SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[ X ] ANNUAL REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
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
incorporation or organization) Identification No.)
5770 Roosevelt Boulevard, Suite 700, Clearwater, Florida 33760
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (727) 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 $22,649,516
The number of shares outstanding of the Issuer's Common Stock, $.001
par value, as of December 29, 1998, was 5,711,300 (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 December 29, 1998, was $1,180,972.
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 202,000 intermittent home health
care visits in fiscal 1998 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 50 health care facilities. In
addition, the Company, through NuMED Rehabilitation, provides physical,
occupational, and speech/language therapy for approximately 71 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 33760, and its telephone number is (727) 524-3227.
Industry Overview
The Company's home health care and rehabilitation business is part of
a needed 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 benefited 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 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's
clients, services and referral sources in existing and new markets. The
Company believes that the nature of the home health care and
rehabilitation industries continue 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 acquisitions 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.
Approximately 38% 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 $2.0
million for the year ended December 31, 1995 and $1.7 million in revenues
for the 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 adaptation 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:
<TABLE>
<CAPTION>
Home Health Care Temporary and
Subsidiary Intermittent Private Duty Medicare Certified Contract Staffing
<S> <C> <C> <C> <C>
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
</TABLE>
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 competition for medical personnel,
and particularly for certified nurse aides and home health aides. 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. One
subsidiary, Parke Home Health Care, Inc. has received JCAHO accreditation.
Three NuMED Home Health Care, Inc. subsidiaries, Whole Person Home Health
Care, Inc., Pennsylvania Medical Concepts, Inc. and Whole Person Home
Health Care of Ohio, Inc. received JCAHO accreditation with commendation.
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 $7.7 million (34%) and $6.2
million (25%), respectively, of the Company's net revenue for the fiscal
years ended March 31, 1998 and 1997. 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 1998 and 1997, the Company recognized approximately 7% and
16% 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.
Federal and state anti-remuneration laws, such as the
Medicare/Medicaid anti-kickback law, govern certain financial arrangements
(including employment or service contracts) between health care providers
and others who may be in a position to refer or recommend patients or
services to such providers. These laws prohibit, among other things,
certain direct and indirect payments that are intended to induce the
referral of patients to, the arranging for services by, or the
recommending of a particular provider of health care items or services.
The Medicare/Medicaid anti-kickback law has been broadly interpreted to
apply to certain contractual relationships between health care providers
and sources of patient referral. A number of similar state laws exist
which often have not been interpreted by courts or regulatory agencies.
The Department of Health and Human Services periodically issues special
fraud alerts' which address specific areas of concern, including a June
1995 alert that related to fraudulent practices in the provision of home
health care. The alert identified fraudulent home health care practices
such as cost report fraud, billing for excessive services or services not
rendered, use of unlicensed or untrained staff and kickbacks.
Additionally, federal "Stark" legislation prohibits, with limited
exceptions, the referral of patients for certain services, including home
health care services, physical therapy and occupational therapy, by a
physician to entities in which they have an ownership or financial
interest. Violation of these laws can result in loss of licensure, civil
and criminal penalties, and exclusion of health care providers or
suppliers from participating in the Medicare and Medicaid programs.
Additionally, the Balanced Budget Act of 1997 (the "Budget Act"), signed
into law on August 5, 1997, contains a number of anti-fraud provisions
designed to further fight abuse and enhance program integrity.
Furthermore, some states restrict certain business or fee relationships
between physicians and other providers of health care services. NuMED
believes that its operations are in substantial compliance with the laws
applicable to Medicare and Medicaid providers, including anti-fraud and
abuse provisions; however, there can be no assurance that the
administrative or judicial interpretation of such laws or the regulations
promulgated thereunder will not in the future have a material adverse
impact on NuMED's operations or that NuMED will not be subject to an
investigation which would require a significant investment of time and
manpower by NuMED. Although NuMED believes that it complies with federal
and state anti-remuneration statutes at all times, there can be no
assurance that such laws will be interpreted in a manner consistent with
the practices of NuMED.
NuMED is dependent on third-party payors for a majority of its
revenues. Medicare, Medicaid and other payors, such as managed care
organizations (including health maintenance organizations ("HMOs") and
preferred provider organizations ("PPOs")), traditional indemnity insurers
and third-party administrators ("TPAs") are increasing pressures both to
control health care utilization and to limit reimbursement. Since
substantially all of NuMED's revenues are attributable to payments
received from Medicare and a limited number of other payor categories, the
level of revenues and profitability of NuMED will be subject to the effect
of possible changes in the mix of NuMED's patients among Medicare,
Medicaid and third-party payor categories, increases in case management
and review of services or reductions in coverage or reimbursement rates by
such payors. Such changes could have a material adverse effect on the
Company's business, results of operations or financial condition.
The following is a summary of other 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.
Potential Reductions in Medicare and Other Reimbursement. The Federal
government is considering significant reductions in planned Medicare
spending. The Senate and the House of Representatives have passed budget
resolutions calling for reductions of up to $270 billion in forecasted
Medicare expenditures over the next seven years. As part of its fiscal
1998 budget, the Clinton Administration plans to propose Medicare reforms
including a prospective payment system for home health care estimated to
result in $20 billion in savings over six years
In addition to extensive existing government health care regulation,
there are many initiates on the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care
services. It is not clear what proposals, if any, will be adopted, or
what effect such proposals would have on NuMED's business. Various
aspects of these health care proposals, such as reductions in funding of
the Medicare and Medicaid programs, potential changes in reimbursement
regulations by the HCFA, enhanced pressure to contain health care costs by
Medicare, Medicaid and other payors and permitting greater state
flexibility in the administration of Medicaid, could adversely affect
NuMED's business, results of operations and financial condition. NuMED's
businesses that participate in applicable state Medicaid programs are
subject to the risk of changes in Medicaid reimbursement and payment
delays resulting from budgetary shortfalls of state Medicaid programs.
NuMED's current concentration of business in a limited number of states
exposes it to the risk of changes in Medicaid reimbursement programs in
those states. Medicare and Medicaid certification is a critical factor
contributing to the revenues and profitability of NuMED. Changes in
certification and participation requirements of the Medicare and Medicaid
programs have restricted, and are likely to further restrict, eligibility
for reimbursement under those programs. Failure to obtain and maintain
Medicare and Medicaid certification could result in a significant loss of
revenue.
Private payors, including managed care payors, increasingly are
demanding that providers accept discounted fees or assume all or a portion
of the financial risk for delivery of health care services, including
capitated payments where the provider is responsible, for a fixed fee, for
providing all services needed by certain patients. Capitated payments can
result in significant losses when patients require expensive treatments
not adequately covered by the capitated rate. Efforts to impose reduced
payments, greater discounts and more stringent cost controls by government
and other payors are expected to continue. NuMED cannot predict what
reform proposals or reimbursement limitations will be adopted in the
future or the effect any such changes will have on its operations. There
can be no assurance that currently proposed legislation, future health
care legislation, reforms or changes in the administration or
interpretation of governmental health care programs or regulations will
not have a material adverse effect on NuMED's business, results of
operations and financial condition. Concern about the potential effect on
NuMED's business, results of operations and financial condition. Concern
about the potential effect of various proposed health care reforms has
contributed to volatility of prices of securities of health care companies
and could similarly affect the price of the New Common Stock in the
future.
Reimbursement Payment Delays. NuMED generally is paid for its
services by government health administration authorities, insurance
companies, or other third party payors, not by the patients themselves.
The home health care industry is generally characterized by long
collection cycles for accounts receivable due to the complex and time
consuming requirements for obtaining reimbursement from private and
governmental third party payors. In addition, reimbursement from
government payors is subject to examination and retroactive adjustment.
Such delays or retroactive adjustments could lead to chase shortages,
which may require NuMED to borrow funds, issue equity securities or take
other action to meet its ongoing obligations. NuMED would be adversely
affected if it were to experience such difficulties and were unable to
obtain funds on acceptable terms to meet possible cash shortages.
Dependence on Relationships with Referral Sources. The growth and
profitability of NuMED depends on its ability to establish and maintain
close working relationships with referral sources, including payors,
hospitals, physicians and other health care professionals. Hospitals,
physicians and managed care organizations, which are exerting an
increasing amount of influence over the health care industry, have been
consolidating to enhance their ability to impact the delivery of health
care services. There can be no assurance that NuMED will be able to
successfully maintain existing referral sources or develop and maintain
new referral sources, or that some of its referral sources will not become
competing providers of home health care services. The loss of any
significant number of existing referral sources or the failure to develop
new referral sources could have a material adverse effect on NuMED's
business, results of operations or financial condition. NuMED's
relationships with existing and potential referral sources also could be
adversely affected by a loss of JCAHO or by the inability of an
acquisition to obtain JCAHO accreditation. Accredited companies are
subject to periodic resurveys by JCAHO.
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, 1998, the Company had approximately 800 employees
working full-time and part-time depending on certain assignments, 60 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 a union.
ITEM 2. PROPERTY
The Company maintains its principal offices at 5770 Roosevelt
Boulevard, Suite 700, Clearwater, Florida 33760. 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 $317,000 and expire on various dates through 2002. All
offices are well maintained and in good repair. As of March 31, 1998, the
Company had the offices listed below in the following locations:
<TABLE>
<CAPTION>
Principal Operation Locations Function
<S> <C> <C>
NuMED Home Health Care, Inc. Clearwater, FL Corporate administrative and finance office
NuMED Rehabilitation, Inc. Horsham, PA Rehabilitation administrative offices
Cincinnati, OH Human Resources and management of Physical
Therapy, Occupational Therapy and
Speech/Language Pathology
Total Professional Health Care Clearwater, FL Comprehensive home health care
Tampa, FL services
St. Petersburg, FL
Holiday, FL
Port Richey, FL
Florida Nursing Services St. Petersburg, FL Private duty & temporary staffing
Countryside Health
Services, Inc. Clearwater, FL Private duty & temporary staffing
Holiday, FL
Tampa, FL
Lakeland, FL
Whole Person Home Health
Care of Ohio, Inc. Conneaut, OH Comprehensive home health
Youngstown, OH care services including private duty
Whole Person Home Health
Care, Inc. Erie, PA Comprehensive home health
Albion, PA care services
PA Medical Concepts, Inc. Erie, PA Comprehensive home health
Albion, PA care services including Private Duty
Parke Home Health Care, Inc. Cincinnati, Ohio Comprehensive home health
care services including Private Duty
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings
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. 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 1998 Fiscal 1997
Quarter High Low High Low
First Quarter $1.75 $1.22 $4.31 $2.25
Second Quarter 1.38 1.00 3.25 1.63
Third Quarter 1.44 0.84 2.63 1.50
Fourth Quarter 1.88 0.81 2.06 1.13
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 29, 1998, there were
approximately 562 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 1998, the Company purchased no 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 1998 and 1997, 56% and 42%,
respectively, of the Company's revenues were attributable to third party
payors, of which 34% 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. Second, in 1997, the
Company retroactively modified its contract with one of its key
Rehabilitation customers that was undergoing a prior Medicare audit. The
modification resulted in a decrease of the Gross Profit of NuMED
Rehabilitation. The Company is undertaking cost containment efforts as
well as implementing new monitoring programs to reduce the level of Direct
Expenses. Third, long term care facilities' uncertainty regarding the
Balanced Budget Act caused a reduction in aggressive marketing by the
Rehabilitation facilities. Additionally, the mix of revenue in
rehabilitation 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. The Company is
actively pursuing more profitable types of contracts. Fourth, the mix of
revenue between home health aides and skilled services has remained
disproportionate. 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. The labor burden
relating to these full time employees does 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.
NuMED Rehabilitation experienced residual aspects from a routine
Medicare audit of a 1996 cost report of one of its key customers. The
customer's fiscal intermediary, in it interpretation of the Medicare
prudent buyer guidelines, had 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 settlement for the
first year (customer's fiscal year ended June 30, 1995) of the contract
was approximately $197,000. The settlement for the second year
(customer's fiscal year ending June 30, 1996) of the contract was
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 or all of the disallowed costs will be recovered in
the appeal process. The entire disallowed cost was 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. A hearing date has been
established for October, 1998.
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 could have had
mitigated future adjustments from prudent buyer interpretations of this
client.
In addition, the Company then 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,
l998 1997
Revenues 100.0% 100.0%
Direct expenses 76.1 78.9
----- -----
Gross Profit 23.9 21.1
General and administrative
expenses (excluding
amortization and depreciation) 26.4 29.3
Amortization and depreciation
and impairment of intangibles 2.7 2.7
----- -----
Operating income (loss) (5.2) (10.9)
Other revenues (expenses) (loss) (1.1) 0.1
----- -----
Income (loss) from continuing
operations before income tax (6.3) (10.8)
Income taxes expense (benefit) 2.4 (3.2)
----- -----
Net income (loss) (8.7) (7.6)
===== =====
Year Ended March 31, 1998 Compared to Year Ended March 31, 1997.
Revenues decreased $2.0 million, or 8.1% to $22.6 million in
fiscal 1998 from $24.6 million in fiscal 1997. Net Medicare revenues
increased by $1.5 million to $7.7 million in fiscal 1998 from $6.2 million
in fiscal 1997. Non-Medicare revenues, including staff relief, private
duty, private pay and rehabilitation therapy decreased by $3.5 million in
fiscal 1998 from fiscal 1997. 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 decreased $2.2 million or 11% to $17.2 million
in fiscal 1998. As a percentage of revenues, direct expenses decreased to
76.1% in fiscal 1998 from 78.9% in fiscal 1997. The increase in gross
margin can be attributable to the increased labor productivity in the Home
Health Division of 3.7%, while the rehabilitation division percentage
remained the same. As a result, the gross profit margins increased to
24.0% in 1998 from 21.1% in 1997.
General and administrative expenses (excluding amortization and
depreciation) decreased $1.2 million or 16.4%. As a percentage of
revenues, this represented a decrease to 26.4% in 1998 compared to 29.3%
in 1997. In 1997 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 expense resulted from Parke Home Health
Care which was acquired at the beginning of fiscal 1997. There were
extraordinary expenses through increased professional fees incurred in
connection with failed merger acquisition discussions with Core Holdings,
Inc. which was terminated on December 31, 1997. 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 decrease of $47,000 in depreciation and
amortization during fiscal 1998 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 expenses increased to $256,000 in fiscal 1998 from
$9,000 in fiscal 1997. Interest expense increased to $216,000 as
borrowings under the lines of credit were used and outstanding for most of
the year.
For both the 1997 and 1998 fiscal years, the Company incurred
net operating losses. As a result of the losses incurred in fiscal 1997,
a tax benefit was recorded. However, as a result of the additional
losses incurred in fiscal 1998, no tax benefit was recorded. In addition,
for fiscal 1998 the Company recorded a valuation allowance associated
with the tax benefit recorded in fiscal 1997. Thus, the net loss for the
Company in fiscal 1998 was ($1,432,255) before income taxes and ($1,964,478)
after income taxes compared to a net loss of $2,654,363) before income
taxes and ($1,878,052) after income taxes in fiscal 1997.
Liquidity and Capital Resources
As of March 31, 1998 and March 31, 1997, accounts receivable
were $4.3 million (40% of total assets) and $3.5 million (29% 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 90-120 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. PIP Payments to the national
Medicare certified firms are scheduled to be replaced by PPS by the end of
the year. 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.
In August 1997, the Company secured two new revolving lines of
credit for the purpose of consolidation of debt service and allowance of
future growth.
The Company established a $3,000,000 credit facility, secured by
NuMED Home Health Care, Inc., NuMED Rehabilitation, Inc., Silver Moves,
Inc., Countryside Health Services, Inc., Pennsylvania Medical Concepts,
Inc. and Parke Home Health Care, Inc. The credit advances are limited to
the aggregate accounts receivable balances of qualified accounts under 120
days. The company replaced with the above credit line the PA Medical
Concepts $150,000 credit line, Parke Home Health Care, Inc. $150,000
credit line and NuMED Home Health Care, Inc.'s $1,000,000 credit line. The
outstanding balance as of March 31, 1998 was $1,596,424.
A $2,000.000 credit facility, secured by NuMED Home Health Care,
Inc. and Whole Person Home Health Care of Florida, Inc. The credit
advances are limited to the aggregate accounts receivable balance of
qualified accounts under 120 days.
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 (4.85% as of March 31, 1998) plus 2.0%. No monies were drawn
as of March 31, 1998 and $272,000 was drawn as of March 31, 1997.
Pennsylvania Medical Concepts had 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 credit 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, 1998 was
approximately $72,000. 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 or loss 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, 1998, net intangible
assets of the Company were $4.3 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.
The Company funded its cash flow requirements through
borrowings. 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.
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.
Management of the Company has been evaluating its strategy to
maximize shareholder values either through the sale of the Company or
merge with an equal size company in a geographical area suited for the
Company to achieve economies of scale. The Company had also numerous
discussions with capital infusion. The Company signed a definitive
agreement with Banyan Healthcare Services, Inc. ("Banyan"). Banyan was
formed to acquire health care related companies to consolidate and provide
full services. In June, 1998, the Company terminated its discussions due
to issues raised by the Company's independent accountant and legal
advisors. In connection, the Company incurred more than $130,000 in
professional fees.
Impact Of Year 2000
Some of the Company's older computer programs were written using
two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date
using "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
The Company has completed an assessment, its major accounts
receivable and information system (HCIS) is the year 2000 compliant. A
software upgrade, which is currently available will be required to be
purchased for its financial reporting and accounts payable system. The
total cost of this project will be less than five hundred dollars.
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, 1998 and 1997 F-2
3. Consolidated Statements of Operations for the
Years Ended March 31, 1998 and 1997 F-3
4. Consolidated Statements of Stockholders' Equity for
Years Ended March 31, 1998 and 1997 F-4
5. Consolidated Statements of Cash Flows for the Years
Ended March 31, 1998 and 1997 F-5
6. Notes to Consolidated Financial Statements F-6
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 54 Chairman of the Board, Chief
Executive Officer and Director
Susan J. Carmichael 50 President and Director
Robert P. Ottman 55 Director
Thomas V. Chema 50 Director
Judi M. Kelly* 42 Director
*resigned 3/31/98
<PAGE>
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. The amendment to the By-Laws also provided that the term of
office of the first class shall expire at the first annual meeting after their
initial election and when their successors are elected and qualified, the term
of office of the second class shall expire at the second annual meeting after
their initial election and when their successors are elected and qualified, and
the term of office of the third class shall expire at the third annual meeting
after their initial election and when their successors are elected and
qualified. At the Annual meeting held on March 29, 1996, the following Directors
were elected for the terms indicated.
TERM TO EXPIRE IN 1997
NAME
Michael J. Diroff
Nayan S. Shah, Ph.D
TERM TO EXPIRE IN 1998
NAME
Thomas V. Chema
Judi M. Kelly
TERM TO EXPIRE IN 1999
NAME
Jugal K. Taneja
Susan J. Carmichael
Robert P. Ottman
Since the March 29, 1996 Annual Meeting, Mr. Shah resigned and was
replaced by Mark E. Rowland. Additionally, Messrs. Diroff and Rowland, and Ms.
Kelly resigned creating three vacancies on the Board. On December 1, 1998, the
Board appointed William L. LaGamba to fill Mr. Rowland's vacant seat (which was
originally Mr. Shah's seat), Paul A. Santostasi to fill Mr. Diroff's vacant
seat, and Peggy A. Loesch to fill Ms. Kelly's vacant seat.
No Annual Meeting of Stockholders was held in 1997 and, accordingly,
Directors whose terms were originally set to expire in both 1997 and 1998 will
be elected at the 1998 Annual Meeting. As a result, Mr. LaGamba and Mr.
Santostasi (or their successors) who filled vacancies for Directors whose terms
were originally set to expire at the 1997 Annual Meeting, will be nominated for
a two-year term while Mr. Chema and Ms. Loesch (or their successors) will be
nominated for a three-year term, or until the election of their successors.
Messrs. Taneja and Ottman, and Ms. Carmichael (or their successors)
will be nominated for a three-year term at the 1999 Annual meeting. Pursuant to
Article III, Section 1 of the Amended By-Laws, the 1999 Annual meeting will be
held as soon as practicable following the close of the fiscal year on March 31,
1999.
<PAGE>
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. He then served 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.)
Other Key Employees
Peggy A. Loesch, RN, BSN age 46, is the Vice President-
Operations and oversees the Company's clinical operations while working
with the Company Administrators in obtaining accreditation from the Joint
Commission on Accreditation of Healthcare Organizations in the respective
firms.
Allan H. Cheiken, 54, 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 the Company earned
salary and bonus in excess of $100,000 for the fiscal year ended March 31,
1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Fiscal Other Annual Number of Shares
Name and Principal Position Year Salary Bonus Compensation Underlying Options
<S> <C> <C> <C> <C> <C>
Jugal K. Taneja 1998 $160,000 --- $44,000(1)(2) ---
Chairman of the Board and 1997 $160,000 $17,877 $30,000(1) 640,000 (5)
Chief Executive Officer
Susan J. Carmichael 1998 $130,000 --- $ 9,000(4)(6) ---
President and Director 1997 $130,000 $16,677 $44,042(3)(4) 350,000 (5)
(1) Represents meal and lodging expenses of $2,000 per month paid to Mr. Taneja while located in Florida. $18,000 paid during
fiscal year 1998 and a monthly automobile allowance of $500.
(2) Represents moving expenses. $20,000 paid during fiscal year 1998.
(3) Represents accumulated vacation of $38,042 paid during fiscal year 1997.
(4) Represents lodging expenses of $500 per month paid to Ms. Carmichael. $4,500 paid during fiscal year 1998
(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.
(6) Represents a monthly automobile allowance of $500 paid to Ms. Carmichael. $4,500 paid during fiscal year 1998.
</TABLE>
No options were granted during the fiscal year ended March 31,
1998. 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.
Options 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 1998 or 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, 1998 at March 31, 1998
Jugal K. Taneja 920,000 $27,600
Susan J. Carmichael 450,000 22,400
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 canceled. 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 issued in
fiscal 1997 and 1996 respectively. 20,000 options were exercised and
12,000 were canceled 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 29, 1998 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 33760
Susan J. Carmichael (2) (7) 504,677 9.4%
5770 Roosevelt Boulevard, Suite 700
Clearwater, Florida 33760
Robert P. Ottman (3) (4) 44,306 *
3939 West Ridge Road
Erie, Pennsylvania 16506
Thomas V. Chema (3) 29,120 *
1100 Huntington Building
925 Euclid Avenue
Cleveland, Ohio 44115
Judi M. Kelly (3) 0 *
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 sons
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 totaling
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 1998 and 1997, the Company leased certain office
furniture and equipment from Bancapital for a total cost of $28,000 per
year. Bancapital also held the lease for the Company's Cleveland
financial office. The lease was terminated 3/31/97 when operations were
moved to Florida.
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.
27 Financial Data Schedule.
## 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 September 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>
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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of NuMED Home Health Care, Inc. and subsidiaries at March 31,
1998 and 1997 and the consolidated results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
June 29, 1998
<PAGE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31
1998 1997
Assets
Current assets:
Cash and cash equivalents $59,725 $797,440
Cash deposits securing contractual
arrangements 1,275,980 1,875,000
---------- ----------
1,335,705 2,672,440
Accounts receivable, net of
allowances for doubtful accounts
of $304,796 in 1998 and $302,507
in 1997 4,343,476 3,545,782
Prepaids, inventories, and other
current assets 335,825 282,093
---------- ----------
Total current assets 6,015,006 6,500,315
Property and equipment, net 382,928 389,017
Goodwill, net of accumulated
amortization of $1,098,913
in 1998 and $753,570 in 1997 4,081,222 4,426,563
Other intangible assets, net of
accumulated amortization of
$1,912,826 in 1998 and $1,796,412 in
1997 242,563 348,958
Deferred tax and other 35,185 551,447
---------- ----------
Total assets $10,755,904 $12,216,300
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $289,850 $289,844
Accrued salaries and payroll related 1,291,419 1,421,538
Accrued expenses 278,055 412,517
Estimated amounts due to third-party
payors 21,345 158,282
Short-term borrowings 1,596,424 0
Current portion of long-term
obligations 97,053 614,331
---------- ----------
Total current liabilities 3,574,146 2,896,512
Long-term obligations, less current
portion 917,427 1,112,807
---------- ----------
Total liabilities 4,491,573 4,009,319
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 10,653,754 10,679,113
Treasury stock, 43,599 and 67,075
shares of common stock at cost,
respectively (87,634) (134,821)
Accumulated deficit (4,306,799) (2,342,321)
---------- ----------
Total stockholders' equity 6,264,331 8,206,981
---------- ----------
Total liabilities and stockholders'
equity $10,755,904 $12,216,300
========== ==========
See notes to consolidated financial statements.
<PAGE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended March 31
1998 1997
Revenues $22,649,516 $24,590,951
Direct expenses 17,240,737 19,411,870
---------- ----------
Gross profit 5,408,779 5,179,081
General and administrative expenses:
Salaries and benefits 3,543,928 3,500,172
Operating expenses 865,684 976,704
Professional fees 371,436 370,860
Occupancy expenses 802,754 840,157
Insurance 293,062 342,651
Amortization and depreciation 604,479 651,897
Bad debt expense 103,733 243,191
Other contractual settlement 0 899,000
---------- ----------
Total general and administrative 6,585,076 7,824,632
---------- ----------
Operating loss (1,176,297) (2,645,551)
Other revenues (expenses):
Interest income 112,373 91,882
Interest expense (215,572) (96,816)
Other (152,759) (3,878)
---------- ----------
Total other revenues (expenses) (255,958) (8,812)
---------- ----------
Loss before income tax expense (benefit) (1,432,255) (2,654,363)
Income tax expense (benefit) 532,223 (776,311)
---------- ----------
Net loss $(1,964,478) $(1,878,052)
Net loss per share-basic and diluted $(0.40) $(0.38)
========== ==========
Weighted average shares outstanding-
basic and diluted 4,950,845 4,929,752
See notes to consolidated financial statements.
<PAGE>
<TABLE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Additional
Common Stock Paid-in Accumulated Treasury Stock
Shares Dollars Capital Deficit Shares Dollars Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1996 5,010,219 $5,010 $10,708,176 $(464,269) (46,023) $(68,138) $10,180,779
Net loss (1,878,052) (1,878,052)
Exercise of options (1,684) 20,000 30,885 29,201
Purchase of treasury shares (100,000) (201,000) (201,000)
Shares issued under employee
stock purchase plan (27,379) 58,948 103,432 76,053
---------- ---------- ---------- -------------------- ---------- ----------
Balance at March 31, 1997 5,010,219 5,010 10,679,113 (2,342,321) (67,075) (134,821) 8,206,981
Net loss (1,964,478) (1,964,478)
Shares issued under employee
stock purchase plan (25,359) 23,476 47,187 21,828
---------- ---------- ---------- ---------- --------- ---------- ----------
Balance at March 31, 1998 5,010,219 $5,010 $10,653,754 $(4,306,799) (43,599) $(87,634) $6,264,331
========== ========== ========== ========== ========= ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NuMED Home Health Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended
1998 1997
Cash flows from operating activities
Net loss $(1,964,478) $(1,878,052)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 604,479 651,897
Provision for uncollectible accounts 103,733 243,191
Cash deposits securing contractual
arrangements 0 42,014
Loss on sale or disposal of property,
plant and equipment 0 269
Increase (decrease) in cash due to net
changes in operating
assets and liabilities:
Accounts receivable (901,427) 983,633
Prepaids and other current assets (53,732) (54,595)
Accounts payable and accrued expenses (401,512) (229,602)
Deferred charges and other 499,897 (519,337)
---------- ----------
Net cash provided by (used in) operating
activities (2,113,040) (760,582)
Cash flows from investing activities
Purchase of property and equipment (129,289) (261,267)
Purchase of accounts receivable lists 0 (48,559)
---------- ----------
Net cash provided by (used in) operating
activities (129,289) (309,826)
Cash flows from financing activities
Proceeds from borrowings 9,979,258 2,335,200
Payments on borrowings (9,095,492) (1,473,432)
Proceeds from issuance of stock through
employee purchase plan 21,828 76,053
Proceeds from the issuance of stock through
exercise of stock options 0 29,201
Cash securing letters of credit 599,020 (500,000)
Purchase of treasury stock 0 (201,000)
Collection of note receivable 0 106,966
---------- ----------
Net cash provided by (used in) financing
activities 1,504,614 372,988
---------- ----------
Increase (decrease) in cash and cash
equivalents (737,715) (697,420)
Cash and cash equivalents at beginning of
year 797,440 1,494,860
---------- ----------
Cash and cash equivalents at end of year $59,725 $797,440
========== ==========
Supplemental disclosure
Interest paid during the year $197,105 $94,270
========== ==========
Income taxes paid during the year $0 $0
========== ==========
See notes to consolidated financial statements.
<PAGE>
NuMed Home Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1998 and 1997
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), 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), Parke
Home Health Care, Inc. (Parke) and NuMED Rehabilitation (NuMED Rehab).
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 home health care services are recorded at established
rates less contractual allowances. 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.
Revenues from third-party payors for the years ended March 31, 1998 and
1997 were approximately $12,785,000 and $10,327,000, 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.
Approximately 34% and 25% of 1998 and 1997 revenues, respectively, were
derived from the Medicare program. 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.
Concentration of Credit Risk
The Company's concentration of credit risk relating to accounts receivable
is limited due to the diversity of patients and payors. Accounts
receivable primarily consist of amounts due from government programs,
commercial insurance companies, private pay patients, hospitals, long-term
care facilities and other group insurance programs. Excluding
governmental programs, no one payor source represents more than 10% of the
Company's accounts receivable or revenues for 1998. The Company
recognized 16% of its revenue from a single customer in 1997. This
customer terminated their relationship in 1998. The Company maintains an
allowance for uncollectible accounts based on the expected collectibility
of accounts receivable.
Cash and Cash Equivalents
Cash equivalents represent highly liquid investments with original
maturities of less than 90 days. Cash and cash equivalents excludes cash
deposits used to secure contractual obligations.
Inventories
Inventories are carried at the lower of cost (first-in, first-out (FIFO)
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 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, 1998, no impairment of goodwill was
evident.
Other Intangible Assets
Other intangible assets consist of customer lists, covenants not to
compete and various leaseholds and are amortized over their estimated
useful life up to a maximum of 10 years.
Financial Instruments
The carrying values of cash and cash equivalents, cash deposits securing
contractual arrangements, accounts receivable and accounts payable are
reasonable estimates of their fair value due to the short-term nature of
these financial instruments. The carrying value of the Company's
borrowings under the revolving credit agreements approximate fair value.
Earnings Per Share
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earning Per Share" (SFAS 128). Accordingly, basic net income
(loss) per share was computed based on the weighted average number of
common shares outstanding during the fiscal year. Dilutive net income
(loss) per share was computed based on the weighted average number of
common shares outstanding plus the shares that would be outstanding
assuming exercise of dilutive securities. Per share amounts for the prior
period were restated, as necessary, to conform to the provisions of SFAS
128.
Stock-Based Compensation
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
presented in footnote F.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (Statement 131). Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for
financial statements for fiscal years beginning after December 15, 1997,
and therefore the Company will adopte the new requirements retroactively
in fiscal 1999. Management has not completed its review of Statement 131,
but does not anticipate that adoption will have a significant effect on the
Company's disclosures.
Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
B. Property and Equipment
Property and equipment consist of the following:
March 31
1998 1997
Equipment $568,113 $453,566
Furniture and fixtures 121,210 107,831
Leaseholds 77,562 76,199
-------- --------
766,885 637,596
Less accumulated depreciation 383,957 248,579
-------- --------
$382,928 $398,017
======== ========
C. Short-Term Borrowings
In August 1997, the Company secured two new revolving lines of credit for
the purpose of consolidation of debt service, payment of outstanding
balances on two $150,000 lines of credit and to fund future growth. The
first, a $3,000,000 credit facility, is secured by accounts receivable and
cash balances of NuMED, NuMED Rehab, Florida Nursing, Countryside, PA
Medical Concepts and Parke. The second, a $2,000,000 credit facility, is
secured by accounts receivable and cash balances of NuMED and Total
Professional. Advances under these lines are limited to 80% of qualified
accounts receivable under 120 days old. The outstanding balance of these
lines at March 31, 1998 was $1,596,424. The lines bear interest at 2%
above the prime rate as designated by Fleet National Bank of Connecticut,
N.A. (10.5% at March 31, 1998).
D. Long-Term Obligations
Long-term obligations consist of the following:
March 31
1998 1997
$1,250,000 line of credit ($1,000,000 at
March 31, 1997) with interest payable
monthly at 175 basis points above the
90 day certificate of deposit rate
(7.4% at March 31, 1998). This
agreement is collateralized by two
certificates of deposits. $901,000 $1,000,000
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. 28,990 43,043
30 month term note payable to the
previous owners of Parke payable 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. 71,922 215,768
30 month term note payable to the
previous owners of Parke payable 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. 5,000 15,000
$275,000 line of credit with interest
payable monthly at 200 basis points
above the 90 day certificate of
deposit rate. 0 272,000
$150,000 line of credit with interest
payable monthly at 50 basis points
above the prime rate as published by
National City Bank. 0 50,000
$150,000 line of credit with interest
payable monthly at the prime rate as
published by Fifth Third Bank. 0 75,000
Other 7,568 56,327
--------- ---------
1,014,480 1,727,138
Less current portion of long-term
obligations 97,053 614,331
--------- ---------
$917,427 $1,112,807
========= =========
The amounts of long term obligations due in each of the next three years
are as follows:
1999 $97,053
2000 913,563
2001 3,864
---------
$1,014,480
=========
As of March 31, 1998, NuMed has $624,000 available out of a total of
$1,525,000 on existing long-term lines of credit.
E. Stockholders' Equity
During fiscal 1997, NuMED purchased 100,000 shares at $2.01 per share. No
treasury shares were purchased in fiscal 1998.
F. Stock and Benefit Plans
A summary of the Company's stock option activity, and related information
for the years ended March 31, 1998 and 1997 is shown in the following
table in accordance with SFAS No. 123:
<TABLE>
<CAPTION>
1998 1997
Weighted- Weighted-
Average Average
Optioned Exercise Optioned Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding beginning of year 2,168,040 $3.06 1,194,120 $3.28
Granted-Market price equals exercise
price 218,760 2.64
Granted-Market price is less than
exercise price 850,000 2.74
Exercised (20,000) 1.46
Canceled (74,840) 2.08
--------- ------ --------- -------
Outstanding at end of year 2,168,040 $3.06 2,168,040 $3.06
========= ====== ========= =======
Exercisable at end of year 2,091,184 $3.07 2,034,666 $3.09
========= ====== ========= =======
Weighted-average fair value of
options granted during year:
Market price equals exercise
price $ $1.46
Market price is less than
exercise price $ $0.72
Reserved for future grants 340,000 340,000
========= ==========
</TABLE>
Exercise prices for optioned shares outstanding as of March 31, 1998
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 Weighted-
Weighted- Weighted- Average
Average Average Remaining
Range of Optioned Exercise Optioned Exercise Contractual
Exercise Prices Shares Price Shares Price Life (years)
<S> <C> <C> <C> <C> <C>
< $2.00 264,640 $1.29 246,444 $1.28 2.25
$2.00-$2.99 1,230,000 2.60 1,230,000 2.60 3.00
$3.00-$3.99 193,400 3.26 134,740 3.32 2.48
$4.00-$4.99 - - - - -
> $5.00 480,000 5.14 480,000 5.14 1.86
--------- ----- --------- ----- -----
2,168,040 $3.06 2,091,184 $3.07 2.61
========= ===== ========= ===== =====
</TABLE>
Pre-Plan Stock Options
During fiscal 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 ranged
from $2.19 to $5.00. As of March 31, 1998 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 fiscal 1997.
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, 1998, 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 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 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,
1998, 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 fiscal 1998 or
1997.
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 (no options or warrants were granted or canceled in 1998):
Risk-free interest rate 6.36%
Expected life of option 3 years
Expected dividend yield of stock 0.00%
Expected volatility of stock 0.891
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.
1998 1997
Pro forma net loss $(1,964,478) $(2,494,000)
Pro forma net loss per share $(.40) $(.50)
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.
G. 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.
Lease Commitments
The Company leases its office space and certain office equipment under
various operating leases. Rent expense for the years ended March 31, 1998
and 1997 was approximately $470,000 and $532,000, respectively. Future
lease commitments are as follows:
1999 $354,397
2000 242,371
2001 164,205
2002 22,846
2003 2,013
Thereafter 0
H. 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 both 1998 and 1997.
Bancapital entered into a contract for the lease of one of NuMED's
offices. The lease was guaranteed by a principal shareholder of NuMED.
NuMED paid the office lease directly. This arrangement was terminated on
March 31, 1997.
I. Other Contractual Settlement
The Rehabilitation division's largest customer in 1997 underwent a routine
Medicare audit of its cost report. The customer's fiscal intermediary, in
its interpretation of the Medicare prudent buyer guidelines, 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 applied an overreaching and
erroneous interpretation of applicable reimbursement guidelines.
The Company was contractually obligated to repay this customer the amount
of Medicare disallowed costs of $899,000. The entire amount paid was
expensed in 1997. The Company intends to vigorously pursue all avenues of
appeal to recover these costs. There is no guarantee that intermediary
negotiations or the appeals process will result in a favorable
determination. A hearing date has been established for October 1998.
During 1997, the Company obtained a $500,000 letter of credit for future
potential disallowances. The customer released the $500,000 letter of
credit in April 1997.
J. Income Taxes
The provision (benefit) for income taxes consists of the following:
1998 1997
Federal:
Current $(184,211) $(171,313)
Deferred 679,034 (604,998)
-------- --------
494,823 (776,311)
State and local 37,400 0
-------- --------
Total $532,223 $(776,311)
======== ========
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 valuation allowances.
The components of deferred tax assets and liabilities are as follows:
1998 1997
Deferred tax assets:
Net operating loss carryforward $949,142 $519,825
Accounts receivable reserves 113,870 76,471
Accrued expenses 43,388 67,726
Depreciation and amortization 8,127 305
Other 3,100 1,480
--------- ---------
1,117,627 665,807
Valuation allowances (1,117,627) 0
Deferred tax liabilities 0 0
--------- ---------
Net deferred tax assets $ 0 $665,807
========= =========
Current deferred tax assets $ 0 $144,197
Long-term deferred tax assets 0 521,610
--------- ---------
Net deferred tax assets $ 0 $665,807
========= =========
A reconciliation to the effective income tax rate to the Federal statutory
rate follows:
1998 1997
Tax at statutory rate (34)% (34)%
Amortization of excess purchase price 3 2
Nondeductible expenses 0 1
Other, net 2 2
State and local taxes (2) 0
Prior year valuation reserve adjustment 26 0
Current year valuation reserve 42 0
----- -----
37% (29)%
===== =====
At March 31, 1998, the Company has net operating loss carryforwards, net
of carrybacks, of approximately $2,853,000 which will be available to
offset future taxable income through fiscal 2018. For financial reporting
purposes, valuation allowances have been recognized to offset the deferred
tax assets related to the net operating loss carryfowards due to the
uncertainty as to future recognition.
<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: July 10, 1998 By: /s/ Jugal K. Tanega
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, July 10, 1998
Jugal K. Taneja Chief Executive Officer
and Director
/s/Susan J. Carmichael President and Director July 10, 1998
Susan J. Carmichael
/s/Thomas V. Chema Director July 10, 1998
Thomas V. Chema
/s/Robert P. Ottman Director July 10, 1998
Robert P. Ottman
/s/Marilyn Maginnes Principal Accounting July 10, 1998
Marilyn Maginnes Officer, Senior Controller
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 29, 1998 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,
1998.
ERNST & YOUNG LLP
Cleveland, Ohio
July 9, 1998
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