for up to five years or
both. In addition, the Medicare and Medicaid Patient and Program
Protection Act of 1987 (the "Protection Act") provides that persons guilty
of violating the Anti-Kickback Statute may be excluded from the Medicare
or Medicaid programs for a minimum of five years. Investigations leading
to prosecutions and/or program exclusion may be conducted by the Office of
the Inspector General ("OIG") of the United States Department of Health
and Human Services ("HHS") or the United States Department of Justice.
Under the Anti-Kickback Statute, law enforcement authorities, HHS
and the courts are increasingly scrutinizing arrangements between health
care providers and referral sources (such as physicians) in order to
ensure that the arrangements are not designed as a mechanism to exchange
remuneration for patient referrals. This scrutiny is not limited to
financial arrangements that involve a direct payment for patient
referrals, but extends to payment mechanisms that carry the potential for
inducing Medicare or Medicaid referrals, including situations where
physicians hold investment interests in, or compensation arrangements
with, a health care entity to which such physicians refer patients.
Although the OIG has published safe harbor regulations relating to
investment in public companies by referring physicians, the Company does
not currently possess the net tangible assets necessary in order to
qualify under the safe harbor regulations. Therefore, in order to avoid
any issue regarding fraud and abuse compliance, a physician who owns any
of the Company's securities is prohibited from making any patient
referrals to the Company.
Florida Prohibition of Referrals. The Patient Self-Referral Act of
1992 (the "1992 Act") regulates and, in some cases, prohibits physicians'
referrals of patients to facilities in which they own an investment
interest. In addition, the 1992 Act would prohibit referrals by a health
care provider to a public company in which the provider is an investor
unless the company meets safe harbor criteria similar to that promulgated
under the Anti-Kickback Statute. The Company does not meet these criteria
and, therefore, a physician who owns any of the Company's securities is
prohibited by the 1992 Act from making any patient referrals to the
Company.
Omnibus Budget Reconciliation Act of 1993. As part of the Omnibus
Budget Reconciliation Act of 1993, Congress passed a self-referral ban,
commonly known as the "Stark II" law. The Stark II law became effective
January 1, 1995 and prohibits a physician from referring Medicare and
other federal program patients for designated health services, including
home health care, to certain entities with which the physician or a member
of his or her immediate family has a financial relationship. A "financial
relationship" includes either an ownership interest in, or compensation
arrangement with, the entity. Thus, unless a Stark II exemption is met, a
physician with such a financial relationship with the Company would be
prohibited by Stark II from making any patient referrals of Medicare and
Medicaid business to the Company.
Miscellaneous. All states in which the Company operates require
therapists practicing in such states to be licensed and many states
require continuing education for maintaining licensure. In addition,
environmental standards and OSHA regulations concerning the disposal and
handling of medical wastes are generally monitored at the state and local
level in accordance with OSHA guidelines. The Company believes that it is
in material compliance with such licensure requirements and standards in
each of the states where it operates. Although the Company believes that
it is in material compliance with all applicable federal and state laws
and regulations, there can be no assurance that such laws or regulations
will not be interpreted or applied in the future in such a way as to have
a material adverse impact on the Company, or that federal or state
governments will not impose additional laws or regulations upon all or a
portion of the Company's activities, which might adversely affect the
Company's business.
Employees
As of March 31, 1997, the Company had approximately 1,050 employees
working full-time and part-time depending on certain assignments, 71 of
whom perform administrative and clerical duties. Employees do not
necessarily work full-time shifts and may not work exclusively for the
Company. The Company believes its relations with its employees are good.
The Company's employees are not represented by any union.
ITEM 2. PROPERTY
The Company maintains its principal offices at 5770 Roosevelt Blvd,
Suite 700, Clearwater, Florida 34620. The Company's regional offices are
typically located in suburban office parks and are all leased. The offices
range in size from 1,000 square feet to 6,000 square feet. The Company's
office leases require an aggregate annual rental of approximately $367,000
and expire on various dates through 2000. All offices are well maintained
and in good repair. As of March 31, 1997, the Company had the offices
listed below in the following locations:
Principal Operation Locations Function
NuMED Home Health Care, Inc. Clearwater, FL Corporate administrative
office
NuMED Home Health Care, Inc.* Independence, OH Corporate financial
office
NuMED Rehabilitation, Inc. Horsham, PA Contract staffing of
Cincinnati, OH occupational and
physical therapists and
speech/language
pathologists
Total Professional
Health Care Clearwater, FL Comprehensive home
Brandon, FL health care services
Tampa, FL
St. Petersburg, FL
Holiday, FL
Florida Nursing Services St. Petersburg, FL Private duty & temporary
staffing
Countryside Health
Services, Inc. Dunedin, FL Private duty & temporary
Holiday, FL staffing
Brandon, FL
Whole Person Home Health
Care of Ohio, Inc. Conneaut, OH Comprehensive home
Youngstown, OH health care services
Whole Person Home
Health Care, Inc. Erie, PA Comprehensive home
Albion, PA health care services
PA Medical Concepts, Inc. Erie, PA Comprehensive home
Albion, PA health care services
Parke Home Health Care, Inc. Cincinnati, Ohio Comprehensive home
health care services
* office closed and consolidated into Florida office 3/31/97
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings
On January 31, 1996, Robin Fernhoff, individually and on behalf of
all others similarly situated filed a class action in the United States
District Court for the Middle District of Florida, Tampa Division against
NuMED Home Health Care, Inc., Jugal K. Taneja and A.T. Brod & Co., Inc.
(Case No. 96-200-CIV-T-21C). The plaintiff alleges that failure to
disclose the net capital position of A.T. Brod & Co., Inc. caused the
disclosure in the Company's prospectus dated February 8, 1995, to be
materially misleading. The plaintiff alleges violations of Section 11 and
12(2) of the Securities Act of 1933, 15 U.S.C. Sections 77k and 77l
respectively, and seeks damages on behalf of the class.
In response to the complaint, the Company filed its answer and a
corresponding motion to dismiss. On July 25, 1996, the United States
District Court for the Middle District of Florida, Tampa Division, granted
the Company's motion dismissing the complaint in its entirety. In
response, the Plaintiff filed a subsequent motion to alter or amend the
judgment granting the Company's motion to dismiss. The Court has not yet
ruled on this motion. Management believes that the action is frivolous
and without merit and intends to vigorously contest any restated
allegations.
The Company maintains professional liability insurance in amounts
believed to be adequate by the Company based on its experience.
Currently, the Company maintains coverage on its home health care
operations in the amount of $1,000,000 per occurrence with a $3,000,000
annual limit. The Company maintains coverage on its rehabilitation
therapy operations in the amount of $2,000,000 per occurrence with a
$4,000,000 annual limit. The Company may be subject to liability for the
actions of its employees who provide medical services. There can be no
assurance that the Company's professional liability insurance will cover
all types of claims, that such insurance will continue to be available to
the Company on terms that are acceptable to it, or that the amount of such
insurance will be sufficient.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The principal market for the Common Stock and Common Stock
Purchase Warrants is the NASDAQ Small Cap Market where they are listed
under the symbols NUMD and NUMDW, respectively. The stock prices below
are the high and low bid prices as reported on the NASDAQ Small Cap
Market. Prior to February 1995, the Common Stock was listed on the
American Stock Exchange Emerging Company Marketplace. Prior to May 1994,
the Common Stock was traded in the over-the-counter market. The stock
prices below are the high and low bid prices as reported on the NASDAQ
Small Cap Market which have been adjusted, as appropriate, to reflect the
1 for 2.5 reverse stock split completed on April 29, 1994.
Fiscal 1997 Fiscal 1996
Quarter High Low High Low
First Quarter $4.31 $2.25 $1.81 $0.94
Second Quarter 3.25 1.63 2.25 0.87
Third Quarter 2.63 1.50 2.31 1.50
Fourth Quarter 2.06 1.13 2.75 1.62
The Company has paid no cash dividends on the Common Stock since its
inception. The Company intends to retain earnings, if any, to finance the
expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future. As of June 15, 1997, there were
approximately 576 holders of record of Common Stock.
On September 1, 1995, the Board of Directors authorized the officers
of the Company, without further approval of the Board, to purchase in the
open market up to a maximum of 500,000 of the Company's common shares to
the extent that the Company is financially able to make any such
purchases. During fiscal 1997, the Company purchased 100,000 Common
Shares.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto
appearing elsewhere in this report.
Overview
The Company's revenues are generated primarily from (i) health care
services provided to individuals in their home and temporary staffing of
nurses in health care facilities, such as hospitals, physician offices and
long-term care facilities, and (ii) staffing of physical and occupational
therapists and speech/language pathologists to hospitals and long-term
care facilities. A significant portion of the Company's home health care
revenues are paid by insurance companies and other third-party payors,
including Medicare. In fiscal 1997 and 1996, 33% and 31%, respectively,
of the Company's revenues were attributable to third party payors, of
which 25% and 25%, respectively, was attributable to Medicare
reimbursements. The Company's revenues are recorded based on
predetermined rates for services provided, less applicable allowances to
reflect third party payor reimbursement requirements. The Company's
revenues are subject to post-collection audit and adjustment by
third-party payors. Direct expenses include direct personnel and other
costs associated with the Company's home health care services and
staffing.
The Company's Gross Profit has been negatively impacted by five
primary factors. First NuMED has incurred excessive legal and other costs
relating primarily from failed acquisitions and a class action suit.
Second, during the third quarter, the Company retroactively modified its
contract with one of its key Rehabilitation customers that is undergoing a
Medicare audit (see below). As a result, the Gross Profit of NuMED
Rehabilitation has also diminished. The Company is undertaking cost
containment efforts as well as implementing new monitoring programs to
reduce the level of Direct Expenses. Third, the mix of revenue speech
therapy has shifted. Physical therapy revenue, which generally yields
lower gross margins than either occupational or speech therapy,
constituted a larger percentage of Net Revenues as compared to last year.
The Company is actively pursuing more profitable types of contracts.
Fourth, the mix of revenue between home health aides and skilled services
has shifted. Home health aides, which generally yield lower gross margin
than skilled services, constituted a larger percentage of Net Revenues.
In general, third party payors are requiring that care by provided by
lower skilled and less expensive caregivers. To counter this trend, the
Company is pursuing alternative types of business with higher margins.
Fifth, a significant portion of employees in both the Home Health and
Rehabilitation Therapy division are full time. Salary costs relating to
these full time employees do not fluctuate with changes in revenue. As
revenue decreases, these costs result in an increased Direct Expense
percentage. The Company has taken measures to impact on the proportion of
full and part time employees.
One of NuMED Rehabilitation's key customers is currently undergoing
a routine Medicare audit of its cost report. The customer's fiscal
intermediary, in it interpretation of the Medicare prudent buyer
guidelines, has concluded that the cost of certain professional contract
therapy services provided by NuMED Rehabilitation exceeded these
guidelines. Management believes that the fiscal intermediary conducting
this audit has applied an overreaching and erroneous interpretation of
applicable reimbursement guidelines.
The Intermediary's first calculations indicated total disallowed
costs of $2.1 million. The Company's client as well as representatives
from the Company were successful in reducing the amount of disallowed
costs from $2.1 million to $899,000. The Company was contractually
obligated to repay this key client the amount of Medicare disallowed costs
and has recorded an estimated aggregate reserve. The estimated settlement
for the first year (customer's fiscal year ended June 30, 1995) of the
contract which is currently being audited is approximately $197,000. The
estimated settlement for the second year (customer's fiscal year ending
June 30, 1996) of the contract which is still unaudited is approximately
$702,000.
During the second and third quarter of fiscal 1997, NuMED paid a
total of $899,000 to this customer, representing disallowed costs for the
client's fiscal years ending 6/30/95 ad 6/30/96. The Company is
optimistic that some of all of the disallowed costs will be recovered in
the appeal process. The entire disallowed cost has been expensed. The
Company has reached an agreement with its client that the appeal of 1995
disallowed costs will not be pursued. However, the Company intends to
vigorously pursue all avenues of appeal to recover disallowed costs for
1996. There is no guarantee that intermediary negotiations or the appeals
process will result in a favorable determination. An adverse decision
during negotiations with the fiscal intermediary or in the appeal process
could require NuMED Rehabilitation to further revise its estimate and
could have a material adverse effect on the Company's financial position,
liquidity and results of operations.
As a result of the above audit, the Company has retroactively
renegotiated its contract with this key customer to be consistent with
negotiated settlements of the prior years. Even though management
believes that the previous contract was well within current regulations,
management also believes that the renegotiated contract will mitigate
future large adjustments from prudent buyer interpretations at this
client.
In addition, the Company secured a $500,000 letter of credit for
future potential disallowances (see Liquidity and Capital Resources) and
has renegotiated the original terms with the client. Because of the
anticipated success of the intermediary negotiations, the client released
the $500,000 letter of credit in April 1997.
Following the fiscal year end 1997, this key customer and the
Company mutually agreed to terminate several facility contracts over
fiscal year 1998. The Company has increased marketing efforts and expects
to replace this revenue.
Several programs have been proposed to reform the United States
health care system. These programs contain proposals to increase
government involvement in health care, lower reimbursement rates and
otherwise change the operating environment for the Company's customers.
Due to the wide variety of national and state proposals relating to health
care presently under consideration, the impact of such proposals on the
Company's business cannot be predicted. The health care industry is a
highly regulated industry which is subject to changing political, economic
and regulatory influences that may affect the procurement practices and
operations of hospitals and other health care facilities. During the past
several years, the health care industry has been subject to an increase in
government regulation of, among other things, reimbursement rates and
certain capital expenditures. In addition, major third party payors of
health care services, such as insurance companies, Medicare and Medicaid,
have significantly revised payment procedures in an effort to contain
health care costs. These and other factors affecting the health care
industry could have a material adverse impact on the Company's operating
results, financial condition or prospects. The Company believes that
certain trends have developed which will have an impact on the home health
care and temporary staffing industry, including increased use of capitated
payments and the trend towards managed care. The Company seeks to follow
trends in its industry to maximize their resulting benefit and minimize
their resulting negative impact on the Company's operations. The extent
and effect of identified trends on the Company, as well as the effect of
trends which may develop in the future cannot be established either
positively or negatively at this time due to uncertainty in the home
health care, temporary staffing and rehabilitation industries.
Results of Operations
The following table sets forth for the periods indicated the
percentage of revenues represented by certain items reflected in the
Company's statements of operations.
Year Ended March 31,
l997 1996
Revenues . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Direct expenses . . . . . . . . . . . . . . . . 78.9 74.7
----- ----
Gross Profit . . . . . . . . . . . . . . . . . 21.1 25.3
General and administrative expenses
(excluding amortization and depreciation) . 29.3 22.3
Amortization and depreciation and impairment
of intangibles . . . . . . . . . . . . . . . . 2.7 2.6
----- ----
Operating income (loss) . . . . . . . . . . . . (10.9) 0.4
Other revenues (expenses) (loss) . . . . . . . 0.1 0.3
----- ----
Income (loss) from continuing operations before
income tax . . . . . . . . . . . . . . . . . . (10.8) 0.7
Income taxes expense (benefit) . . . . . . . . (3.2) 0.3
----- ----
Net income (loss) . . . . . . . . . . . . . . . (7.6) 0.4
===== ====
Year Ended March 31, 1997 Compared to Year Ended March 31, 1996.
Revenues increased $457,000, or 2% to $24.6 million in fiscal 1997
from $24.1 million if fiscal 1996. Net Medicare revenues increased by
$148,000 to $6.2 million in fiscal 1997 from $6.1 million in fiscal 1996.
Non-Medicare revenues, including staff relief, private duty, private pay
and rehabilitation therapy increased by $309,000 in fiscal 1997 from
fiscal 1996. The acquisition, Parke Home Health Care, Inc., provided
additional revenue which more than offset the decline in the
Rehabilitation Division. The Company's new contracts as well as existing
business were negatively affected by the uncertainty as a result of
pending discussions and consideration of an extraordinary transaction
involving the potential sale of the Company.
Direct expenses increased $1.4 million or 8% to $19.4 million in
fiscal 1997. As a percentage of revenues, direct expenses increased to
78.9% in fiscal 1997 from 74.7% in fiscal 1996. The decline in gross
margin can be attributable to the salary cost as therapists continue to be
in short supply and high demand. In the home health division, the
pressure of third party payors and managed care companies to emphasize
lower skilled care (and lower margin) has resulted in the critical
shortage of home health aides and certified nursing aides. This caused
higher than average pay rates for these employees which reduced the
margins for this division. As a result, the gross profit margins declined
to 21.1% in 1997 from 25.3% in 1996.
General and administrative expenses (excluding amortization and
depreciation) increased $1,813,000 or 33.6%. As a percentage of revenues,
this represented an increase to 29.3% in 1997 compared to 22.3% in 1996.
The Company expensed the repayment of the disallowed Medicare costs for
one of its key customers of $899,000 (discussed under Overview). In
addition, $312,000 of this increase is a result of Parke Home Health Care
which was acquired at the beginning of fiscal 1997. There were
extraordinary expenses through increased professional fees incurred
with the defense of and class action litigation and the proposed
acquisition of the Company by CCF Health Care Ventures, Inc. (discussions
were terminated in August, 1996). Travel expenses also increased as a
result of due diligence related activities. The closing of the Cleveland
financial office of NuMED resulted in one time expenses related to lease
terminations and severance packages for Cleveland staff. The company
also provided for a one-time increase in the reserve for potential bad
debts.
There was a marginal increase of $22,000 in depreciation and
amortization during fiscal 1997 as additional depreciation from new
computer software and hardware begin this year as the company continues to
automate the financial and office operations.
Other net revenues decreased to $24,000 in fiscal 1997 from $74,000
in fiscal 1996. Interest expense increased to $97,000 as the debt service
on the Parke Home Health Care was recognized for all of 1997 and
borrowings under the lines of credit were used and outstanding for most of
the year.
As a result of the losses this year there was a tax benefit. The
net loss for the Company in fiscal 1997 was $1,878,052 compared to net
income of $109,495 in fiscal 1996.
Liquidity and Capital Resources
As of March 31, 1997 and March 31, 1996, accounts receivable were
$3.5 million (29% of total assets) and $4.8 million (35% of total assets),
respectively. The Company's liquidity is primarily affected by its
management and collection of accounts receivable. The home health care
industry is characterized by longer collection cycles, since most
third-party payors require detailed documentation to support reimbursement
claims and review reimbursement claims prior to payment. The Company
generally has experienced collection cycles of its accounts receivable of
approximately 60-70 days and has not experienced material amounts of
write-offs. The Company is designated to receive periodic interim
payments (PIP) for its Medicare services rendered in the State of Florida.
PIP allows the Company to collect estimated payments every other week for
Medicare services, with an accounting after the quarter to verify the
actual amount of Medicare services rendered. There can be no assurance
that the Company will retain its designation to receive PIP. Further, the
Company's Medicare business is subject to increasing scrutiny and Medicare
audits which may result in denied claims for reimbursement and write-offs
of accounts receivable. If a Medicare audit revealed substantial
overpayments to the Company for Medicare visits or resulted in the denial
of reimbursement for a material number of visits, it would likely have a
material adverse impact on the Company's results of operations and
financial condition.
The Company has completed five acquisitions since August 1992, and
intends to continue to achieve growth through acquisitions. To pursue its
acquisition strategy, the Company may incur additional short-term and
long-term borrowings and/or issue additional shares of Common Stock or
other securities. The Company does not currently have any commitments,
understandings or agreements with respect to any acquisitions.
The Company began the implementation of a new management information
system during fiscal 1997. The cost incurred during 1997 was
approximately $250,000. The remaining cost approximates $350,000. These
costs will be capitalized over a period of 12 to 60 months.
During fiscal 1996 the company secured a new line of credit for
$1.0 million which is fully secured by a $1.0 million certificate of
deposit. Interest accrues at a rate equal to the lender's certificate of
deposit rate (6.87% as of March 31, 1997) plus 1.75%. This line was fully
drawn as of March 31, 1997.
The Company also has renegotiated and renewed an existing line of
credit for $275,000 which is fully secured by a $275,000 certificate of
deposit. Interest accrues at a rate equal to the lender's certificate of
deposit rate (8.5% as of March 31, 1997) plus 2.0%. $272,000 was drawn as
of March 31, 1997.
Pennsylvania Medical Concepts has a $150,000 line of credit secured
by accounts receivable of that agency. Interest accrues at a rate equal
the lender's prime rate plus .5%. There was $50,000 outstanding as of
March 31, 1997.
At March 31, 1997 there were two (2) letters of credits for $500,000
and $150,000 respectively, both secured by certificates of deposits. The
$500,000 letter was returned and released in April 1997 and the $150,000
was issued in favor of a third party government payor to secure
performance under the contract.
In connection with the Company's acquisition of Parke Home Health
Care effective January, 1996, the Company financed 50% of the acquisition
with a 30 month term loan payable to the previous owners of Parke. The
outstanding principal balance on the note at March 31, 1997 was
approximately $216,000. Interest accrues on the Parke loan at the rate of
eight percent (8%) per annum and is secured by the outstanding stock of
Parke purchased by the Company. In connection with the Company's
acquisition of Florida Nursing in fiscal 1993, the Company financed the
acquisition in part with a three-year term loan payable to the previous
owners of Florida Nursing. This loan was repaid in fiscal 1996.
Similarly, in connection with the Company's acquisition of Total
Professional in fiscal 1993, the Company financed the acquisition in part
with a three-year term loan payable to the previous owner of Total
Professional. This loan was also repaid in fiscal 1996.
The Company's net income has been and will continue to be impacted
significantly by the non-cash charge of amortization expense of intangible
assets of the Company. At March 31, 1997, net intangible assets of the
Company were $4.8 million. The amortization of intangible assets in the
future will decrease net income or increase net loss of the Company and
may adversely affect the market price of the Company's securities.
Historically, the Company has grown through acquisitions of
complementary businesses, which generally requires the Company to expend
cash to integrate the operations of the acquired businesses. During
fiscal 1996, operations generated cash and the Company's expansion
activities did not require the use of operating funds. The Company's
investing activities used approximately $6.1 million primarily as a result
of the purchase of NuMED Rehabilitation and the acquisition of Parke Home
Health Care. The operating losses during fiscal 1997 were offset by
operating activities of collection on accounts receivable and by financing
activities through additional borrowing on the lines of credit. There was
no expansion activity in fiscal 1997 as the company maintained its market
position during this past year.
The Company funded its cash flow requirements through borrowings,
sales of its equity securities and the cash generated internally from
operations. The Company believes that its current cash reserves, current
cash flow and the funds available under its credit facilities will allow
the Company to continue to meet its expected operating expenses and
working capital needs for at least the next 12 months. Subsequent to the
fiscal year end the Company entered into a $4 million dollar revolving
line of credit with DVI, Inc. This line will be secured by accounts
receivable at an interest rate of 1.5% above prime.
To achieve the Company's acquisition strategy, the Company may be
required to seek additional financing and/or issue additional shares of
Common Stock or other securities. There can be no guarantee that sales
of the Company's equity securities will be an available alternative to
obtain additional financing in the future. This may adversely impact the
Company's ability to make additional strategic acquisitions. No
additional funding for any of these purposes has been committed to date.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following documents are filed as a part of this report at the
pages indicated:
Page
1. Report of Independent Auditors F-1
2. Consolidated Balance Sheets as of
March 31, 1997 and 1996 F-2
3. Consolidated Statements of Operations for
the Years Ended March 31, 1997 and 1996 F-3
4. Consolidated Statements of Stockholders'
Equity for Years Ended March 31, 1997
and 1996 F-4
5. Consolidated Statements of Cash Flows for
the Years Ended March 31, 1997 and 1996 F-5
6. Notes to Consolidated Financial Statements F-6
<PAGE>
Report of Independent Auditors
To the Stockholders and Board of Directors of
NuMED Home Health Care, Inc. and Subsidiaries
Clearwater, Florida
We have audited the consolidated balance sheets of NuMED Home Health Care,
Inc. and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of NuMED Home Health Care, Inc. and subsidiaries as of March 31,
1997 and 1996, and the consolidated results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Cleveland, Ohio ERNST & YOUNG
LLP
June 20, 1997
<PAGE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS March 31
1997 1996
Current assets:
Cash and cash equivalents $797,440 $1,494,860
Cash securing contractual arrangements 1,875,000 1,417,014
--------- ---------
2,672,440 2,911,874
Accounts receivable, net of allowance for
doubtful accounts of $302,507 in 1997
and $125,707 in 1996 3,545,782 4,788,715
Note receivable 0 106,966
Prepaids, inventories, and other current 282,093 227,498
--------- ---------
Total current assets 6,500,315 8,035,053
Property and equipment, net 389,017 259,138
Goodwill, net of amortization of $753,570
in 1997 and $407,347 in 1996 4,426,563 4,719,826
Other intangible assets, net of
amortization of $1,796,412 in 1997 and
$1,621,857 in 1996 348,958 474,954
Deferred tax and other 551,447 32,110
---------- ----------
Total assets $12,216,300 $13,521,081
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $289,844 $550,117
Accrued salaries and payroll related 1,421,538 1,337,663
Accrued expenses 412,517 530,680
Estimated amounts due to third party
payors 158,282 56,472
Current portion of long-term obligations 614,331 206,343
--------- ---------
Total current liabilities 2,896,512 2,681,275
Long-term obligations, less current
portion 1,112,807 659,027
--------- ---------
Total liabilities 4,009,319 3,340,302
Stockholders' equity:
Preferred stock, authorized 2,000,000, no
shares issued or outstanding 0 0
Common stock, $.001 par value, authorized
48,000,000 shares, 5,010,219 shares
issued 5,010 5,010
Additional paid-in capital 10,679,113 10,708,176
Treasury stock, 67,075 and 46,023 shares
of common stock, at cost, respectively (134,821) (68,138)
Accumulated deficit (2,342,321) (464,269)
---------- ----------
Total stockholders' equity 8,206,981 10,180,779
---------- ----------
Total liabilities and stockholders' equity $12,216,300 $13,521,081
========== ==========
See notes to consolidated financial statements
<PAGE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended March 31
1997 1996
Revenues $24,590,951 $24,133,516
Direct expenses 19,411,870 18,006,706
---------- ----------
Gross profit 5,179,081 6,126,810
General and administrative expenses:
Salaries and benefits 3,500,172 3,350,915
Operating expenses 976,704 708,787
Professional fees 403,276 327,304
Occupancy expenses 840,157 707,107
Insurance 342,651 239,712
Amortization and depreciation 651,897 629,101
Bad debt expense 243,191 58,410
Other contractual settlement (see
note J.) 899,000 0
---------- ----------
Total general and administrative 7,857,048 6,021,336
---------- ----------
Operating income (loss) (2,677,967) 105,474
Other revenues (expenses):
Interest income 91,882 108,963
Interest expense (96,816) (22,197)
Other 28,538 (12,842)
Total other revenues (expenses), net 23,604 73,924
---------- ----------
Income (loss) before income tax
expense (benefit) (2,654,363) 179,398
Income tax expense (benefit) (776,311) 69,903
---------- ----------
Net income (loss) $(1,878,052) $109,495
========== ==========
Per share:
Net income (loss) $(.38) $.02
===== =======
Weighted average shares outstanding 4,929,752 4,954,824
See notes to consolidated financial statements
<PAGE>
<TABLE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Unrealized
Gain (loss)
Additional on
Common Stock Paid-in Accumulated Marketable Treasury Stock
Shares Dollars Capital (Deficit) Securities Shares Dollars Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1,
1995 5,010,219 $5,010 $10,665,403 $(573,764) $(51,686) (409,020) $(492,000) $9,552,963
Net income for the
year 109,495 109,495
Unrealized gain on
marketable securities 51,686 51,686
Other 6,000 6,000
Acquisition of assets
from Rehab America,
Inc. 32,637 297,715 358,114 390,751
Shares issued under
employee stock
purchase plan 3,275 81,282 97,772 101,047
Purchase treasury shares (21,000) (38,038) (38,038)
Private placement of
restricted stock for
consulting services 861 5,000 6,014 6,875
--------- ------- ---------- ---------- ------- -------- ---------- ----------
Balance at March 31,
1996 5,010,219 5,010 10,708,176 (464,269) 0 (46,023) (68,138) 10,180,779
Net (loss) for the year (1,878,052) (1,878,052)
Exercise of options (1,684) 20,000 30,885 29,201
Shares issued under
employee stock
purchase plan (27,379) 58,948 103,432 76,053
Purchase treasury shares (100,000) (201,000) (201,000)
---------- -------- ---------- ---------- ------- --------- ---------- ----------
Balance at March 31,1997 5,010,219 $5,010 $10,679,113 $(2,342,321) $0 (67,075) $(134,821) $8,206,981
========= ======== ========== ========== ======= ========= ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31
1997 1996
Cash flows from operating activities
Net Income (loss) $(1,878,052) $109,495
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 651,897 629,101
Cash securing contractual arrangements 42,014 (142,014)
Loss on sale of marketable securities 0 14,301
Loss on sale of or disposal of
property, plant and equipment 269 4,540
Increase (decrease) in cash due to net
changes in operating assets and
liabilities:
Accounts receivable 1,226,824 (1,177,777)
Prepaids and other current assets (54,595) (4,387)
Accounts payable and accrued
expenses (229,602) 1,181,832
Deferred charges and other (519,337) (2,403)
---------- ----------
Net cash provided by (used in) operating
activities (760,582) 612,688
Cash flows from investing activities
Sale of marketable securities 0 209,348
Purchase of property and equipment (261,267) (142,441)
Acquisition of assets from Rehab America,
Inc., net of cash acquired 0 (5,134,007)
Acquisition of Parke Home Health Care,
Inc., net of cash acquired 0 (745,459)
Purchase of accounts receivable lists (48,559)
Purchase of accounts receivable from factor 0 (242,327)
---------- ----------
Net cash provided by (used in) by
investing activities (309,826) (6,054,886)
Cash flows from financing activities
Proceeds from short/long-term borrowings 2,335,200 946,609
Payments of short/long-term borrowings (1,473,432) (377,736)
Proceeds from issuance of stock through
employee purchase plan 76,053 101,047
Proceeds from issuance of stock through
exercise of stock options 29,201 0
Cash securing line of credit (500,000) (1,000,000)
Purchase of treasury stock (201,000) (38,038)
Collection (issuance) of note receivable 106,966 (106,966)
Other 0 6,000
---------- -----------
Net cash provided by (used in) financing
activities 372,988 (469,084)
---------- -----------
Increase (decrease) in cash and cash
equivalents (697,420) (5,911,282)
Cash and cash equivalents at beginning of
year 1,494,860 7,406,142
---------- ----------
Cash and cash equivalents at end of year $797,440 $1,494,860
Supplemental disclosure
Interest paid during the year $94,270 $22,495
======== =========
Income taxes paid during the year $0 $91,433
Non-cash transactions
Common stock issued for acquisition of
assets from Rehab America, Inc.
(275,000 shares) - $360,938
======== =========
Common stock issued for consulting services
(22,715 shares) - $29,813
======== =========
Common stock issued for consulting services
(5,000 shares) - $6,875
======== =========
See notes to consolidated financial statements
<PAGE>
NuMED Home Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of NuMED Home
Health Care, Inc. (NuMED or the Company) and its wholly owned
subsidiaries: Whole Person Home Health Care of Ohio, Inc. (Whole Person
in OH) and subsidiaries, Whole Person Home Health Care, Inc. (Whole Person
in PA) and Pennsylvania Medical Concepts, Inc. (PA Medical Concepts),
Whole Person Home Health Care of Florida, Inc. dba Total Professional
Health Care (Total Professional), Silver Moves, Inc. dba Florida Nursing
Services (Florida Nursing), Countryside Health Services, Inc.
(Countryside), NuMED Rehabilitation (NuMED Rehab) and Parke Home Health
Care, Inc. (Parke). Intercompany transactions between NuMED and its
subsidiaries have been eliminated in the consolidated financial
statements.
Services
NuMED is a holding company that provides home health care services and
temporary staffing of nursing personnel as well as contractual staffing of
physical, occupational and speech therapists to various health care
facilities through its eight subsidiaries. Home health services are
provided in certain markets of Florida, Ohio and Pennsylvania. Therapy
services are provided in certain markets of Ohio, Pennsylvania, Illinois,
Indiana, Kentucky, Maryland and New Jersey.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Revenues
Net revenues for health care services are recorded at established rates
less contractual allowances and discounts. Revenues are recorded as
services are performed. The Company has arrangements with certain third-
party payors under which the Company is paid a prospectively determined
price for services provided. Contractual adjustments under reimbursement
agreements with third-party payors, including retroactive adjustments, are
estimated and accrued in the period which services were rendered.
Estimates are adjusted, if necessary, in the period final settlements are
determined.
The revenues received from third-party payors for the years ended
March 31, 1997 and 1996 were approximately $8,020,000 and $7,600,000,
respectively. Certain of these revenues (primarily Medicare) are subject
to cost reimbursement principles and are subject to audit and retroactive
adjustment by the respective third-party fiscal intermediaries.
Allowances are provided, as necessary, to reflect the excess of the
established rates over rates based on third-party arrangements. Laws and
regulations governing the Medicare program are complex and subject to
interpretation. The Company believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing.
While no such regulatory inquires have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory penalties.
NuMED recognized 16% and 17% of its gross revenue from a single customer
in 1997 and 1996, respectively. This customer terminated their
relationship in fiscal 1998.
Cash and Cash Equivalents
Cash equivalents represent highly liquid investments with original
maturities of less than 90 days. Cash and cash equivalents excludes
$1,875,000 of cash used to secure contractual obligations.
Inventories
Inventories are carried at the lower of cost using the FIFO (first-in,
first-out) method or net realizable value. Inventories consist of
disposable medical supplies.
Property and Equipment
Property and equipment are stated at cost and are depreciated on the
straight-line basis over their estimated useful lives (five years) for
financial and tax reporting purposes. Repairs and maintenance costs are
expensed as incurred. Additions, betterments, and major renewals are
capitalized.
Goodwill
Goodwill, representing the excess of the cost over the net assets of
acquired businesses, after allocation to other identifiable intangible
assets, is amortized on the straight-line basis over fifteen years. The
carrying value of goodwill is reviewed at each balance sheet date to
determine whether goodwill has been impaired. If this review indicates
that goodwill will not be recoverable, as determined based on the
undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill would be
reduced based on the estimated shortfall of discounted cash flows at such
time an impairment in value of goodwill has occurred. Based on the
Company's review as of March 31, 1997, no impairment of goodwill was
evident.
Other Intangible Assets
Other intangible assets consist of customer lists, covenants not to
complete and various leaseholds and are amortized over their estimated
useful life up to a maximum of 10 years.
Earnings Per Share
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding plus the shares that would
be outstanding assuming exercise of dilutive stock options. The number of
shares that would be issued from the exercise of stock options has been
reduced by the number of shares that could have been purchased from the
proceeds at the average market price of the Company stock.
In February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards Number 128, Earnings Per
Share, which establishes new simplified standards for computing and
presenting earnings per share (EPS). Concurrently, the FASB issued
Statement of Financial Accounting Standards Number 129, Disclosures of
Information About Capital Structure, which consolidates existing guidance
relating to a Company's capital structure. Both of these standards are
effective for the Company's fiscal year ending March 31, 1998 and require
restatement of prior years reported EPS. The adoption of these new
standards will not have a material effect on the amounts and per share
data reported.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APBO No. 25), and related
interpretations, in accounting for its employee stock options and warrants
because, as discussed below, the alternative fair value accounting
provided for under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS No. 123), requires use of
highly subjective assumptions in option valuation models. Under APBO No.
25, because the exercise price of the Company's employee stock options and
warrants is not less than fair market price of the shares at the date of
the grant, no compensation expense is recognized in the financial
statements. Pro forma information regarding net income and earnings per
share, determined as if the Company had accounted for its employee stock
options and warrants under the fair value method of SFAS No. 123, is
required by that statement for 1997 and 1996. Refer to footnote G.
B. Business Combinations
On April 4, 1995, through its newly formed subsidiary, NuMED
Rehabilitation, the Company acquired substantially all the assets of North
American Rehabilitation, Inc., and Care Management Services, Inc. for
approximately $5.5 million ($5.1 million of cash and 297,715 shares of
NuMED stock valued at $1.32 per share). The acquisition was accounted for
as a purchase.
Effective January 1, 1996, the Company acquired all of the outstanding
stock of Parke Home Health Care, Inc. for a total purchase price of
approximately $779,000, one-half of which was paid in cash at closing with
the remaining one-half payable over a period of thirty months with
interest accruing on the unpaid principal balance at the rate of 8% per
year.
The following unaudited pro forma results of operations for fiscal 1996
assumed the acquisition of Parke Home Health Care, Inc. had taken place
at the beginning of the fiscal year. The pro forma results have been
prepared for comparative purposes only and do not purport to be indicative
of the results of operations which actually would have resulted had the
acquisition occurred on the date indicated.
Unaudited Pro Forma
For the Year Ended March 31,
1996
Net revenue $25,611,801
Gross profit 6,499,065
Net income 207,285
Net income per share $.04
C. Property and Equipment
Property and equipment consist of the following:
March 31
1997 1996
Equipment
$453,566 $204,096
Furniture and fixtures 107,831 110,720
Leaseholds 76,199 61,781
------- --------
637,596 376,597
Less accumulated depreciation 248,579 117,459
------- -------
$389,017 $259,138
======= =======
D. Note Receivable
In connection with a contemplated merger of NuMED with International
Nursing, Inc. (INS), NuMED made a working capital loan to INS for $100,000
at a 12% interest rate. The anticipated merger was terminated and the
loan was repaid in April 1996.
E. Long-Term Debt Obligations
Long-term obligations consist of the following: March 31
1997 1996
$275,000 line of credit with interest payable
monthly at a rate of 200 basis points above the
90 day certificate of deposit rate (8.5% at March
31, 1997). This agreement is collateralized by a
$275,000 certificate of deposit. Principal is
due and payable no later than July 7,1997.
$272,000 $0
$150,000 line of credit with interest payable
monthly at a rate of 50 basis points above the
prime rate as published by National City Bank
(9% at March 31, 1997). $50,000 of this line is
reserved for a letter of credit. This agreement
is collateralized by accounts receivable.
Principal is due and payable on demand. 50,000
0
$150,000 line of credit with interest payable
monthly at the prime rate as published by Fifth
Third Bank (8.5% at March 31, 1997). This
agreement is collateralized by all accounts
receivable and all the assets of Parke Home
Health, Inc. Principal is due and payable no
later than May 6, 1997. 75,000 20,000
30 month term note payable to the previous owners
of Parke Home Health Care, Inc. in monthly
principal installments of $11,987 through
October 1, 1998 at an annual rate of 8%. The
note is secured by the common stock of Parke
Home Health, Inc.
215,768 359,613
30 month term note payable for consulting
services for the acquisition Parke Home Health
Care, Inc. in monthly principal installments of
$833 through October 1, 1998 at an annual rate
of 8%. The note is secured by the common stock
of Parke Home Health, Inc.
15,000 25,000
36 month term note payable in monthly principal and
interest installments of $1,389 through March 15,
2000 at an annual rate of 10%. This note is
unsecured.
43,043 0
$1,000,000 line of credit with interest payable
monthly at a rate of 175 basis points above the
90 day certificate of deposit rate (6.87% at
March 31, 1997). This agreement is
collateralized by a $1,000,000 certificate of
deposit. Principal is due and payable no later
than May 15, 1998. 1,000,000 359,613
Other 56,327 101,144
---------- ----------
1,727,138 865,370
Less current portion of long-term obligations 614,331 206,343
---------- ----------
$1,112,807 $659,027
========== ==========
The amounts of long-term obligations due in each of the next five years
are as follows:
1998 $614,331
1999 1,096,139
2000 16,668
2001 0
2002 0
Thereafter 0
---------
$1,727,138
==========
As of March 31, 1997, NuMED has $128,000 available out of a total of
$1,575,000 on existing lines of credit.
During 1997, a $500,000 letter of credit was obtained and secured by a
$500,000 certificate of deposit. In April 1997, this letter of credit was
returned to the Company. In addition, there are two letters of credit for
$100,000 and $50,000, expiring July 1998 and October 1997, respectively.
These are required for a third party payor government contract in
Pennsylvania. They are secured by a $100,000 certificate of deposit and
$50,000 reserve on an existing line of credit. These certificates of
deposit are classified as cash securing contractual agreements.
F. Stockholders' Equity
During 1997 and 1996, NuMED purchased 100,000 shares at $2.01 per share
and 21,000 shares at $1.81 per share, respectively.
G. Stock and Benefit Plans
The Company has three stock plans and may not grant options in excess of
15% of the issued and outstanding shares of Common Stock for a one year
period ended February 8, 1996. NuMED does not contribute to any of the
plans.
Pre-Plan Stock Options
During 1992 and 1993, the Board of Directors reserved 300,000 shares of
common stock for the formation of a stock plan for executives. 220,000
shares were granted based at the average bid price which ranges from $2.19
to $5.00. As of March 31, 1997, no options have been exercised.
1994 Employee Stock Option Plan
Effective April 6, 1995, this plan provides for the grant of incentive
stock options and non-qualified stock options to purchase up to 750,000
shares of Common Stock. Each option will have an exercise price equal to
the fair market value of the Common Stock on the date of the grant, except
for the grants of incentive stock options to beneficial owners of 10% or
more of the Common Stock, which will contain an exercise price equal to
110% of fair market value on the date of grant. Employees and officers of
NuMED and its subsidiaries are eligible to participate in the 1994 Plan.
On April 18, 1995, 200,000 options were granted to five officers of the
Company at a price of $1.22 and 50,000 options were granted to one officer
of the Company at a price of $1.34. On September 1, 1996, 10,000 options
were granted to one officer of the Company at $1.70. On March 29, 1996,
60,000 options were granted to three officers of the Company at price of
$2.37 and a block of up to 100,000 options to be granted at the discretion
of management was authorized at $2.37 of which 72,000 were granted. A
total of 392,000 options were granted during the year.
On April 1, 1996, 180,000 options were issued to two officers of the
Company at prices ranging from $2.37 to $2.61. The options are
exercisable after a six month holding period. As of March 31, 1997, under
the 1994 Employee Stock Option Plan, 20,000 options have been exercised.
Employee Stock Purchase Plan
Effective April 6, 1995, regular full-time or part-time employees
(excluding those who work less than 20 hours per week, those who have not
completed a ninety day orientation period and those employees who own 5%
or more of the Common Stock ) are permitted to purchase Common Stock at
85% of the fair market value up to a maximum of 15% of his or her total
annual compensation. The plan limits total employee purchases to a
maximum of 250,000 shares and individual employee purchases to $25,000
annually. Payroll deductions commenced in May, 1995.
Outside Director and Advisory Board Member Stock Option Plan
This plan provides for an annual grant of non-qualified stock options to
each outside director of NuMED who is not an employee and to each advisory
board member who is a professional representing each medical area in which
NuMED provides services. Each option has an exercise price equal to the
fair market value of the Common Stock on the date of grant, and options
vest over a three year period with one third vesting on each anniversary
date of the grant. Currently, NuMED has approximately 28 outside advisory
board members and 5 outside directors. Advisory Board Members who refer
clients to NuMED are not permitted to participate in the plan. The first
date of grant was July 1, 1994 and options to purchase 48,240 shares of
Common Stock were granted to outside directors and 19,880 options were
granted for eligible Advisory Board Members in both fiscal 1996 and 1995.
On July 1, 1996, 60,300 options to purchase were granted to outside
directors and 18,460 options were granted to Advisory Board Members. As
of March 31, 1997, 22,716 options have vested.
401(K) Plan
Effective September 1, 1995, NuMED sponsors a 401(k) plan. Regular full-
time or part-time employees (excluding those who have not completed a
ninety day orientation period and those who work less than 500 hours per
year) are eligible to participate in the plan. NuMED may contribute to
the plan on a discretionary basis. There is a one-year service requirement
for participation in the employer discretionary matching contribution and
a two-year cliff vesting requirement for each discretionary employer
contribution. NuMED did not contribute to the plan during 1997 or 1996.
Warrants
During fiscal 1997, warrants for the purchase of 810,000 common shares
were issued to two officers of the Company, resulting from an amendment to
their employment agreements. These warrants are exercisable at $2.75 and
forfeited if not exercised during the terms of the employment agreements.
The fair value for the above options and warrants was estimated at the
date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for all options and warrants
granted in 1997 and 1996:
1997 1996
Risk-free interest rate 6.36% 6.38%
Expected life of option 3 years 3 years
Expected dividend yield of stock 0.00% 0.00%
Expected volatility of stock 0.891 0.830
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and
are fully transferable. Because the Company's employee stock options and
warrants have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, it is management's opinion that
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
The amounts below represent the pro forma information calculated through
the use of the Black-Scholes model. For purposes of pro forma
disclosures, the estimated fair value of the options and warrants is
amortized to expense over the options' vesting period.
1997 1996
Pro forma net income $(2,494,000) $10,000
Pro forma earnings per share $(.50) $(.00)
Due to the required phase-in provisions, the effects of applying SFAS No.
123 to arrive at the above pro forma amounts are not representative of the
expected effects on pro forma net income or earnings per share in future
years.
A summary of the Company's stock option activity, and related information
for the years ended December 31, 1997and 1996 is shown in the following
table in accordance with SFAS No. 123
beginning in 1996:
<TABLE>
<CAPTION>
1997 1996
Weighted- Weighted-
Average Average
Optioned Exercise Optioned Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding beginning of year 1,194,120 $3.28 688,120 $4.49
Granted - Market price equals exercise price 218,760 2.64 520,120 1.72
Granted - Market price is greater than exercise price - - 10,000 1.70
Granted - Market price is less than exercise price 850,000 2.74 50,000 1.34
Exercised (20,000) 1.46 - -
Canceled (74,840) 2.08 (74,120) 2.08
--------- ----- --------- -----
Outstanding at end of year 2,168,040 $3.06 1,194,120 $3.28
========= ========= =====
Exercisable at end of year 2,034,666 $3.09 838,696 $3.73
Weighted-average fair value of options granted during
year -
Market price equals exercise price $1.46 $1.01
Market price is greater than exercise price - $1.25
Market price is less than exercise price $0.72 $0.63
Reserved for future grants 340,000 488,000
------- -----------------------------------------
</TABLE>
Exercise prices for optioned shares outstanding as of March 31, 1997
ranged from $1.22 to $5.17. A summary of these options by range of
exercise prices is shown as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
Optioned Weighted- Optioned Weighted- Weighted-Average
Shares Average Shares Average Remaining
Exercise Exercise Contractual
Range of Exercise Prices Price Price Life (years)
<S> <C> <C> <C> <C> <C>
<$2.00 264,640 $1.29 228,222 $1.27 3.25
$2.00 - $2.99 1,230,000 2.60 1,230,000 2.60 4.00
$3.00 - $3.99 193,400 3.26 96,444 3.35 3.48
$4.00 - $4.99 - - - - -
>$5.00 480,000 5.14 480,000 5.14 2.86
--------- ----- --------- ----- ----
2,168,040 $3.06 2,034,666 $3.09 3.61
========= ===== ========= ===== ====
</TABLE>
H. Commitments and Contingencies
Professional Liability Insurance
NuMED carries professional liability insurance for $1,000,000 per
occurrence and aggregate claims up to $3,000,000 per year for its Home
Health division and $2,000,000 per occurrence and aggregate claims up to
$4,000,000 per year for its Rehabilitation division.. The Company has no
pending malpractice claims.
Employee Group Insurance
NuMED is partially self-insured for its employee health insurance. The
Company has accrued its best estimate of self-insured liabilities,
including incurred but not reported claims. NuMED is responsible for
individual employee claims up to $35,000 and aggregate claims up to a
certain pre-determined amount annually based upon plan participation.
Litigation
On January 31, 1996, a class action suit was filed in the United States
District Court for the Middle District of Florida, Tampa Division against
NuMED Home Health Care., A.T. Brod & Co. and a principal shareholder. The
plaintiff alleges that failure to disclose the net capital position of
A.T. Brod & Co., Inc. caused the disclosure in the Company's prospectus
dated February 8, 1995, to be materially misleading. In response to the
complaint, the Company filed its answer and a corresponding motion to
dismiss. On July 25, 1996, the United States District Court for the
Middle District of Florida, Tampa Division, granted the Company's motion
dismissing the complaint in its entirety. In response, the Plaintiff
filed a subsequent motion to alter or amend the judgment granting the
Company's motion to dismiss. The Court has not yet ruled on this motion.
Management believes that the action is frivolous and without merit and
intends to vigorously contest any restated allegations.
Lease Commitments
The Company leases its office space and equipment under various operating
leases. Rent expense for the years ended March 31, 1997 and 1996 was
approximately $532,000 and $392,000, respectively. Future lease
commitments are as follows:
1998 340,108
1999 167,206
2000 64,750
2001 13,212
2002 2,514
Thereafter 0
I. Related Party Transactions
Several lease agreements were entered into by the Company with Bancapital
Corporation (Bancapital), which is owned and controlled by a principal
shareholder of NuMED. The agreements provide that Bancapital will furnish
certain office furniture and equipment in return for lease payments.
Management believes these payments are reasonable and customary for the
equipment provided. NuMED leased the office furniture and equipment from
Bancapital for a total cost of $28,000 in 1997 and $32,000 in 1996.
Bancapital entered into a contract for the lease of one of NuMED's
offices. The lease is guaranteed by a principal shareholder of NuMED.
NuMED paid the office lease directly. This arrangement was terminated
March 31, 1997.
J. Other contractual settlement
The Rehabilitation division's largest customer is currently undergoing a
routine Medicare audit of its cost report. The customer's fiscal
intermediary, in its interpretation of the Medicare prudent buyer
guidelines, has concluded that the cost of certain professional contract
therapy services provided by the Company exceeded these guidelines.
Management believes that the fiscal intermediary conducting this audit has
applied an overreaching and erroneous interpretation of applicable
reimbursement guidelines.
The Company was contractually obligated to repay this key client the
amount of Medicare disallowed costs of $899,000 and has recorded an
estimated aggregate reserve. The estimated settlement for the first year
of the contract which is currently being audited is approximately
$197,000. The estimated settlement for the second year of the contract
which is still unaudited is approximately $702,000.
The Company is optimistic that some or all of the disallowed costs will be
recovered in the appeal process. The Company has reached an agreement with
its client that the appeal of 1995 disallowed costs will not be pursued.
However, the Company intends to vigorously pursue all avenues of appeal to
recover disallowed costs for 1996.
K. Income Taxes
The provision for income taxes consists of the following:
1997 1996
Federal:
Current $(171,313) $26,236
Deferred (604,998) 27,981
-------- -------
(776,311) 54,217
State and local 0 15,686
-------- --------
Total $(776,311) $69,903
======== ========
Deferred taxes reflect the impact of temporary differences between the
financial statements and tax bases of assets and liabilities, primarily
relating to accrued expenses and net operating losses.
The components of deferred tax assets and liabilities are as follows:
1997 1996
Deferred tax assets:
Net operating loss carry forward $19,825 $0
Accounts receivable reserves 576,471 8,471
Accrued expenses 67,726 57,457
Depreciation and amortization 305 (5,119)
Other 1,480 0
-------- --------
665,807 60,809
Deferred tax liabilities 0 0
-------- --------
Net deferred tax assets $665,807 $60,809
======== ========
Current deferred tax assets 144,197 60,809
Long-term deferred tax assets 521,610 0
-------- --------
Net deferred tax assets $665,807 $60,809
======== ========
A reconciliation to the effective income tax rate to the federal statutory
rate follows:
1997 1996
Tax at statutory rate (34%) 34%
Amortization of excess purchase price 2 20
Nondeductible expenses 1 6
State and local taxes-net of federal 0 3
benefit
Other, net 2 (4)
Benefit of net operating loss carry 19 (7)
forward
Prior years tax adjustment 0 (13)
---- ----
(10%) 39%
==== ====
The Company has a net operating loss carry forward, net of carry backs,
of approximately $1,593,000 which will be available to offset future
taxable income through fiscal 2012.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to
the directors and executive officers of the Company.
Name Age Position with Company
Jugal K. Taneja 53 Chairman of the Board, Chief Executive
Officer and Director
Susan J. Carmichael 49 President and Director
Robert P. Ottman 54 Director
Thomas V. Chema 49 Director
Judi M. Kelly 41 Director
Each director holds office until the next annual meeting of
stockholders and until his or her successor has been elected and
qualified. During Fiscal 1996, James P. Witherington and Dr. Nayan S.
Shah resigned their positions as members of the Board of Directors.
During fiscal year 1997, Michael J. Diroff and Mark E. Rowland resigned
their positions as members of the Board of Directors. Pursuant to the
Company's Regulations, a majority of the Directors elected Judi M. Kelly
to fill the vacancy created by Mr. Witherington's resignation.
Pursuant to Article X of the Company's By-Laws, on January 20, 1996,
the Board of Directors amended the By-Laws to classify the members of the
Board of Directors into three groups of not less than two nor more than
three Directors each, with terms expiring in alternate years. As a
result, the term of office of Messrs. Diroff and Rowland expire at the
1996 Annual Meeting of Shareholders, the term of office of Mr. Chema and
Ms. Kelly expire at the 1997 Annual Meeting of Shareholders, and the term
of office of Ms. Carmichael and Messrs. Taneja and Ottman expire at the
1998 Annual Meeting of Shareholders. At present there are two vacancies.
Jugal K. Taneja has been Chairman of the Board, Chief Executive
Officer and a Director of the Company since October 1991. Mr. Taneja also
serves as a director, and as Chief Executive Officer and Secretary of
National Diagnostics, Inc. Mr. Taneja also served as a director and the
Chief Executive Officer of NuWave Health Care Products, Inc. the parent
company of DRx, Inc., and the Chief Executive Officer of DRx, Inc. Prior
to his association with the Company, Mr. Taneja served as Senior Vice
President of Union Commerce Bank and Huntington National Bank from 1979 to
1983.
Susan J. Carmichael has served as a Director of the Company since
October 1991 and as President of the Company since September 1993. She has
held the position of President of Whole Person in PA and PA Medical
Concepts (companies acquired by the Company in 1991) since 1985 and is
responsible for the Company's overall operation and expansion. Ms.
Carmichael also serves on the President's Council; American Lung
Association. Ms. Carmichael previously served on the Erie County,
Pennsylvania Mental Health and Mental Retardation Board by appointment of
the Erie County Executive. Ms. Carmichael is a Doctoral Candidate at
Pennsylvania State University.
Robert P. Ottman has served as a Director of the Company since 1991.
Mr. Ottman formed R. Ottman & Co. in 1989, a strategic management
consulting firm. Prior to forming R. Ottman & Co., Mr. Ottman held six
positions each of increasing responsibility over the five years of his
employment at AMSCO. Mr. Ottman currently serves as Executive Vice
President of Champion Bolt Corporation, Erie, Pennsylvania.
Thomas V. Chema has been a Director of the Company since April 1994.
Mr. Chema is a partner with the law firm Arter & Hadden, Cleveland, Ohio
from 1979 to 1983 and since 1989. He also currently serves as the
President of Gateway Consultants Group, Inc. assembly facility
construction and development. Mr. Chema is also the President of IMN,
Inc. which is engaged in the fiber optics business. He previously served
as Executive Director of the Ohio Lottery Commission and the Public
Utilities Commission at various times between 1983 and 1989. He also
served as Executive Director of the Gateway Economic Development
Corporation of Greater Cleveland, which managed the financing and
construction of the Jacobs Field and Gund Arena sporting venues.
Judi M. Kelly has been a practicing healthcare professional for the
past 18 years. Prior to forming her consulting business in July, 1990,
Ms. Kelly was engaged in public accounting as a Certified Public
Accountant. Ms. Kelly has worked for Aetna Life & Casualty, where she
managed audits of hospitals, nursing homes and home health agencies, and
Hospital Corporation of America. Ms. Kelly has also held the position of
Assistant Director of Finance at Orlando Regional Medical Center and in
1990 was appointed to the editorial board of The Reimbursement Advisor, a
national healthcare publication.
Board Committees
The Board of Directors has established standing Audit, Compensation,
Capital, Executive and Nominating Committees. In addition, the Company
has three committees to administer each of the Company's stock plans
described below. See "Executive Compensation-Stock Plans."
The Audit Committee recommends the engagement, continuation and
discharge of the Company's independent auditors, reviews the scope and
timing of the audit of the Company's financial statements, approves the
fee arrangement with the Company's independent auditors, reviews the
Company's financial statements and the independent auditors' report,
reviews the activities and recommendations of the Company's independent
auditors, considers recommendations made by the Company's independent
auditors regarding the Company's internal control structure, and reviews
the Company's internal accounting procedures and controls with the
Company's financial and accounting staff. The members of the Audit
Committee are Messrs. Chema and Ottman, and Kelly.
The Compensation Committee establishes the Company's executive
compensation policy, including the recommendation of compensation
arrangements for the Company's executive officers and directors. The
members of the Compensation Committee are Messrs. Chema, Ottman and Ms.
Kelly.
The Capital Committee reviews and oversees the Company's investment
policy. The members of the Capital Committee are Ms. Carmichael and
Messrs. Ottman and Taneja.
The Executive Committee consists of Ms. Carmichael, Ms. Kelly and Mr.
Taneja and the Nominating Committee consists of Messrs. Taneja, Ottman and
Chema.
The Outside Director and Advisory Board Member Stock Option Plan
Administration Committee consists of Messrs. Taneja and Ms. Carmichael.
The 1994 Employee Stock Option Plan Administration Committee consists of
Messrs. Ottman and Rowland. The Employee Stock Purchase Plan
Administration Committee consists of Messrs. Taneja, Chema and Diroff.
(Mr. Diroff resigned and created a vacancy.)
Pursuant to a special resolution of the Board of Directors on March
1, 1996, a special committee of the Board of Directors consisting of Ms.
Carmichael and Mr. Ottman (the "Litigation Committee") was formed to
oversee the case of Robin Fernhoff v. NuMED Home Health Care, Inc., Jugal
K. Taneja and A.T. Brod & Co., Inc. (the "Class Action"). The committee
monitors the Class Action in consultation with the Company's General
Counsel and outside legal counsel and periodically reports any
developments in the Class Action to the full Board.
Pursuant to a special resolution of the Board of Directors on March
8, 1996, an independent committee of outside directors, consisting of
Thomas V. Chema, Robert P. Ottman and Judi M. Kelly (the "Acquisition
Committee") was appointed to proceed with discussions concerning the
proposal of CCF Ventures, Inc. to purchase a controlling portion of the
outstanding common shares of the Company and assess the benefits and
disadvantages of proceeding with such an acquisition. The Acquisition
Committee periodically reports to the full Board of Directors all material
developments in the discussions.
Other Key Employees
Peggy A. Loesch, RN, BSN age 45, has been recently appointed as Vice
President-Operations. For the last eight years, she has served as Clinical
Director of Whole Person in PA and PA Medical Concepts and she has also
served as the Administrator of these operations since September 1993. Ms.
Loesch's duties include responsibility for all of the Company's clinical
operations and obtaining accreditation from the Joint Commission on
Accreditation of Healthcare Organizations.
Allan H. Cheiken, 53, is the Executive Vice-President of and oversees
the operations of NuMED Rehabilitation. Prior to the April 1995
acquisition of the assets of Care Management Services, Inc. and North
American Rehabilitation, Inc., Mr. Cheiken was the President and Chief
Executive Officer of Rehab America, Inc. and its wholly-owned
subsidiaries.
ITEM 10. EXECUTIVE COMPENSATION.
Executive Compensation
The following table sets forth certain information concerning
compensation paid to or earned by the Company's Chief Executive Officer
and the President. No other executive officer of Company earned salary
and bonus in excess of $100,000 for the fiscal year ended March 31, 1997.
Summary Compensation Table
Number of
Name and Other Shares
Principal Fiscal Annual Underlying
Position Year Salary Bonus Compensation Options
Jugal K. Taneja 1997 $160,000 $17,877 $30,000(1) 640,000
Chairman of the
Board and Chief 1996 160,000 120,467 30,000(1) 120,000
Executive Officer 1995 60,000 --- 2,900(2) ----
Susan J. Carmichael 1997 130,000 16,677 44,042(3)(4) 350,000(5)
President and
Director 1996 130,000 99,348 --- 80,000(5)
1995 96,000 --- 2,600(2) ---
(1) Represents meal and lodging expenses of $2,000 per month paid to Mr.
Taneja while located in Florida and a monthly automobile allowance of
$500.
(2) Represents Director's fees paid during Fiscal 1995.
(3) Represents accumulated vacation of $38,042 paid during fiscal year
1997.
(4) Represents lodging expenses of $500 per month paid to Ms. Carmichael
(5) Includes 540,000 warrants issued to Mr. Taneja and 270,000 warrants
issued to Ms. Carmichael issued for certain terms of employment
agreement. See details under Employment Agreements.
The following table sets forth information with respect to options
granted during the Fiscal Year Ended March 31, 1997 to executive officers
named in the Summary Compensation Table.
Option Granted During Fiscal Year 1997
Number
of Securities Percent
Underlying Total Exercise
Options Options Price Expiration
Granted Granted Per Share Date
Jugal K. Taneja 40,000 3.7% $2.61 4/1/2001
60,000 5.6% $2.37 4/1/2001
540,000 50.5% $2.75 no expiration
Susan J. Carmichael 40,000 3.7% $2.61 4/1/2001
40,000 3.7% $2.37 4/1/2001
270,000 25.3% $2.75 no expiration
The following table sets forth information with respect to the
year-end value of unexercised options held by the executive officers named
in the Summary Compensation Table. There were no stock option exercises by
such executive officers during fiscal 1997 and all unexercised options
held at fiscal year end are currently exercisable.
Year-End Option Values
Number of Shares Value of
Underlying Unexercised
Unexercised Options In-the Money Options
at March 31, 1997 at March 31, 1997
Jugal K. Taneja 920,000 $0
Susan J. Carmichael 450,000 2,400
Director Compensation
Effective April 18, 1995, each outside director of the Company
receives $500, plus reimbursement for actual travel expenses, for each
board meeting and $100 for each committee meeting attended, if held on the
same day as a board meeting, or $250 for each committee meeting, if held
on a day other than the date of a board meeting. Outside directors
receive a minimum of $3,000 annually if five meetings are attended.
Directors who are also employees of the Company receive no fees for
meetings attended. Additionally, outside directors receive options to
purchase Common Stock under the Outside Director and Advisory Board Member
Stock Option Plan, and directors of the Company who are executive officers
have previously received, and may receive in the future additional
options. See "Stock Plans." Directors who are members of the Acquisition
Committee will receive $2,500 in addition to their regular directors'
fees.
Employment Agreements
On September 1, 1995, the Company entered into employment agreements
with Jugal K. Taneja, Chief Executive Officer and Susan J. Carmichael,
President, for three-year terms. The employment agreements are
substantially similar providing Mr. Taneja with an annual base salary of
$160,000 and Ms. Carmichael with an annual base salary of $130,000. In
addition, each is entitled to annual increases by an amount determined by
the annual increase in the Consumer Price Index for Urban Wage Earners and
Clerical Workers, U.S. City Average. As additional compensation, both Mr.
Taneja and Ms. Carmichael receive quarterly bonuses equal to the aggregate
of (i) five percent (5%) of the increase in the Company's income before
federal and state income taxes plus (ii) Two and one-half percent (2.5%)
of the increase in the current quarterly revenues. The increase for each
component of the bonus is calculated as that amount exceeding a "base"
revenue equal to the annual audited revenues of the Company for the prior
fiscal year divided by four. This bonus is payable to Mr. Taneja and Ms.
Carmichael no later than the due date for filing the quarterly or annual
reports to the Securities and Exchange Commission for each respective
quarter or fiscal year end, which is 45 and 90 days, respectively,
following the end of a quarter or fiscal year. In addition, both Mr.
Taneja and Ms. Carmichael are entitled to vacations, health care benefits,
fringe benefits and reimbursement of reasonable out-of-pocket expenses.
Each of Mr. Taneja's and Ms. Carmichael's agreement provides that if
they are terminated without just cause during the first two years of the
employment contract, each of them is entitled to receive their base salary
through the end of the then applicable term of their individual agreement,
any bonus payable to the executive and a severance benefit equal to two
(2) times his or her annual base salary, as applicable. If the Company
terminates either contract at any time during the third year or first one-
year renewal or option period following the initial 3 year term, the
executive is entitled to receive severance pay equal to his or her annual
base salary. As of 9/30/96, section 7.7 of their employment agreements,
"if the executive is terminated without just cause, or his or her duties
are reduced such that his or her position is ineffective in directing the
business or operations of the Company, each executive has the right to put
all securities of the Company owned by the executive and the executive's
affiliates to the Company at a per share price calculated at the greater
of (i) $6.00 per share, (ii) the average of the current bid and ask price,
(iii) book value per share, or (iv) the appraised value per share, and the
Company is required to purchase all such securities for the applicable
price" was deleted. In consideration for elimination of that section Ms.
Carmichael received 270,000 warrants for the company's stock; Mr. Taneja
received 540,000 warrants for the Company's stock on the following terms:
Any warrant outstanding and unexercised when the term of the Employment
Agreement, or any extension thereof, concludes, is forfeited and the
executive has no rights thereto. In addition, Mr. Taneja's employment
agreement provides that if he is terminated, the Company is required to
immediately repay all debt that he negotiated and placed with lending
institutions, specifically that debt guaranteed by him. In addition, the
Company is required to repay all debt and obligations of the Company owed
to Bancapital Corporation or any affiliate of Bancapital. If the
executive terminates his or her employment agreement, the executive is
entitled to receive his or her base salary and a pro rata amount of the
bonus and fringe benefits, including vacation, through the date of such
termination.
In the event that 50% of the common stock of the Company is acquired
by a party and/or affiliates other than Jugal K. Taneja or his affiliates
("Triggering Event") and Mr. Taneja or Ms. Carmichael are terminated at
any time during the term of his or her Agreement, the terminated executive
is entitled to receive an amount equal to three times his or her then
current annual base salary.
Both employment agreements contain nondisclosure, non-solicitation
and non-competition provisions applicable for a period of 2 years
following the executive's departure from the Company. In addition, upon
the occurrence of a Triggering Event and the termination of the
executive's employment agreement, the Company is required to pay in
addition to any other amounts payable to the executive pursuant to other
provisions of the agreement, a fee equal to Mr. Taneja's or Ms.
Carmichael's then current salary, as applicable, for a ninety day covenant
not to compete. The Company and the executive are then required to
negotiate a contract providing for payment to the executive of his or her
then current annual base salary for each year that executive agrees not to
compete with the Company. If the Company desires not to negotiate a
formal contract at such time, Mr. Taneja and Ms. Carmichael are entitled
to receive an amount equal to his or her then current salary.
Stock Plans
The Company maintains three stock plans (the "Plans") to attract,
motivate and retain key employees and outside directors of the Company.
The Plans have been adopted by the Company's Board of Directors and were
approved by the shareholders of the Company at the Company's 1994 Annual
Meeting of Stockholders. Prior to the adoption and approval of the Plans,
the Company granted options to purchase in the aggregate 220,000 shares of
Common Stock to certain executive officers and directors of the Company at
exercise prices ranging from $2.188 per share to $5.00 per share. 20,000
options have been cancelled. The following is a brief discussion of each
of the Plans. In connection with the Offering, the Company agreed that it
may not grant options in excess of 15% of the issued and outstanding
shares of Common Stock until February 8, 1996 in the absence of
shareholder approval.
1994 Employee Stock Option Plan. The Company's 1994 Employee Stock
Option Plan (the "1994 Plan") provides for the grant of incentive stock
options and non-qualified stock options to purchase up to 750,000 shares
of Common Stock. Each option will have an exercise price equal to the fair
market value of the Common Stock on the date of grant, except for grants
of incentive stock options to beneficial owners of 10% or more of the
Common Stock, which will contain an exercise price equal to 110% of fair
market value on the date of grant. Individuals eligible to participate in
the 1994 Plan are employees and officers of the Company and its
subsidiaries. Options to purchase 180,000 and 392,000 were issues in
fiscal 1997 and 1996 respectively. 20,000 options were exercised and
12,000 were cancelled during fiscal 1997.
Outside Director and Advisory Board Member Stock Option Plan. The
Company's Outside Director and Advisory Board Member Stock Option Plan
(the "D&A Plan") provides for an annual grant, subject to anti-dilution
provisions, of 12,060 non-qualified stock options to each "eligible"
director (directors of the Company who are not employees) and 710
non-qualified stock options to each "eligible" advisory board member
(professionals representing each medical area in which the Company
provides services). Each option shall have an exercise price equal to the
fair market value of the Common Stock on the date of grant, and options
vest over a period of 3 years with one-third vesting on each anniversary
date of the grant. Options were granted to purchase shares of common
stock of 78,760 and 68,120 in fiscal 1997 and 1996 respectively. This is
subject to the Company's review of each recipient's referral practices.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase
Plan (the "ESP Plan") permits employees employed on a regular full-time or
part-time basis (excluding those who work less than 20 hours per week,
those who have not completed a ninety day orientation period and those
employees who own 5% or more of the Common Stock) to purchase Common Stock
at 85% of the fair market value of the Common Stock up to a maximum of 15%
of his or her total annual compensation. The number of shares of Common
Stock that may be sold pursuant to the ESP Plan shall not exceed 250,000
shares in any one year. Additionally, no employee individually may
purchase more than $25,000 worth of Common Stock in any one year.
Approximately 60,000 shares were issued pursuant to the ESP Plan in fiscal
1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of June 3, 1996 with respect to:
(i) each of the Company's directors and the executive officers named in
the Summary Compensation Table; (ii) all directors and executive officers
of the Company as a group; and (iii) each person known by the Company to
own beneficially more than 5% of the Common Stock. An asterisk indicates
beneficial ownership of less than 1% of the outstanding Common Stock.
Except as otherwise indicated, each of the shareholders listed below has
sole voting and investment power over the shares beneficially owned.
Shares Beneficially Owned
Beneficial Owner Number Percent
Jugal K. Taneja(1) (8) . . . . . . . . . 1,615,864 27.0%
5770 Roosevelt Boulevard, Suite 700
Clearwater, Florida 34620
Susan J. Carmichael(2) (7) . . . . . . . . 504,677 9.4%
5770 Roosevelt Boulevard, Suite 700
Clearwater, Florida 34620
Robert P. Ottman (3) (4) . . . . . . . . . 44,306 *
1926 Peach Street
Erie, Pennsylvania 16502
Thomas V. Chema (3) . . . . . . . . . . . . 29,120 *
1100 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115
Judi M. Kelly (3) . . . . . . . . . . . . . 27,060 *
P.O. Box 66413
St. Petersburg Beach, Florida 33736
Turkey Vulture Fund XIII Limited . . . . . 485,000 9.8%
7001 Center Street
Mentor, Ohio 44060
Executive Officers and Directors
as a Group (7 Persons) (6) . . . . . . . 2,221,027 38.4%
* Less than one percent.
(1) Includes beneficial ownership of (i) 169,880 shares of Common Stock
owned by First Delhi Trust, a trust for Mr. Taneja's children over
which he exercises voting rights, and (ii) 280,000 shares issuable
under currently exercisable stock options. Excludes 209,820 shares
beneficially owned by his wife, Manju Taneja, as to which Mr. Taneja
exercises no voting or disposition rights. Excludes 100,000 shares
issuable under stock options granted on April 1, 1996 pursuant to
the 1994 Employee Stock Option Plan that are not yet exercisable.
(2) Includes 100,000 shares issuable under currently exercisable stock
options and 7,065 shares held by Patrick Carmichael, Ms.
Carmichael's spouse. Excludes 80,000 shares issuable under stock
options granted on April 1, 1996 pursuant to the 1994 Employee Stock
Option Plan that are not yet exercisable.
(3) Includes shares issuable under 12,060 currently exercisable stock
options granted to each of Messrs. Ottman, Chema and Diroff pursuant
to the Outside Director and Advisory Board Member Stock Option Plan.
(4) Includes 10,000 shares issuable under currently exercisable common
stock purchase warrants.
(5) Includes 10,000 shares issuable under currently exercisable stock
options.
(6) Includes 446,180 shares issuable under common stock purchase
warrants and/or stock options that are currently exercisable or will
become exercisable on or before July 1, 1996.
(7) Includes 270,000 warrants issued for modification of employment
agreement.
(8) Includes 540,000 warrants issued for modification of employment
agreement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to the terms of the Underwriting Agreement entered into
between the Company and A. T. Brod, Brod received in connection with the
Offering various fees, commissions and underwriting discounts totalling
approximately $1.3 million. The Company granted Brod an option to
purchase 100,000 units to the underwriters. The exercise price of the
units purchased pursuant to the option is $11.96 per unit. In April of
1997 the Company exchanged one share of common stock for each unit.
During fiscal 1997 and 1996, the Company leased certain office
furniture and equipment from Bancapital for a total cost of $26,000 and
32,000 respectively. Bancapital also holds the lease for the Company's
Cleveland financial office. The lease was terminated 3/31/97.
All material affiliated transactions will be made or entered into on
terms no less favorable to the Company than those that can be obtained
from unaffiliated third parties, and all material affiliated transactions
must be approved by a majority of the independent outside members of the
Board of Directors of the Company who do not have an interest in the
transactions.
PART VI
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed with this report:
Sequential
Exhibit Number Description of Document Page #
2.1 Asset Purchase Agreement by and between NuMED Home
Health Care, Inc., Care Management Services, Inc.,
North American Rehabilitation Services, Inc. and Rehab
America, Inc, dated November 3, 1994.(7)
2.2 First Amendment to Asset Purchase Agreement by and
among NuMED Home Health Care, Inc., Care Management
Services, Inc., North American Rehabilitation
Services, Inc. and Rehab America, Inc. dated April 4,
1995.(9)
2.3 Stock Purchase Agreement by and between NuMED Home
Health Care, Inc., Parke Home Health Care, Inc.,
Pamela Metz and William Shannon, dated April 8,
1996.(7)
3.1 Articles of Incorporation of Stowaway, Inc. (n/k/a
NuMED Home Health Care, Inc.) dated October 13,
1987.(2)
3.2 Certificate of Amendment to Articles of Incorporation
of NuMED Home Health Care, Inc. dated February 12,
1993.(3)
3.3 Certificate of Amendment to Articles of Incorporation
of NuMED Home Health Care, Inc. dated April 29,
1994.(7)
3.4 Bylaws of NuMED Home Health Care, Inc.(2)
4.1 Specimen Certificate for Common Stock.(2)
4.2 [Intentionally omitted]
4.3 Specimen Certificate for Warrant.(7)
4.4 Warrant Agreement.(7)
4.5 Underwriter's Unit Purchase Option.(7)
10.1 Technology Transfer Agreement between NuMED
Technologies, Inc. and the Cleveland Clinic
Foundation, dated August 21, 1991.(4)
10.2 Technology Transfer Agreement between NuMED
Technologies, Inc. and Dr. Amin El Mallawany dated
February 11, 1992.(4)
10.3 Non-Competition, Non-Diversion and Confidentiality
Agreement by and among NuMED Home Health Care,
Inc., Silver Moves, Inc. and Debra and James
Amrhein dated as of August 17, 1992.(2)
10.4 Consulting Agreement between Debra Amrhein and
NuMED Home Health Care, Inc. dated August 17,
1992.(2)
10.5 Promissory Note in the principal amount of
$700,000 made by NuMED Home Health Care, Inc. in
favor of Debra and James Amrhein dated August 17,
1992.(2)
10.6 Stock Pledge Agreement by and between NuMED Home
Health Care, Inc. and Debra and James Amrhein
dated August 17, 1992.(2)
10.7 Stock Power by NuMED Home Health Care, Inc. to
Debra and James Amrhein dated August 17, 1992.(2)
10.8 Non-Competition, Non-Diversion and Confidentiality
Agreement by and between Silver Moves, Inc. and
Alice D. Holland dated as of September 28,
1992.(2)
10.9 Consulting Agreement by and between Silver Moves,
Inc. and Alice D. Holland dated September 28,
1992.(2)
10.10 Guarantee by NuMED Home Health Care, Inc. in favor
of Alice D. Holland dated September 28, 1992.(2)
10.11 Management Services Agreement between Bancapital
Corporation and NuMED Home Health Care, Inc. and
Subsidiaries dated March 30, 1992.(2)
10.12 Employment Agreement between NuMED Home Health
Care, Inc. and Michael J. Diroff dated January 1,
1993.(5)
10.13 Employment Agreement between NuMED Home Health
Care, Inc. and Susan J. Carmichael, dated
September 1, 1992.(5)
10.14 Technology Transfer Agreement between NuMED Home
Health Care, Inc. and the Cleveland Clinic
Foundation dated February 1, 1993.(5)
10.15 Professional Services Agreement between Bancapital
Corporation and NuMED (Home Health Care Division)
dated January 1, 1993.(5)
10.16 Professional Services Agreement between Bancapital
Corporation and NuMED (Surgical/Medical Products
Division) dated January 1, 1993.(5)
10.17 Stock Purchase Agreement between NuMED Home Health
Care, Inc. and Kenneth M. Dobrow dated January 31,
1993.(5)
10.18 Addendum to Stock Purchase Agreement between NuMED
Home Health Care, Inc. and Kenneth M. Dobrow dated
May 10, 1993.(5)
10.19 Agreement and Plan of Merger with Advanced Systems
and Management, Inc., Countryside Health Services,
Inc. and L. David Detweiler dated May 28, 1993.(3)
10.20 Stock Purchase and Exchange Agreement between
NuMED Home Health Care, Inc. and Providence Health
Care, Inc. dated September 10, 1993.(1)
10.21 Plan and Agreement of Merger by and among NuMED
Technologies, Inc., Hi-Tech Exchange, Inc. and
NuMED Home Health Care, Inc. dated December 31,
1992.(2)
10.22 Employment Agreement between NuMED Home Health
Care, Inc. and Jugal K. Taneja, dated November 11,
1993.(3)
10.23 Employment Agreement between NuMED Home Health
Care, Inc. and Susan J. Carmichael, dated November
11, 1993.(3)
10.24 Employment Agreement Between NuMED Home Health
Care, Inc. and James P. Witherington, dated
November 11, 1993.(3)
10.25 Rescission Agreement between NuMED Home Health
Care, Inc. and Providence Health Care, Inc. dated
December 31, 1993.(6)
10.26 Mutual Release and Settlement Agreement by and
among NuMED Home Health Care, Inc., Providence
Health Care, Inc., Commonwealth Associates, Inc.,
and others, dated December 31, 1993.(6)
10.27 Amended, Consolidated and Restated Bill of Sale
and Assignment and Assumption Agreement by and
among NuMED Home Health Care, Inc., NuMED
Technologies, Inc. and NuMED Surgical, Inc. dated
April 15, 1994.(3)
10.28 NuMED Home Health Care, Inc. Outside Director and
Advisory Board Member Stock Option Plan. (Filed as
Exhibit No. 99(a) to registration statement on
Form S-8, File No. 33-90966).(8)
10.29 NuMED Home Health Care, Inc. 1994 Employee Stock
Option Plan. (Filed as Exhibit No. 99(b) to
registration statement on Form S-8, File No. 33-
90966).(8)
10.30 NuMED Home Health Care, Inc. Employee Stock
Purchase Plan. (Filed as Exhibit No. 99(c) to
registration statement on Form S-8, File No. 33-
90966).(8)
10.31 Letter Agreement by and between NuMED Home Health
Care, Inc. and A.T. Brod & Co., Inc. dated June 7,
1993.(7)
10.32 Employment and Non-Competition Agreement by and
between NuMED Home Health Care, Inc. and Allan
Cheiken dated April 4, 1995. (10)
10.33 Financial Consulting Agreement by and between
NuMED Home Health Care, Inc. and A.T. Brod & Co.,
Inc.(7)
10.34 Employment Agreement between NuMED Home Health
Care, Inc. and Jugal K. Taneja, dated September 1,
1996.(11)
10.35 Employment Agreement between NuMED Home Health
Care, Inc. and Susan J. Carmichael, dated
September 1, 1996.(11)
10.36 Employment and Non-Competition Agreement by and
between NuMED Home Health Care, Inc. and Allan
Cheiken dated April 4, 1996.
10.37 Employment and Non-Competition Agreement by and
between Parke Home Health Care, Inc. and Pamela
Metz dated April 8, 1996.
10.38 Amendments to employment agreement dated 9/1/96
between NuMED and Susan J. Carmichael.
10.39 Amendments to employment agreement dated 9/1/96
between NuMED and Jugal K. Taneja.
21 Subsidiaries of NuMED Home Health Care, Inc.
23 ## Consent of Ernst & Young LLP.
## Filed herewith
(1) Incorporated by reference to the Company's Schedule 13D filed
September 20, 1993.
(2) Incorporated by reference to the Company's registration statement
on Form S-4, File No. 33-53218
(3) Incorporated by reference to NuMED Surgical, Inc.'s registration
statement on Form 10SB, File No. 0-24362
(4) Incorporated by reference to the Company's Form 10-KSB for the
fiscal year ended March 31, 1992.
(5) Incorporated by reference to the Company' form 10-KSB for the
fiscal year ended March 31, 1993.
(6) Incorporated by reference to the Company's Amendment No. 2 to
Schedule 13D filed on January 5, 1994.
(7) Incorporated by reference to the Company's registration statement
on Form SB-2, File No. 33-86122.
(8) Incorporated by reference to the Company's registration statement
on Form S-8, File No. 33-90966.
(9) Incorporated by reference to the Company's report on Form 8-K dated
filed on May 5, 1995.
(10) Incorporated by reference to the Company's form 10-KSB for the
fiscal year ended March 31, 1995.
(11) Incorporated by reference to the Company's form 10-QSB for the
quarter ended September 30, 1995.
(12) Incorporated by reference to the Company's form 10-QSB for the
quarter ended September 30 1996 - Jugal K. Taneja
(13) Incorporated by reference to the Company's form 10-QSB for the
quarter ended Setpember 30, 1996 - Susan J. Carmichael
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated May 5, 1995 in
connection with the consummation of the purchase of certain assets of
Rehab America, Inc. by NuMED Rehabilitation on April 4, 1995. The
following financial statements were filed with the report:
(A) NuMED Home Health Care, Inc. and Subsidiaries Unaudited Pro
Forma Condensed Combined Financial Statements:
(i) Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1994.
(ii) Unaudited Pro Forma Condensed Combined Statement of
Income for the Nine Months Ended December 31, 1994.
(iii) Unaudited Pro Forma Condensed Combined Statements of
Income for the Year Ended March 31, 1994.
(iv) Notes to Unaudited Pro Forma Condensed Combined
Financial Statements.
(B) North American Rehabilitation, Inc. and Care Management
Services, inc. Unaudited Interim Combined Financial
Statements:
(i) Combined Balance Sheet as of December 31, 1994 and
September 30, 1994.
(ii) Unaudited Combined Statement of Operation and
Accumulated Deficit for the Three Months Ended
December 31, 1994 and 1993.
(iii) Unaudited Combined Statements of Cash Flow for the
Three Months Ended December 31, 1994 and 1993.
(iv) Notes to Unaudited Combined Financial Statements.
(C) North American Rehabilitation, Inc. and Care Management
Services, Inc. Combined Financial Statements:
(i) Combined Balance Sheets as of September 30, 1994 and
1993.
(ii) Combined Statements of Operations and Accumulated
Deficit for the Years Ended September 30, 1994,
1993 and 1992.
(iii) Combined Statement of Cash Flows for the Years Ended
September 30, 1994, 1993 and 1992.
(iv) Notes to Combined Financial Statements.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NuMED Home Health Care, Inc.
Dated: June 15, 1997 By: /s/ Jugal K. Taneja
Jugal K. Taneja, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
Signature Title Date
/s/ Jugal K. Taneja Chairman of the Board, June 27, 1997
Jugal K. Taneja Chief Executive Officer
and Director
/s/Susan J. Carmichael President and Director June 27, 1997
Susan J. Carmichael
/s/Judi M. Kelly Director June 27, 1997
Judi M. Kelly
/s/Thomas V. Chema Director June 27, 1997
Thomas V. Chema
/s/Robert P. Ottman Director June 27, 1997
Robert P. Ottman
/s/Wayne Mori Principal Accounting June 27, 1996
Wayne Mori Officer, Controller
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (EDGAR only)
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statements (Form S-8) No. 33-90966) pertaining to the NuMED Home Health
Care, Inc. Outside Director and Advisory Board Member Stock Option Plan,
the NuMED Home Health Care, Inc. 1994 Employee Stock Option Plan and the
NuMED Home Health Care, Inc. Employee Stock Purchase Plan and (Form S-8
No. 33-96570) pertaining to the NuMED Home Health Care, Inc. Retirement
Profit Sharing 401(k) Plan of our report dated June 20, 1997 with respect
to the consolidated financial statements of NuMED Home Health Care, Inc.
included in its Annual Report (Form 10-KSB) for the year ended March 31,
1997.
ERNST & YOUNG LLP
Cleveland Ohio
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF NUMED HOME HEALTH, INC. AS OF AND FOR
THE TWELVE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
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