SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended May 31, 1996
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________
Commission File Number 1-10751
STAR MULTI CARE SERVICES, INC.
(Name of small business issue in its charter)
New York 11-1975534
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
99 Railroad Station Plaza, Hicksville, New York 11801
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(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code: (516) 938-2016
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class Name of each exchange on which registered
Common Stock, par value Pacific Stock Exchange*
$.001 per share --------------------------------
Nasdaq National Market System
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Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act 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 requirement for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
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. [_]
The issuer's net revenue for its most recent fiscal year was: $36,338,876
At August 22, 1996, 2,404,486 shares of Common Stock were outstanding. The
aggregate market value of the Common Stock of Star Multi Care Services, Inc.
held by non-affiliates (1,224,868 shares) as of August 22, 1996 was $9,033,402
(based upon the average bid and asked prices of the Common Stock on such date on
the Nasdaq National Market System).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Definitive Proxy Statement for the 1996 Annual Meeting
of Shareholders of the Company are incorporated by reference into Part III
hereof.
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* On June 7, 1996 the Company's Common Stock was delisted from the Pacific
Stock Exchange
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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GENERAL
Star Multi Care Services, Inc. (the "Company") is in the business of
providing placement services of registered and licensed nurses and home health
aides to patients for care at home ("Home Care") and, to a lesser extent
temporary health care personnel recruiting to hospitals and nursing homes
("Hospital Staffing"). In addition, the Company maintains registries of
registered nurses, licensed practical nurses, nurses' aides, certified home
health aides and certified personal care workers from which personnel are
recruited on a per diem basis to meet the requirements of the Company's clients.
Prior to its acquisition by present management in 1987, the Company's
business related primarily to providing private duty nurses to patients in
hospitals and staffing to hospitals. Under its current management, the Company
expanded its Hospital Staffing arrangements to nursing homes and additional
hospitals to provide licensed nurses on a per diem basis for general staff. In
1988, the Company further extended its Hospital Staffing business to include
providing licensed practical nurses and nurses' aides. In 1989, the Company
began providing Home Care services in New York City pursuant to a license from
the New York State Health Department. In 1990, the Company expanded its Home
Care services to include transportation of patients from hospital to home in
ambulettes, arrangements to purchase and supply equipment and pharmaceuticals,
as prescribed by the patients' physicians, and home infusion care. In 1991, the
Company was licensed by the New York State Department of Health to operate an
office in Nassau County, New York.
In 1992, the Company expanded its existing Home Care business through
the acquisition of certain assets from Unity Healthcare Holding Company, Inc.
and its subsidiaries ("Unity"), including contract rights to provide Home Care
services through various hospitals, community agencies and other institutional
health care providers. These contract rights complemented the existing home
health care businesses of the Company in areas such as New Jersey and New York
where the Company already operated. In addition, in these locations, the Company
obtained from Unity client referral lists to further expand existing operations.
In addition to expanding the Company's existing regional business,
the Unity acquisition added new operations to the Company in new locations. The
Company acquired Unity's Florida operations, which included certification to
receive reimbursement from Medicare and Medicaid in Broward and Dade Counties.
Most of such Medicare and Medicaid reimbursed operations are located in Dade
County. The Company also acquired the assets representing Unity's operations in
Florida that do not have Medicare and Medicaid certification, but which operate
under state license.
In 1993, the Company further expanded its existing Home Care business
through the acquisition of certain assets of DSI Health Care Services, Inc.
("DSI") including contract rights to provide Home Care services through various
hospitals, community agencies and other institutional health care providers.
These contract rights complimented the Company's existing Home Care businesses
in the Long Island, New York area.
In May 1995, the Company acquired certain assets of Long Island
Nursing Registry, Inc. ("LINR") thereby further expanding its Home Care
business. LINR provided nursing and other skilled health care services with both
Medicaid and non-Medicaid reimbursement eligibility compatible with the business
of the Company. LINR maintains offices and does business under the Company's
name in the Long Island area and as Comprehensive Care America in the Syracuse
area. The acquired assets included all of the fixed assets, certain
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of the contract and intellectual property rights and all of the records, lists,
files and books (including certain customer and personnel lists) with respect to
or in connection with the health care business conducted by LINR. The
acquisition expanded the Company's market area into Suffolk County, augmented
its presence in Nassau County and gave it significant market share in central
New York.
During the fiscal years ended May 31, 1994, 1995 and 1996, 58%, 56%
and 53%, respectively, of the Company's revenues were attributable to Medicare,
Medicaid and other state and federal government payments. Historically, a
greater portion of the Company's revenues have been derived from Home Care
services and a lesser portion of such revenues have been derived from Hospital
Staffing. The Company believes that this is a result of changing social and
economic attitudes toward the de-institutionalization of patients as well as the
Company's changing customer base. This trend is demonstrated by the following
table, which sets forth certain information with respect to the Home Care and
Hospital Staffing lines of business during each of the Company's three most
recent fiscal years.
Fiscal Year Ended May 31,
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1996 1995 1994
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Net Revenue
Home Care $35,073,170 $25,403,215 $19,295,762
Hospital Staffing 1,265,706 1,685,211 2,872,594
Percentage of Net Revenues
Home Care 97% 94% 87%
Hospital Staffing 3% 6% 13%
ACQUISITION OF AMSERV HEALTHCARE INC.
On August 23, 1996, the Company and AMSERV HEALTHCARE INC. ("Amserv")
consummated a merger (the "Merger") whereby the Company acquired control of
Amserv pursuant to an Agreement and Plan of Merger dated as of February 9, 1996,
as amended on July 18, 1996 (as amended, the "Merger Agreement"), among the
Company, AHI Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of the Company ("Merger Sub"), and Amserv. Under the Merger
Agreement, Merger Sub was merged with and into Amserv, whereupon the separate
existence of Merger Sub ceased and Amserv became a wholly-owned subsidiary of
the Company. Consummation of the Merger followed approval by the shareholders of
the Company and Amserv, which was obtained at separate meetings of the
shareholders of the two companies held on August 23, 1996.
Amserv operates in a one-industry segment as a health care service
company. Amserv provides Home Care services to individuals from its six branch
offices in New Jersey and Ohio. Home Care services provided by Amserv include
personal care, such as assistance with the activities of daily living (e.g.,
eating, walking and grooming), and skilled nursing services, such as wound care
and assistance with medications, injections and patient education.
HOME CARE SERVICES
A substantial portion of the revenues from the Company's Home Care
business relates to services provided to patients referred to the Company by
physicians, county medical services, community organizations, hospital social
service workers, nurses, insurance companies and HMO's. Other patients are
referred through
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such sources as the patient's family. The remaining revenues attributable to the
Company's Home Care business are received as a result of subcontracting
arrangements with certified home health agencies ("primary contractors") that
are authorized to receive reimbursement from Medicare and Medicaid in the States
of New York and Florida.
The Company provides Home Care nurses and paraprofessionals,
including registered nurses, licensed practical nurses, certified home health
aides, certified personal care workers and companions. These individuals are
temporary employees of the Company who work for the Company as needed. As of
August 22, 1996, the Company's roster of Home Care personnel included
approximately 1700 nurses and health care paraprofessionals.
It is the Company's policy that all of its Home Care nurses and
paraprofessionals meet certain licensing, certification and other requirements.
Upon registering with the Company for temporary employment, the Company's Home
Care nurses and paraprofessionals are required to attend inservice classes given
by the Company. The Company conducts ongoing inservices for its nurses and
paraprofessionals both to meet New York State Department of Health and New York
State Licensing Board continuing education requirements and to fulfill the
Company's own additional quality assurance goals. The Company is implementing
similar requirements in Florida. These classes and inservices, each of which
typically lasts three hours, are offered bi-weekly. They are taught by health
care professionals selected by the Company for their expertise in their fields,
including nurses, physical therapists, social workers and occasionally
physicians.
When the Company admits a new patient for service, the Company's
Director of Nursing confers with the patient's physician and other medical and
health care professionals (collectively, the patient's "health care team") to
(1) obtain physician's orders; (2) acquire a detailed description of the
patient's medical problem; (3) determine the patient's specific Home Care
requirements (the "protocol"), including the plan of treatment and
pharmaceutical services, products and equipment which will be needed; and (4)
determine the type of personnel, the number of hours and shifts required. The
Director of Nursing and/or a nursing supervisor first visits the patient to
conduct a personal examination and assessment in order both to verify all
information received from the referral source and to select the appropriate Home
Care personnel to care for the patient.
In a typical Home Care case, the Company's nurse or paraprofessional
assigned to the case visits the patient on a prescribed schedule to administer
the protocol and to provide other general care to the patient. Often the nurse
or paraprofessional spends the entire day with the patient. All of the Home Care
cases are supervised by a nursing supervisor to ascertain whether any problems
have arisen in connection with the services. Home Care services provided on a
subcontracting basis for a primary contractor are supervised only by the primary
contractor. The Company's personnel are instructed to remain in continuous
contact with the patient's health care team.
The Company has contracted with the Departments of Social Services in
Nassau, Suffolk and Onondaga Counties in New York to provide and be reimbursed
for custodial services under Medicaid. The Company is a direct provider for
skilled nursing services through Medicaid in New York State.
Approximately 15% of the Company's revenues from Home Care services
are paid by insurance carriers. Payments for the Company's Home Care services
typically are made (1) by assignment of insurance benefits from the patient, (2)
by the primary contracting organization or (3) by the patient. Once a claim is
submitted to an insurer, the insurer generally is required to act upon that
claim within 60 days. The Company typically receives payments from 60 to 180
days after its services are rendered, although such time period is sometimes
greater. Accordingly, the Company is often required to carry accounts receivable
over substantial periods of time and to utilize a line of credit to meet its
ongoing expenses. Medicaid claims are billed weekly and are usually paid in 60
to 90 days.
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The Company was surveyed by the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO") and, in February 1996, was found to meet the
requirements for accreditation. JCAHO, which is the accrediting body for
hospitals, is associated with the provision of quality services and its
accreditation is vital to the Company's contractual business. The Company's
accreditation expires in February 1999, at which time the Company must be
resurveyed for the following three-year term.
HOSPITAL STAFFING
The Company provides temporary (or "per diem") nursing placement
services to hospitals, nursing homes, clinics and other health-related
institutions that make use of supplemental staffing for emergencies, vacations
and peak periods. These personnel are supervised directly by the institutions,
with the Company acting solely as an employment agency matching the requirements
of the institutions with the names and skills of persons listed in its
registries.
The personnel placed by the Company with hospitals and other health
and medical institutions include registered nurses, licensed practical nurses,
nurses' aides and other health care paraprofessionals. The Company's nurses and
nurses' aides placed in hospitals must meet the competency requirements
determined by the Company and by the facility. Temporary health care personnel
are recruited in the local market in which the Company offers its temporary
personnel services.
Some of the hospitals in New York City that have utilized the
Company's Hospital Staffing services include Methodist Hospital, Maimonides
Medical Center and the Hospital for Joint Diseases Orthopaedic Institute in New
York.
COMPETITION
The temporary health care personnel market is highly fragmented and
significant competitors are often localized in particular geographic markets.
The Company's largest competitors include the Olsten Company and Staff Builders.
Management of the Company believes that, given the high current level of demand
for the types of services provided by the Company, significant additional
competition can be expected to develop in the future. Some of the companies with
which the Company presently competes have substantially greater financial and
other resources than the Company. The Company also competes with many other
smaller temporary medical staffing agencies. The Company expects that it will
compete with other temporary health care services providers in the future if and
when they enter the Company's existing geographic markets, as well as in any new
geographic market the Company may enter.
The Company's success to date has depended, to a significant degree,
on its ability to recruit qualified personnel. These persons may be registered
with, and may accept placements from or through competitors of the Company. The
Company periodically experiences intense competition from other companies in
recruiting qualified health care personnel for its temporary health care
operations because the United States health care industry, at times, faces
shortages of qualified personnel. The Company believes it is able to compete
successfully for personnel by aggressive recruitment through newspaper
advertisements, flexible work schedules and competitive compensation
arrangements. There can be no assurance, however, that the Company will be able
to continue to attract and retain qualified personnel. The inability to either
attract or retain such qualified personnel would have a material adverse effect
on the Company's business.
MARKETING
Prior to its recently completed acquisition of Amserv, which expanded
the geographic area serviced by the Company, the Company marketed its temporary
health care services in the New York metropolitan area, the central New York
area and in Broward and Dade Counties, Florida. As a result of the acquisition
of Amserv, in the future these marketing activities will also include New Jersey
and Ohio. The Company's services are
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marketed by a team of personnel headed by the Chief Operating Officer of the
Company. The Company promotes its services through print advertising, direct
mail efforts focused on health care institutions and field sales calls. The
Company makes periodic mailings to approximately 50 hospitals and 75 nursing
homes in the New York City metropolitan area. In addition, in the New York
metropolitan area and in Florida, representatives of the Company periodically
visit or telephone medical facilities to establish or maintain relationships
with individuals in those institutions who are responsible for staffing,
discharge of patients and personnel recruitment. The Company's representatives
also attend health care functions and trade shows to further enhance the
Company's marketing efforts. The Company intends to continue these marketing
programs and to increase its marketing staff in the future as its business so
requires, especially in view of the recent acquisition of Amserv.
The Company has acquired the necessary expertise, through its
acquisition of LINR, to provide Shared Aide Services ("Shared Aide"). Shared
Aide, which is a task-oriented, patient-specific care plan designed to condense
the amount of hours caregivers must devote to patients, has recently been
adopted as a cost cutting mechanism by New York State. The New York State
Department of Social Services, in consultation with the New York State
Department of Health, has developed agency specific cost savings for each
certified home health agency. A portion of the cost savings are to be achieved
through development and implementation of Shared Aide.
The Company believes it is one of the few providers in New York State
with the expertise and experience required to offer Shared Aide. To date, Shared
Aide has not constituted a material portion of the Company's business. However,
the Company intends to market this service in an effort to generate increased
revenues from this developing area of home health care.
CUSTOMERS
The Company does not depend upon any single customer and does not
believe that the loss of any one or more of its customers would have a material
adverse effect on the Company. The Company continues to submit proposals to
potential contractors to provide Home Care services while maintaining and
expanding its present contract base.
GOVERNMENT REGULATIONS AND LICENSING
The Company's business is subject to substantial and frequently
changing regulations by Federal, state and local authorities which imposes a
significant compliance burden on the Company. The Company, among other things,
must comply with state licensing and certificate of need ("CON") requirements as
well as Federal and state eligibility standards for certification as a Medicare
and Medicaid provider. The imposition of more stringent regulatory requirements
or the denial or revocation of any license or permit necessary for the Company
to operate in a particular market could have a material adverse effect on the
Company's operations. In addition, the Company will be required to comply to the
extent applicable, with the licensing and/or certificate of need requirements
and other regulations in any jurisdiction in which it may plan to provide
services.
Home health agency certification is required by the Health Care
Financing Administration ("HCFA") to receive reimbursement for services from
Medicare. In order to participate as a home health agency in the Medicare
program, HCFA requires, among other things, the preparation of annual budgets
and capital expenditure plans. The health regulatory agencies of the states in
which the Company operates require satisfaction of certain standards with
respect to personnel, services and supervision and the establishment of a
professional advisory group that includes at least one physician, one registered
nurse and other representatives from related disciplines or consumer groups.
New York State requires the approval by the Public Health Council of
the New York State Department of Health ("NYPHC") of any change in the
"controlling person" of an operator of a licensed health care services agency (a
"LHCSA"). Control of an entity is presumed to exist if any person owns, controls
or holds the power
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to vote 10% or more of the voting securities of such entity. To the extent the
Company may seek to acquire control of a LHCSA, the Company would have to be
granted the approval of the NYPHC prior to exercising control over such LHCSA.
Applicable state "anti-kickback" regulations, in general, provide
that the Company may not make certain payments in order to receive referrals of
patients. In addition, Federal "anti-kickback" regulations provide similar
restrictions for health care providers to the extent they are certified to
participate in the Medicare and Medicaid programs. The Company does not believe
that compliance with applicable state and Federal "anti-kickback" regulations
has a material impact on the Company's business and operations.
As of August 23, 1996, the Company was licensed to provide nursing
care and durable medical equipment in the five boroughs of New York City,
Nassau, Suffolk, Westchester, Oswego, Onondaga, Cayuga, Madison, Jefferson and
Herkimer Counties in New York State and in the state of Florida. It is also
licensed as a temporary help services firm to provide personnel on a per diem
basis for hospital staffing.
In Broward and Dade Counties in Florida, the Company's home health
care license allows the Company to participate in both the Medicare and Medicaid
programs.
The Company believes that it has all licenses necessary to operate
its business as currently conducted in New York and Florida.
Amserv is also licensed to provide health care services in New Jersey
and Ohio.
The denial or revocation of any license or permit necessary for the
Company or Amserv to operate in a particular market would have a material
adverse effect on the Company's business in that market and, depending upon the
market, on the Company's business in general.
LIABILITY INSURANCE
The Company's employees and independent contractors routinely make
decisions which can have significant medical consequences to the patients in
their care. As a result, the Company is exposed to substantial liability in the
event of negligence or wrongful acts of its personnel. The Company maintains
medical professional liability insurance providing for coverage in a maximum
amount of $1,000,000 per claim, subject to a limitation of $3,000,000 for all
claims in any single year. In addition, the Company requires that each
independent contractor it refers to institutions for employment supply a
certificate of insurance evidencing that such person maintains medical
professional liability insurance providing for coverage of no less than
$1,000,000 per claim. There can be no assurance, however, that the Company will
be able to maintain its existing insurance at an acceptable cost or obtain
additional insurance in the future, as required. Although, to date, no claim has
been asserted against the Company, there can be no assurance that the Company's
insurance will be sufficient to cover liabilities resulting from claims that may
be brought in the future. A partially or completely uninsured claim, if
successfully asserted and of significant magnitude, could have a material
adverse effect on the Company and its financial condition.
EMPLOYEES
As of August 22, 1996, the Company had 186 permanent employees. The
Company also has a roster of temporary professional and paraprofessional
employees (including registered nurses, licensed practical nurses, certified
home health aides, certified personal care workers and nurses' aides). In the
past, certain of the Company's registered nurses were compensated on an
independent contractor basis. However, the Company currently treats such persons
as employees. The Company has no union contracts with any of its employees and
believes that its relationship with its employees and independent contractors is
good. The Company pays its temporary employees at rates that it believes are
competitive.
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As of August 22, 1996, Amserv and its subsidiaries employed 44 full-
time and 1,079 part-time employees for its continuing operations. No employees
are coverd by a collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
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The Company's executive offices consist of approximately 1,500 square
feet of office space located in Hicksville, New York. The lease, from an
unaffiliated landlord, expires on December 31, 1998 and provides for a base rent
of $2,894 per month. The Company believes that its executive office space is
sufficient for its present and reasonably foreseeable future needs.
As of August 22, 1996, the Company had leases for office space in
Brooklyn, New York, Huntington, New York, Coram, New York, Riverhead, New York,
Long Beach, New York, Rome, New York, Oswego, New York, Syracuse, New York,
Miami, Florida, Hollywood, Florida and Lake Worth, Florida, from landlords
unaffiliated with the Company or any of its executive officers or directors. The
Brooklyn lease, which expires February 14, 2002, consists of 3,700 square feet
and provides for a base rent of $7,655 per month. The Huntington lease, which
expires May 31, 2001, consists of 2,000 square feet and provides for a base rent
of $3,194 per month. The Coram lease, which expires July 1, 1999, consists of
1,200 square feet and provides for a base rent of $1,352 per month. The
Riverhead lease, which expires January 31, 1997, consists of 1,000 square feet
and provides for a base rent of $1,087 per month. The Long Beach lease, which
expires June 30, 2001, consists of 1,000 square feet and provides for a base
rent of $1,183 per month, with annual increases of 2.5%. The Rome lease, which
expires September 30, 1997, consists of 500 square feet and provides for a base
rent of $400 per month. The Oswego lease, which expires September 1, 1997,
consists of 500 square feet and provides a base rent of $395 per month. The
Syracuse lease, which expires July 1, 2000, consists of 1,000 square feet and
provides for a base rent of $1,292 per month. The Miami lease, which expires
August 31, 1999, consists of 14,110 square feet and provides for a base rent
plus tax of $19,489 per month. The Hollywood lease, which expires November 30,
1999, consists of 2,000 square feet and provides for a base rent plus tax of
$3,195 per month. The Lake Worth lease, which expires February 15, 2000,
consists of 1,200 square feet and provides for a base rent of $1,272 per month.
Amserv leases, from unaffiliated landlords, seven office facilities,
which are located in Edison, Elizabeth, Fairlawn, South Orange and Union City,
New Jersey; Mansfield, Ohio; and La Jolla, California. The Edison lease, which
expires December 31, 1998, consists of 4,215 square feet and provides for a base
rent of $6,147 per month. The Elizabeth lease, which expires June 30, 1999,
consists of 1,500 square feet and provides for a base rent of $2,000 per month.
The Fairlawn lease, which expires June 14, 1999, consists of 2,113 square feet
and provides for a base rent of $2,563 per month. The South Orange lease, which
expires June 30, 1997, consists of 950 square feet and provides for a base rent
of $1,873 per month. The Union City lease, which expires September 30, 1999
consists of 1,250 square feet and provides for a base rent of $1,458. The
Mansfield lease, which expires May 28, 1999, consists of 8,100 square feet and
provides for a base rent of $2,000 per month. The La Jolla lease, which expires
March 31, 1997, consists of 2,879 square feet and provides for a base rent of
$3,911 per month. The Company believes that these facilities are adequate for
the operations of AMSERV.
ITEM 3. LEGAL PROCEEDINGS
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The Company
In each of January and November 1993, a different subsidiary of the
Company was selected for an employment tax audit by The New York State
Department of Labor ("DOL"). In May 1993, one of the Company's subsidiaries
received from the DOL a formal report proposing an adjustment in the amount of
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$73,000. In January 1994, the other of the Company's subsidiaries received from
the DOL a formal report proposing an adjustment in the amount of $33,000.
The Company prevailed before the hearing examiner in the latter of
these cases, which decision is presently being appealed by the DOL, and the
Company is vigorously defending its position. The Company did not prevail in the
former case and is currently appealing that decision. Both of these appeals are
pending before the New York State Unemployment Appeal Board. Management believes
that an unfavorable outcome in either or both of these appeals would not
materially affect the financial position of the Company.
Except as otherwise provided, there are no legal proceedings to which
the Company is currently a party or to which any of its property is subject, and
the Company knows of no legal proceeding pending or threatened against either
the Company or any director or officer of the Company in his or her capacity as
such.
Amserv
On April 27, 1995, Stockbridge Investment Partners, Inc.
("Stockbridge") commenced litigation in the Court of Chancery of the State of
Delaware in and for New Castle County (the "Delaware Litigation") against Amserv
and its then current directors, Melvin L. Katten, Eugene J. Mora, Michael A.
Robinton, George A. Rogers and Ben L. Spinelli, seeking an order rescinding the
transactions by which Amserv exchanged a promissory note held by North Central
Personnel, Inc. ("NCP") for 426,794 shares of Class A Redeemable Preferred Stock
of Amserv (the "Class A Preferred") and partially financed the exercise by Mr.
Mora of stock options to acquire 177,562 shares of Amserv Common Stock, and
preliminary and permanently enjoining Amserv from recognizing such stock, as
well as any stock proposed to be issued in connection with a letter of intent
referred to in Amserv's April 13, 1995 press release, as validly issued for
purposes of voting or exercising rights to consent.
Following settlement discussions between Stockbridge and Amserv, the
parties entered into a Standstill Agreement and a Settlement Agreement and
Release, both dated as of May 12, 1995 (collectively, the "Settlement
Agreements"), pursuant to which Stockbridge agreed, among other things, to (i)
revoke the consent delivered April 7, 1995 to remove from the Amserv Board three
of the five then current directors of Amserv and replace such persons with
persons designated by Stockbridge, (ii) suspend its solicitation of consents to
remove a majority of Amserv's Board of Directors and (iii) dismiss with
prejudice the Delaware Litigation. Under the Standstill Agreement, which expired
on June 11, 1995, Stockbridge and Amserv agreed to continue good faith
discussions and receive more detailed information regarding a potential business
combination involving Amserv and York Hanover Pharmaceuticals, Inc., a
wholly-owned subsidiary or Stockbridge. In addition, the parties further agreed
that solely for purposes of Stockbridge's renewed consent solicitation, the
shares of Class A Preferred would have no voting rights and would not be deemed
as outstanding voting securities. In addition, a voting agreement between Amserv
and NCP with respect to the shares of Class A Preferred and a related
irrevocable proxy were rescinded.
On August 23, 1995, the Delaware Court of Chancery ordered Amserv to
reimburse Stockbridge for legal fees in the amount of $50,000 incurred in
connection with the Delaware Litigation, which Amserv paid on September 1, 1995.
On February 22, 1996, Stockbridge commenced litigation against Amserv
in the United States District Court for the District of Massachusetts. In its
complaint, Stockbridge alleged that Amserv breached the terms of the October 18,
1995 agreement between Amserv and Stockbridge by refusing to deal with
Stockbridge's "pre-emptive" proposal in a fair and equitable manner. The relief
sought by Stockbridge included reimbursement of Stockbridge's expenses in the
amount of $125,000, unspecified damages which Stockbridge estimated at more than
$275,000 and attorneys' fees. On March 14, 1996, Amserv filed a motion to
dismiss Stockbridge's complaint for lack of personal jurisdiction. On August 23,
1996 Amserv's motion to dismiss was allowed.
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On April 9, 1996, Stockbridge commenced litigation against Amserv in
the Court of Chancery of the State of Delaware for New Castle County. In its
complaint, Stockbridge requests that the Court enter judgment summarily ordering
Amserv to conduct an annual meeting of shareholders for the purpose of electing
directors and conducting such other business as may properly be conducted at the
meeting. On April 29, 1996, Amserv filed an answer to Stockbridge's complaint.
In its answer, Amserv states that it has, independent of Stockbridge's
complaint, set a record date for the annual meeting (which was held on August
23, 1996) and a corresponding record date, making Stockbridge's claims moot.
Amserv intends to seek a dismissal of such action.
On April 18, 1996, Amserv commenced litigation in the United States
District Court for the Southern District of California against Stockbridge and
certain of its affiliates for numerous violations of Sections 13(d) and 14(a) of
the Exchange Act. Among the violations listed by Amserv are the defendants'
failure to disclose all of the members of Stockbridge's Section 13(d) "group,"
misstatements in Stockbridge's Consent solicitation materials, and Stockbridge's
failure to disclose its offer to purchase for $3.00 per share any and all
outstanding shares of Amserv Common Stock. Amserv seeks injunctive relief
against Stockbridge's solicitation of consents, and a declaration that the
Stockbridge group has and must publicly disclose beneficial ownership of 10% or
more of the Amserv Common Stock, thereby triggering Amserv's Shareholder Rights
Plan. On May 28, 1996, Stockbridge, together with certain of its affiliates,
filed an answer and counterclaim relating to the litigation filed by Amserv in
the Southern District of California. The counterclaim names both Amserv and Mr.
Mora as counterdefendants and is structured as a derivative claim brought on
behalf of Amserv against Mr. Mora. The counterclaim alleges that Mr. Mora
engaged in activities in breach of his fiduciary duties and that the directors
of Amserv, including Mr Mora, undertook a series of actions for the purpose of
entrenchment. On July 10, 1996, Amserv and Mr. Mora filed a joint reply to the
counterclaim. Amserv and Mr. Mora deny, and intend to vigorously defend against,
the claims made by Stockbridge and its affiliates in the counterclaim.
Subsequent to the termination of Stockbridge's consent solicitation
on May 14, 1996, Stockbridge commenced negotiations with Amserv in an effort to
settle the ongoing litigation between Amserv and Stockbridge. Amserv and
Stockbridge, with the assistance Batchelder & Partners, Inc., an investment
banking and financial advisory firm retained by Amserv, have continued to
discuss a possible settlement since that time, but no definitive agreement has
yet been reached. Amserv intends to continue to pursue a resolution of its
disputes with Stockbridge.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of the Company's security holders
during the last quarter of the fiscal year ended May 31, 1996.
9
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------
The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol "SMCS". Until June 7, 1996, the Company's Common Stock was also
listed on the Pacific Stock Exchange. The following table sets forth the high
and low sales prices per share for the Common Stock during the periods indicated
on the Nasdaq National Market.
Fiscal Year Fiscal Year
1996 1995
HIGH LOW HIGH LOW
First Quarter 4 3/8 3 1/2 3 1/16 2
Second Quarter 7 3/8 4 3/16 4 3/8 2 7/8
Third Quarter 8 1/8 5 1/2 4 3/8 3 3/4
Fourth Quarter 7 1/2 5 1/8 4 1/16 3 1/4
As of August 22, 1996, the Company had 2,404,486 shares of Common
Stock outstanding and 68 shareholders of record.
The Company did not pay cash dividends on its Common Stock during
either of the two years ended May 31, 1996 and 1995. It is the present policy of
the Company to retain earnings, if any, to finance the development and growth of
its business. In addition, the Company's agreement with its bank lender
prohibits the payment of cash dividends without the bank's prior consent.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
- ----------------------------------------------------------
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
Year Ended May 31, 1996 Compared to Year Ended May 31, 1995
Net revenues increased $9,250,450 or 34% to $36,338,876 for the
fiscal year ended May 31, 1996 over net revenues of $27,088,426 for the fiscal
year ended May 31, 1995. Approximately 62% of the increase was due to the
acquisition of certain assets of Long Island Nursing Registry ("LINR") (see Note
8 to the Consolidated Financial Statements included elsewhere in this report).
LINR was exclusively involved in the Home Care business. The remainder of the
increase was due to a general upward trend in the Home Care business. Net
revenues from Home Care increased by $9,669,955 or 38% while net revenues from
Hospital Staffing decreased by $419,505 or 25%.
10
<PAGE>
The Company's decreased revenues from Hospital Staffing resulted from
a general decline in demand for these services.
The Company's decided shift towards Home Care mirrors a changing
social and economic attitude toward the de-institutionalization of patients. Due
to the long hospital stays of some terminally ill patients and the greater costs
associated with institutional treatment plans, the Company believes that the
industry (i.e. hospital, insurance companies and home care agencies) trend is to
find ways to care for patients in the home. The Company continues to devote its
resources toward the growth in Home Care and believes this upward trend will
continue in the future. Home Care revenues represented approximately 97% of 1996
net revenues and Hospital Staffing represented approximately 3% of 1996 net
revenues.
Gross profit margin percentages for the fiscal years ended May 31,
1996 and 1995 were 35%.
Selling, General and Administrative expenses ("SG&A") as a percentage
of net revenues were 29% in 1996 as compared with 31% in 1995. Such decrease is
principally attributable to the increase revenues from Home Care, being absorbed
by existing back office overhead.
Net income increased by $340,170 or 48% to $1,045,858 for the fiscal
year ended May 31, 1996 over net income of $705,688 for the fiscal year ended
May 31, 1995. The increase occurred primarily because of the increased revenues
from Home Care and lower SG&A expenses as a percentage of revenues.
The Company's effective tax rate for 1996 was 41% as compared to 40%
in 1995. The increase in effective tax rate is due the use of certain federal
tax credits in 1995 which were not available in 1996.
In October 1994, a subsidiary of the Company received from the
Internal Revenue Service ("IRS") a formal report proposing an adjustment in
taxes of $1,222,220 for the years 1989 through and including 1993. On October
12, 1995, that subsidiary signed a closing agreement with the IRS providing for
zero tax liability. The subsidiary agreed to treat all skilled nurses providing
Hospital Staffing services as employees for federal employment tax purposes
commencing January 1, 1996. As skilled Hospital Staffing services currently
represent only 3% of revenues, this change is not expected to have a significant
impact on earnings.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 1996, cash and cash equivalents were $123,644 as
compared with $270,344 at May 31, 1995.
The nature of the Company's business requires weekly payments to its
personnel at the time they render services, while it receives payment for
services rendered over an extended period of time (60 to 180 days or longer),
particularly when the payor is an insurance company, medical institution or
governmental unit. At May 31, 1996 and May 31, 1995, the Company's accounts
receivable balances were $8,060,463 and $5,742,176, respectively, representing
22% and 21% of the Company's net revenues for each of the respective years then
ended. Accounts receivable represent a substantial portion of current and total
assets at May 31, 1996 and May 31, 1995. During fiscal 1996, accounts receivable
turnover was approximately 73 days while during fiscal 1995 turnover was 74
days, a decrease of 1 day.
Borrowings under the Company's revolving line of credit increased
approximately $800,000 during the year ended May 31, 1995 and further increased
by $1,530,000 during the year ended May 31, 1996. The increase in borrowings
during the year ended May 31, 1995 were used to partially fund the initial
acquisition of assets from LINR in May 1995. The increase in borrowings during
the period ended May 31, 1996 were used to help fund the increase in accounts
receivable resulting primarily from the Company's acquisition of LINR. The
Company currently has available a revolving credit line with a bank which allows
for maximum borrowings of $6,000,000. This revolving credit line expires on
October 31, 1997 and is subject to renewal. However, as the
11
<PAGE>
Company's business expands, additional financing may be required. Outstanding
borrowings under the revolving credit line at May 31, 1996 were $3,280,000 as
compared to $1,750,000 at May 31, 1995.
As a result, the Company feels that its current financial condition
is sufficient in order to permit the Company to meet its financial requirements
for at least the ensuing twelve months.
The Company intends to meet its long-term liquidity needs through
available cash, cash flow and, if necessary, the Company's bank line of credit.
To the extent that such sources are inadequate, the Company will be required to
seek additional financing. In such event, there can be no assurance that
additional financing will be available to the Company on satisfactory terms.
In May 1993, one of the Company's subsidiaries received from the DOL
a formal report proposing an adjustment in the amount of $73,000 as a result of
an employment tax audit. In January 1994, another of the Company's subsidiaries
received from the DOL a formal report proposing an adjustment in the amount of
$33,000.
The Company prevailed before the hearing examiner in the latter of
these cases, which decision is presently being appealed by the DOL, and the
Company is vigorously defending its position. The Company did not prevail in the
former case and is currently appealing that decision. Management believes that
an unfavorable outcome in either or both of these appeals would not materially
affect the financial position of the Company.
Other than the matters described above, the Company does not
anticipate any extraordinary material commitments for capital expenditures for
the Company's current fiscal year. The Company believes that cash generated from
operations, together with borrowings available under its existing line of
credit, will be sufficient to meet its short-term and long-term liquidity needs.
The Company is continually exploring possible acquisitions of
compatible companies in the health care business. If any such acquisition were
to be made with available cash, the Company's long-term liquidity would depend
to a greater extent on cash flow and the line of credit.
On February 9, 1996, the Company entered into an Agreement and Plan
of Merger (the"Merger Agreement"), as amended on July 18, 1996, to acquire
AMSERV HEALTHCARE INC. ("Amserv"), a health care service company which provides
home care services in New Jersey and Ohio. On August 23, 1996, the shareholders
of the Company and Amserv, at their respective shareholders' meetings, voted on
and approved and adopted the Merger Agreement. Accordingly, on August 23, 1996 a
Certificate of Merger was filed with the Secretary of State of the State of
Delaware pursuant to which AHI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company, merged with Amserv and Amserv became a
wholly-owned subsidiary of the Company. Accordingly, in accordance with the
Merger Agreement, each share of Common Stock of Amserv outstanding immediately
prior to the consummation of the Merger was converted into 0.4090 shares of
Common Stock of the Company. The Company also assumed all outstanding options
and other rights to acquire Amserv stock.
INFLATION AND SEASONALITY
The rate of inflation was insignificant during the year ended May 31,
1996. In the past, the effects of inflation on personnel costs have been offset
by the Company's ability to increase its charges for services rendered. The
Company anticipates that it will be able to continue to do so in the near
future. The Company continually reviews its costs in relation to the pricing of
its services.
The Company's business is not seasonal.
12
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
13
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
STAR MULTI CARE SERVICES, INC.
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of May 31, 1996
and May 31, 1995 F-3
Consolidated Statements of Income for the years
ended May 31, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity
for the years ended May 31, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended May 31, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 - F-14
F-1
<PAGE>
Independent Auditors' Report
----------------------------
Board of Directors and Shareholders
Star Multi Care Services, Inc.
We have audited the accompanying consolidated balance sheets of Star Multi Care
Services, Inc. as of May 31, 1996 and 1995 and the related consolidated
statements of income, shareholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 Star
Multi Care Services, Inc. at May 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
July 19, 1996
Melville, New York
F-2
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS (Note 4)
------
Current assets:
Cash and cash equivalents $ 123,644 $ 270,344
Accounts receivable, less allowance for
doubtful accounts of $533,000 and $390,000
at May 31, 1996 and 1995, respectively (Note 9) 8,060,463 5,742,176
Prepaid expenses and other current assets (Note 15) 630,351 159,166
Deferred income taxes (Note 13) 180,000 160,000
----------- -----------
Total current assets 8,994,458 6,331,686
Property and equipment, net of accumulated
depreciation and amortization of $414,605 and
$323,827 at May 31, 1996 and 1995, respectively 348,901 260,333
Notes receivable from officer (Note 2) 100,517 109,717
Intangible assets, net (Note 3) 3,103,520 3,345,650
Deposits 165,488 66,345
----------- -----------
$12,712,884 $10,113,731
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accrued payroll and related expenses $ 585,475 $ 893,589
Accounts payable and other accrued expenses 1,125,770 705,196
Income taxes payable (Note 13) 295,647 300,440
Current maturities of long-term debt (Note 5) 125,000 125,000
----------- -----------
Total current liabilities 2,131,892 2,024,225
----------- -----------
REVOLVING CREDIT LINE (Note 4) 3,280,000 1,750,000
----------- -----------
LONG-TERM DEBT (Note 5) 250,000 375,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 10, 12 and 16)
Shareholders' equity (Notes 6 and 11):
Preferred stock, $1.00 par value per share,
5,000,000 shares authorized -- --
Common stock, $.001 par value per share, 10,000,000 shares
authorized; 2,468,224 and 2,314,847 shares issued, respectively 2,468 2,315
Additional paid-in capital 6,471,292 5,359,108
Retained earnings 856,154 882,005
----------- -----------
7,329,914 6,243,428
Less treasury stock - 137,500 common
shares at May 31, 1996 and 1995 278,922 278,922
----------- -----------
Total shareholders' equity 7,050,992 5,964,506
----------- -----------
$12,712,884 $10,113,731
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended
May 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net revenues $ 36,338,876 $ 27,088,426
------------ ------------
Operating costs and expenses (Notes 2, 12 and 14):
Costs of revenue 23,754,263 17,582,371
Selling, general and administrative 10,533,552 8,267,585
------------ ------------
34,287,815 25,849,956
------------ ------------
Income from operations 2,051,061 1,238,470
Interest expense (292,499) (96,689)
Interest income 14,296 33,907
------------ ------------
(278,203) (62,782)
------------ ------------
Income before provision for income taxes 1,772,858 1,175,688
Provision for income taxes (Note 13):
Current 747,000 488,000
Deferred (20,000) (18,000)
------------ ------------
727,000 470,000
------------ ------------
Net income $ 1,045,858 $ 705,688
============ ============
Net income per common share:
Primary $ .39 $ .28
============ ============
Assuming full dilution $ .39 $ .28
============ ============
Weighted average number of shares outstanding:
Primary 2,656,151 2,500,311
============ ============
Assuming full dilution 2,670,661 2,525,966
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Two Years Ended May 31, 1996
<TABLE>
<CAPTION>
Common Stock Total
------------------- Additional Treasury Retained Shareholders'
Shares Amount Paid-in Capital Stock Earnings Equity
------ ------ --------------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 1, 1994 2,167,500 $ 2,168 $ 4,841,790 $ (272,985) $ 657,618 $ 5,228,591
Purchase of 2,500 shares of
treasury stock -- -- -- (5,937) -- (5,937)
6% stock dividend 128,347 128 481,173 -- (481,301) --
Exercise of stock options 19,000 19 36,145 -- -- 36,164
Net income -- -- -- -- 705,688 705,688
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 1995 2,314,847 2,315 5,359,108 (278,922) 882,005 5,964,506
6% stock dividend 136,090 136 1,071,573 -- (1,071,709) --
Exercise of stock options 17,287 17 40,611 -- -- 40,628
Net income -- -- -- -- 1,045,858 1,045,858
----------- ----------- ----------- ----------- ----------- -----------
Balance, May 31, 1996 2,468,224 $ 2,468 $ 6,471,292 $ (278,922) $ 856,154 $ 7,050,992
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
May 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,045,858 $ 705,688
----------- -----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for doubtful accounts 340,000 330,732
Depreciation and amortization of property and equipment 93,077 69,472
Amortization of intangible assets 324,533 270,834
Loss on disposal of equipment -- 14,606
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (2,658,287) (1,483,469)
Prepaid expenses and other current assets (471,185) 49,757
Deferred income taxes (20,000) (18,000)
Deposits (99,143) (21,663)
Increase (decrease) in liabilities:
Accrued payroll and related expenses (308,114) 259,163
Accounts payable and other accrued expenses 420,574 75,669
Income taxes payable (4,793) 104,903
----------- -----------
Total adjustments (2,383,338) (347,996)
----------- -----------
Net cash (used in) provided by operating activities (1,337,480) 357,692
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (181,645) (127,497)
Increase in intangibles (82,403) (14,829)
Repayment of note receivable from officer 9,200 15,506
Business acquisitions -- (1,215,770)
----------- -----------
Net cash used in investing activities (254,848) (1,342,590)
----------- -----------
Cash flows from financing activities:
Purchase of treasury stock -- (5,937)
Net proceeds from revolving credit line 1,530,000 800,000
Repayment of long-term debt (125,000) --
Proceeds from issuance of common stock 40,628 36,164
----------- -----------
Net cash provided by financing activities 1,445,628 830,227
----------- -----------
Net decrease in cash and cash equivalents (146,700) (154,671)
Cash and cash equivalents at beginning of year 270,344 425,015
----------- -----------
Cash and cash equivalents at end of year $ 123,644 $ 270,344
=========== ===========
Supplemental disclosures:
Income taxes paid $ 651,482 $ 381,000
=========== ===========
Interest paid $ 280,000 $ 86,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended May 31, 1996
Note 1 - Summary of significant accounting policies
- ----------------------------------------------------
Description of business
-----------------------
The Company is principally engaged in providing temporary health care personnel,
including registered nurses, licensed practical nurses, nurses' aides and
respiratory therapists to hospitals, nursing homes, extended care facilities and
in-home patients in Florida and the New York City metropolitan area.
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of Star Multi Care
Services, Inc. and its subsidiaries (the "Company"), all of which are
wholly-owned. All significant intercompany transactions and accounts have been
eliminated.
Revenue recognition and allowance for doubtful accounts
-------------------------------------------------------
Net revenue is recorded at the estimated net realizable amount from patients,
third-party payors and others for services rendered. A provision for doubtful
accounts is made for revenue estimated to be uncollectible and is adjusted
periodically based upon management's evaluation of current industry conditions,
historical collection experience and other relevant factors which, in the
opinion of management, deserve recognition in estimating the allowance for
doubtful accounts.
Property and equipment
----------------------
Property and equipment are recorded at cost. The carrying amount of assets and
related accumulated depreciation and amortization are removed from the accounts
when such assets are disposed of, and the resulting gain or loss is included in
operations. Depreciation is computed by the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the shorter of the remaining life of the lease or the life of the improvement.
Contractual adjustments
-----------------------
Under Medicare, Medicaid, and other cost-based reimbursement programs, the
Company is reimbursed for services rendered to covered program patients as
determined by reimbursement formulas. The differences between established
billing rates and the amounts reimbursable by the programs and patient payments
are recorded as contractual adjustments and deducted from revenues.
Retroactively calculated third-party contractual adjustments are accrued on an
estimated basis in the period the related services are rendered. Revisions to
estimated contractual adjustments are recorded based upon audits by third-party
payors, as well as other communications with third-party payors such as desk
reviews, regulation charges and policy statements. These revisions are made in
the year such amounts are determined.
Cash equivalents
----------------
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid financial instruments with a maturity of three months or less
when purchased to be cash equivalents. Deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Temporary
differences and carryforwards giving rise to deferred taxes primarily relate to
the allowance for doubtful accounts, depreciation and subsidiary net operating
loss carryforwards.
F-7
<PAGE>
Noe 1 - Summary of significant accounting policies (cont'd)
- -----------------------------------------------------------
Net income per share
--------------------
Net income per share has been computed by dividing net income by the weighted
average number of common stock and common stock equivalents outstanding during
each period. Common stock equivalents represent the dilutive effect of the
assumed exercise of certain outstanding stock options and warrants.
Derivative financial instruments
--------------------------------
Derivative financial instruments are utilized by the Company in order to reduce
the impact of changes in interest rates. The Company does not hold or issue
derivative financial instruments for trading purposes. Income and expenses are
recorded in the same category as that arising from the related asset or
liability being hedged. Gains realized on termination of interest rate swap
contracts are deferred and amortized over the remaining terms of the original
swap agreement. Costs of interest rate cap contracts are amortized over the
lives of the contracts.
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 revenues and expenses during the
period. Actual results may differ from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to the prior year financial statements
to conform with the classifications used in 1996.
Note 2 - Related party transactions
- -----------------------------------
Notes receivable from officer of $100,517 represents amounts loaned by the
Company and or subsidiaries of the Company to the Company's President. These
notes bear interest at 6% and mature August 1, 1998. All interest has been paid
through May 31, 1996.
A director provides accounting services to the Company for which he was
compensated approximately $100,000 in each of the years 1996 and 1995.
Note 3 - Intangible assets
- --------------------------
Intangible assets at May 31, 1996 and 1995 are as follows:
Amortization
Period 1996 1995
------------ ---- ----
Covenants not-to-compete 2 - 8 $ 575,000 $ 600,000
Customer contracts 11 - 15 2,225,000 2,225,000
Nurses list 9 - 15 703,000 703,000
Goodwill 25 801,000 807,000
Other 2 - 10 127,000 49,000
---------- ----------
4,431,000 4,384,000
Less accumulated amortization 1,327,000 1,038,000
---------- ----------
$3,104,000 $3,346,000
========== ==========
F-8
<PAGE>
Note 4 - Revolving credit line
- ------------------------------
The Company has a $6.0 million line of credit with a bank which bears interest
at 1/4% above the bank's prime lending rate (8 1/4% at May 31, 1996) and matures
on October 31, 1997, at which time it may be converted into a three year term
loan which will bear interest at 1/2% above the bank's prime lending rate. The
facility is renewable at the sole discretion of the bank. All loans under the
line of credit are collateralized by all assets of the Company. The Company can
borrow against the line to the extent of 80% of eligible accounts receivable
(120 days and under, net of contractual allowances).
Under the line of credit agreement, the Company can from time to time borrow at
a rate based on the bank's money market rate (5.31% at May 31, 1996) plus 2 3/4%
for a period no less than three months. At May 31, 1996, $2,900,000 was at the
money market rate and the remainder of the outstanding credit line of $380,000
was at prime plus 1/4.
Note 5 - Long-term debt
- -----------------------
Long-term debt consists of a note payable in monthly installments of $10,417
through May 1999. Interest is payable monthly at 8.5%. The note was issued in
connection with the acquisition discussed in Note 8.
Long-term debt matures as follows:
Years Ending
May 31,
-------
1997 125,000
1998 125,000
1999 125,000
--------
$375,000
========
Note 6 - Shareholders' Equity
- -----------------------------
Warrants
--------
Pursuant to the Company's initial public offering in May 1991, the Company
issued to the underwriter warrants to purchase 112,922 shares of the Company's
common stock. The warrants, which contain certain anti-dilution provisions have
an exercise price of $4.98 per share. Warrants totalling 11,292 were cancelled
in May 1996, the remaining 101,630 warrants were extended until May 1999.
Preferred stock
---------------
On November 23, 1993, shareholders voted to amend the Company's Certificate of
Incorporation to create five million shares of preferred stock, $1.00 par value,
which the Board of Directors has authority to issue from time to time in series.
The Board of Directors also has the authority to fix, before the issuance of
each series, the number of shares in each series and the designation,
preferences, rights and limitations of each series. To date, no shares of
preferred stock have been issued.
Stock dividend
--------------
On December 5, 1995 the Company's Board of Directors approved a 6% stock
dividend payable on January 12, 1996 for shareholders of record as of December
22, 1995. A total of 136,090 shares of common stock were issued in connection
with the dividend. Common stock has been adjusted for the par value of the
shares issued. Additional paid in capital and retained earnings have been
adjusted for the difference between the fair market value and the par value of
the shares.
On April 24, 1995, the Company's Board of Directors approved a 6% stock dividend
payable on May 30, 1995 for shareholders of record as of May 15, 1995. A total
of 128,347 shares of common stock were issued in connection with the dividend.
Common stock has been adjusted for the par value of the shares issued.
F-9
<PAGE>
NOTE 6 - Shareholders' Equity (cont'd)
- --------------------------------------
Additional paid-in capital and retained earnings have been adjusted for the
difference between the fair market value and the par value of the shares.
All references in the accompanying financial statements to the number of common
shares and per share amounts for all periods presented have been restated to
reflect the stock dividends.
Note 7 - Fair Value of Financial Instruments
- --------------------------------------------
In 1996, the Company adopted Financial Accounting Standards Board Statement No.
107, which requires disclosures about the fair value of the Company's financial
instruments. The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash, current
receivables and payables, and certain other short term financial instruments
approximate their fair value.
Long term debt: The fair value of the Company's long term debt, including the
current portions, was estimated using a discounted cash flow analysis, based on
the Company's assumed incremental borrowing rates for similar types of borrowing
arrangements. The carrying amount of variable and fixed rate debt at May 31,
1996 approximates its fair value.
Note 8 - Acquisitions
- ---------------------
In May 1995, the Company acquired certain assets of Long Island Nursing
Registry, Inc. ("LINR") for approximately $1,716,000, including acquisitions
costs of approximately $100,000. The assets purchased consisted of customer and
patient lists of $1,156,000, nurses lists of $250,000, covenant not-to-compete
of $150,000, furniture and office equipment of $25,000 and goodwill of $35,000.
The above acquisition has been accounted for utilizing purchase accounting
principles. Accordingly, the results of operations have been included in the
accompanying consolidated financial statements since the date of acquisition.
Note 9 - Concentrations of credit risk and major customers
- ----------------------------------------------------------
Financial instruments which potentially expose the Company to concentrations of
credit risk consist principally of trade accounts receivable and temporary cash
investments.
The Company provides temporary health care personnel to hospitals, nursing
homes, extended care facilities and in-home patients in Florida, New Jersey and
the New York City metropolitan area. At May 31, 1996, approximately 21% of
accounts receivable was due from Medicaid and approximately 10% of accounts
receivable was due from Medicare. Credit losses relating to customers
historically have not been significant and within management's expectations.
The Company places its temporary cash investments with high credit quality
financial institutions.
Note 10 - Contingencies
- -----------------------
The Company in the past treated certain of its nurses and certain others as
independent contractors. The Internal Revenue Service ("IRS") and the New York
State Department of Labor ("DOL") have, in certain cases, determined that per
diem health care workers were employees, and not independent contractors, of the
firm placing them. Two of the Company's subsidiaries have been selected for an
employment tax audit by DOL and another of the Company's subsidiaries has been
selected for an employment tax audit by the IRS.
F-10
<PAGE>
Note 10 - Contingencies (cont'd)
- --------------------------------
In October 1994, the subsidiary subjected to the IRS audit received from the IRS
a formal report proposing an adjustment in taxes of $1,222,220 for years
1989-1993. On October 12, 1995, that subsidiary signed a closing agreement with
the IRS providing for zero tax liability for years 1989-1995. The subsidiary has
agreed to treat all skilled nurses providing hospital staffing services as
employees for federal employment tax purposes commencing January 1, 1996. As
skilled hospital staffing services currently represents only 3% of revenues this
change is not expected to have a significant impact on earnings.
In May 1993, one of the Company's subsidiaries received from the DOL a formal
report proposing an adjustment in the amount of $73,000. In January 1994, the
other of the Company's subsidiaries received from the DOL a formal report
proposing an adjustment in the amount of $33,000. The Company prevailed before
the hearing examiner in the latter of these cases, which decision is presently
being appealed by the DOL, and the Company is vigorously defending its position.
The Company did not prevail in the former case and is currently appealing that
decision. Management believes that the possibility of an unfavorable outcome
which would materially affect the financial position and results of operations
of the Company is remote.
Note 11 - Stock option plans
- ----------------------------
The Company has two stock option plans as adopted and as adjusted for stock
dividends. Participants may be granted incentive stock options to purchase an
aggregate of 47,700 and 758,430 shares of common stock, respectively. Such
options become exercisable at various intervals over a period of up to three
years from the date of grant. The options expire between November 1997 and May
2005.
The incentive stock options may be granted to employees and consultants of the
Company at a price not less than the fair market value on the date of grant. All
such options are authorized and approved by the Board of Directors, based on
recommendations of the Compensation Committee.
Information as to options granted as of May 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1995 1996
------------------------ ------------------------
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding June 1 533,969 $1.44 - $4.41 541,283 $1.44 - $4.41
Granted 27,454 $3.45 - $3.59 84,805 $5.83 - $6.88
Cancelled or expired -- (13,280) $2.44 - $6.88
Exercised (20,140) $1.58 - $2.08 (17,287) $1.45 - $2.45
-------- --------
Outstanding May 31 541,283 $1.44 - $4.41 595,521 $1.44 - $6.88
======== ========
Exercisable 513,991 549,715
======== ========
</TABLE>
Shares reserved for future issuance at May 31, 1996 are comprised of the
following:
Shares issuable upon exercise of stock options
under the plans 749,000
Shares issuable upon exercise of stock warrants
by underwriter 102,000
Shares issuable under the Company's employee
stock purchase plan 318,000
---------
Total Shares reserved for future issuance at May 31, 1996 1,169,000
=========
F-11
<PAGE>
Note 11 - Stock option plans (cont'd)
- -------------------------------------
In November 1995, the Company adopted an Employee Stock Purchase Plan whereby
certain employees can purchase shares of common stock at the lesser of 85% of
fair market value of the stock at the beginning or end of the calendar year.
In 1995 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
which requires companies to measure employee stock compensation based on the
fair value method of accounting, or to use the intrinsic value method prescribed
in Accounting Principles, Board Opinion No. 25 and to provide pro forma footnote
disclosures under the fair value method in SFAS No. 123. The Company will adopt
the new standard in fiscal 1997 and expects to elect the continued use of APB
Opinion No. 25.
Note 12 - Commitments
- ---------------------
Employment agreement
--------------------
The Company has an employment agreement as amended, with an officer which
expires in December 2000. The aggregate commitment for future salary, excluding
bonuses, under the agreement is $1,125,000. The agreement also provides for
certain bonuses based upon annual pretax income. The Company has an employment
agreement with a former LINR shareholder which expires May 1997. The aggregate
commitment for future salary under the agreement is $100,000. The aggregate
minimum commitment for future salaries under both agreements are as follows:
May 31,
-------
1997 $ 350,000
1998 250,000
1999 250,000
2000 250,000
2001 125,000
-----------
$ 1,225,000
===========
Leases
------
The Company conducts its operations from leased office space in New York and
Florida. These leases (classified as operating leases) expire at various dates
through 2002. Management expects that in the normal course of business these
leases will be renewed or replaced by other leases.
In July 1994 the Company entered into a sublease agreement for certain office
space which expires in 2002.
As of May 31, 1996, future net minimum rental payments (net of sublease income)
under operating leases having initial or remaining noncancellable terms in
excess of one year are as follows:
1997 $ 484,000
1998 468,000
1999 445,000
2000 216,000
2001 144,000
2002 75,000
------------
$ 1,832,000
============
Rental expenses for operating leases for fiscal years ended 1996 and 1995 were
approximately $525,000 and $332,000 respectively.
F-12
<PAGE>
Note 13 - Income taxes
- -----------------------
The Company and its subsidiaries file consolidated federal income tax returns.
The provision for income taxes consists of the following:
Years Ended May 31,
1996 1995
---------- ----------
Current:
Federal $ 575,000 $ 368,000
State and local 172,000 120,000
---------- ----------
747,000 488,000
---------- ----------
Deferred:
Federal (15,000) (14,000)
State (5,000) (4,000)
---------- -----------
(20,000) (18,000)
---------- -----------
$ 727,000 $ 470,000
========== ==========
The components of the net deferred tax asset are as follows:
May 31,
1996 1995
---- ----
Deferred tax assets:
Allowance for doubtful accounts $ 189,000 $ 160,000
Other 11,000 16,000
---------- ----------
200,000 176,000
Deferred tax liability - Depreciation (20,000) (16,000)
---------- ----------
Net deferred tax asset $ 180,000 $ 160,000
========== ==========
A reconciliation between the actual income tax expense and income taxes computed
by applying the statutory federal income tax rate to income before taxes is as
follows:
Years Ended May 31,
1996 1995
---- ----
Computed federal income tax expense at 34% $ 603,000 $ 400,000
Increase (decrease) in taxes resulting from:
Nondeductible expenses 17,000 13,000
State and local taxes, net 114,000 75,000
Other, net (7,000) (18,000)
---------- ----------
$ 727,000 $ 470,000
========== ==========
Paragon, a company acquired by the Company in July 1991, has preacquisition net
operating loss carryforwards of approximately $23,000 which expire from 2001
through 2006. Utilization of these net operating loss carryforwards is subject
to substantial limitations including separate company and annual limitations
resulting from the change in control of Paragon.
Note 14 - Retirement Plans
- --------------------------
The Company adopted a 401(k) savings plan in January 1995 covering all eligible
employees. Employees may defer up to 15% of their compensation. The Company will
match 10% of employees' contributions up to 8%. Contributions for the year ended
May 31, 1996 approximated $17,000.
A division of the Company has a deferred fringe benefits welfare compensation
plan covering substantially all of its employees. Contributions to the plan are
discretionary and are based on employee compensation. The plan
F-13
<PAGE>
was amended in November 1995 to increase the vesting period of new entrants. New
entrants vest fully after 10 years of service, and participants prior to the
amendment vest fully after three years of service. Contributions to the plan for
1996 and 1995 approximated $233,000 and $264,000, respectively.
Note 15 - Supplementary Information - Statement of Cash Flows
- -------------------------------------------------------------
Non-cash transactions
---------------------
During the years ended May 31, 1996 and 1995 the Company issued 6% stock
dividends which amounted to $1,071,709 and $481,301, respectively. During the
year ended May 31, 1995 the Company issued a note payable of $500,000 to finance
a portion of the acquisitions mentioned in Note 8.
Note 16 - Financial Instruments
- -------------------------------
On March 20, 1996, the Company entered into a two year notional amount
$1,500,000 interest rate swap with a bank, whereby the Company pays interest at
a fixed rate of 6.16% and receives interest at the three-month London Interbank
Offered Rate ("LIBOR"). The Company is exposed to credit loss in event of
non-performance by the bank, however the Company does not anticipate a loss
resulting from this credit risk. The fair value of this financial instrument at
May 31, 1996 approximates $10,000.
Note 17 - Subsequent Event
- --------------------------
On February 9, 1996, the Company entered into an Agreement and Plan of Merger
(the"Merger Agreement"), as amended on July 18, 1996, to acquire AMSERV
HEALTHCARE INC. ("AMSERV"), a health care service company which provides home
care services in New Jersey and Ohio. In accordance with the Merger Agreement,
each share of common stock of AMSERV outstanding immediately prior to the
consummation of the merger will be converted into .4090 shares of common stock
of the Company. The Company will also assume all outstanding options and other
rights to acquire AMSERV stock. The merger is subject to approval by the
stockholders of both companies and certain other conditions, including the
receipt of opinions that the merger may be accounted for as a pooling of
interests and qualify as a tax-free reorganization and is expected to be
consummated on or about August 23, 1996.
F-14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
- --------------------------------------------------------------------------------
WITH SECTION 16 (A) OF THE EXCHANGE ACT
- ---------------------------------------
The information required by this item is incorporated by reference
from the Company's Definitive Proxy Statement to be filed pursuant to Regulation
14A.
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this item is incorporated by reference
from the Company's Definitive Proxy Statement to be filed pursuant to Regulation
14A.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this item is incorporated by reference
from the Company's Definitive Proxy Statement to be filed pursuant to Regulation
14A.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is incorporated by reference
from the Company's Definitive Proxy Statement to be filed pursuant to Regulation
14A.
14
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
2. (a) Agreement and Plan of Merger among dated as
of February 9, 1996, as amended on July 18,
1996. (Incorporated by reference to Exhibit
2(a) to the Company's registration statement
on Form S-4 (Registration No. 333-08499).)
3. (a) * Certificate of Incorporation filed April
25, 1961.
(b) * Certificate of Amendment to Certificate of
Incorporation filed February 22, 1989.
(c) * Certificate of Amendment to Certificate of
Incorporation filed December 4, 1990.
(d) Certificate of Amendment to Certificate of
Incorporation filed February 3, 1994.
(Incorporated by reference to Exhibit 3(d)
to the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31,
1994.)
(e) Certificate of Change filed March 2, 1995.
(Incorporated by reference to Exhibit 3(e)
to the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31,
1995.)
(f) By-Laws, as amended on November 18, 1992 and
September 13, 1993. (Incorporated by
reference to Exhibit 3(e) to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1994.)
4. (a) Voting Agreement, dated as of February 9,
1996, among AMSERV and Stephen Sternbach.
(Incorporated by reference to Exhibit 4(a)
to the Company's registration statement on
Form S-4 (Registration No. 333-08499).)
10. (a) * Form of indemnification agreement between
the Company and Stephen Sternbach.
(b) Employment Agreement, dated as of December
3, 1995 between the Company and Stephen
Sternbach. (Incorporated by reference to
Exhibit 10.(x) to the Company's Quarterly
Report on Form 10-QSB for the quarterly
period ended February 29, 1996.)
(c) * The Company's 1991 Incentive Stock Option
Plan.
(d) * The Company's 1992 Incentive Stock Option
Plan, as amended and restated September 13,
1993. (Incorporated by reference to Exhibit
10(h) to the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31,
1994.)
(e) Amendment No. 1 to the Company's 1992 Stock
Option Plan. (Incorporated by reference to
Exhibit 10.(z) to the Company's Quarterly
Report on Form 10-QSB for the quarterly
period ended February 26, 1996.)
(f) The Company's Employee Stock Purchase Plan,
as amended December 15, 1995. (Incorporated
by reference to Exhibit 10.(y) to the
Company's Quarterly Report on Form 10-QSB
for the quarterly period ended February 26,
1996.)
(g) Form of Incentive Stock Option Contract.
(Incorporated by reference to Exhibit 10(j)
to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1993.)
(h) * New York State Department of Consumer
Affairs Employment Agency License.
(i) * New York State Health Department Home Care
License.
(j) * New Jersey Employment Agency License.
(k) Form of Indemnification Agreement between
the Company and directors and officers.
(Incorporated by reference to Exhibit 10(k)
to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1992.)
(l) Asset Purchase Agreement dated as of
November 1, 1991 by and among Unity Care
Services, Inc., Unity Healthcare Holding
Company, Inc. and the Company. (Incorporated
by reference to Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1992.)
(m) Asset Purchase Agreement dated January 30,
1992 by and among Unity Healthcare Holding
Company, Inc., Unity Care Services, Inc. and
the Company. (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report
on Form 8-K dated May 26, 1992.)
15
<PAGE>
(n) Asset Purchase Agreement dated January 30,
1992 by and between Unity Home Care of
Florida, Inc. and the Company. (Incorporated
by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated
May 26, 1992.)
(o) Employment Agreement dated February 15,
1990, between Alan Spector and the Company,
as assignee of Unity Home Care of Florida,
Inc. (Incorporated by reference to Exhibit
10(o) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31,
1992.)
(p) Asset Purchase Agreement dated November 8,
1993 by and between DSI Health Care
Services, Inc. and Star Multi Care Services
of Long Island, Inc., a wholly-owned
subsidiary of the Company. (Incorporated by
reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated November
22, 1993.)
(q) Asset Purchase Agreement dated as of January
6, 1995, as amended, by and between Long
Island Nursing Registry, Inc. and the
Company. (Incorporated by reference to
Exhibit 21 to the Company's Current Report
on Form 8-K dated May 19, 1995.)
(r) Employment Agreement dated May 19, 1995 by
and between the Company and Gregory Turchan.
(Incorporated by reference to Exhibit 99.1
to the Company's Current Report on Form 8-K
dated May 19, 1995.)
(s) Loan Agreement dated November 1, 1995 by and
between the Company and Chase Manhattan
Bank, N.A. (Incorporated by reference to
Exhibit 10.(w) to the Company's Quarterly
Report on Form 10-QSB for the quarterly
period ended November 30, 1995.)
21. ** List of subsidiaries.
23. ** Consent of Holtz Rubenstein & Co., LLP.
27. ** Financial Data Schedule.
b. During the last quarter of the period covered by this report, the
Company did not file any reports on Form 8-K.
- ---------------------
* Denotes Exhibits incorporated by reference to the Company's
Registration Statement on Form S-18 dated May 14, 1991 (Registration
No. 33-39697-NY).
** Filed herewith.
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date August 29, 1996 STAR MULTI CARE SERVICES, INC.
By /s/ Stephen Sternbach
------------------------
Stephen Sternbach, President
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 Capacity Date
--------- -------- ----
/s/ Stephen Sternbach President, Chairman of the Board August 29, 1996
- ----------------------- of Directors and Chief Executive
Stephen Sternbach Officer
/s/ William Fellerman Principal Financial and Accounting August 29, 1996
- ----------------------- Officer, Director
William Fellerman
/s/ John P. Innes, II Director August 29, 1996
- -----------------------
John P. Innes, II
/s/ MATTHEW SOLOF Director August 29, 1996
- -----------------------
Matthew Solof
/s/ CHARLES BERDAN Director August 29, 1996
- -----------------------
Charles Berdan
17
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page
- ----------- ----------- ----
2. (a) Agreement and Plan of Merger among dated as
of February 9, 1996, as amended on July 18,
1996. (Incorporated by reference to Exhibit
2(a) to the Company's registration statement
on Form S-4 (Registration No. 333-08499).)
3. (a) * Certificate of Incorporation filed April
25, 1961.
(b) * Certificate of Amendment to Certificate of
Incorporation filed February 22, 1989.
(c) * Certificate of Amendment to Certificate of
Incorporation filed December 4, 1990.
(d) Certificate of Amendment to Certificate of
Incorporation filed February 3, 1994.
(Incorporated by reference to Exhibit 3(d)
to the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31,
1994.)
(e) Certificate of Change filed March 2, 1995.
(Incorporated by reference to Exhibit 3(e)
to the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31,
1995.)
(f) By-Laws, as amended on November 18, 1992 and
September 13, 1993. (Incorporated by
reference to Exhibit 3(e) to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1994.)
4. (a) Voting Agreement, dated as of February 9,
1996, among AMSERV and Stephen Sternbach.
(Incorporated by reference to Exhibit 4(a)
to the Company's registration statement on
Form S-4 (Registration No. 333-08499).)
10. (a) * Form of indemnification agreement between
the Company and Stephen Sternbach.
(b) Employment Agreement, dated as of December
3, 1995 between the Company and Stephen
Sternbach. (Incorporated by reference to
Exhibit 10.(x) to the Company's Quarterly
Report on Form 10-QSB for the quarterly
period ended February 29, 1996.)
(c) * The Company's 1991 Incentive Stock Option
Plan.
(d) * The Company's 1992 Incentive Stock Option
Plan, as amended and restated September 13,
1993. (Incorporated by reference to Exhibit
10(h) to the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31,
1994.)
(e) Amendment No. 1 to the Company's 1992 Stock
Option Plan. (Incorporated by reference to
Exhibit 10.(z) to the Company's Quarterly
Report on Form 10-QSB for the quarterly
period ended February 26, 1996.)
(f) The Company's Employee Stock Purchase Plan,
as amended December 15, 1995. (Incorporated
by reference to Exhibit 10.(y) to the
Company's Quarterly Report on Form 10-QSB
for the quarterly period ended February 26,
1996.)
(g) Form of Incentive Stock Option Contract.
(Incorporated by reference to Exhibit 10(j)
to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1993.)
(h) * New York State Department of Consumer
Affairs Employment Agency License.
(i) * New York State Health Department Home Care
License.
<PAGE>
Exhibit No. Description Page
- ----------- ----------- ----
(j) * New Jersey Employment Agency License.
(k) Form of Indemnification Agreement between
the Company and directors and officers.
(Incorporated by reference to Exhibit 10(k)
to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1992.)
(l) Asset Purchase Agreement dated as of
November 1, 1991 by and among Unity Care
Services, Inc., Unity Healthcare Holding
Company, Inc. and the Company. (Incorporated
by reference to Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1992.)
(m) Asset Purchase Agreement dated January 30,
1992 by and among Unity Healthcare Holding
Company, Inc., Unity Care Services, Inc. and
the Company. (Incorporated by reference to
Exhibit 10.1 to the Company's Current Report
on Form 8-K dated May 26, 1992.)
(n) Asset Purchase Agreement dated January 30,
1992 by and between Unity Home Care of
Florida, Inc. and the Company. (Incorporated
by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated
May 26, 1992.)
(o) Employment Agreement dated February 15,
1990, between Alan Spector and the Company,
as assignee of Unity Home Care of Florida,
Inc. (Incorporated by reference to Exhibit
10(o) to the Company's Annual Report on Form
10-K for the fiscal year ended May 31,
1992.)
(p) Asset Purchase Agreement dated November 8,
1993 by and between DSI Health Care
Services, Inc. and Star Multi Care Services
of Long Island, Inc., a wholly-owned
subsidiary of the Company. (Incorporated by
reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated November
22, 1993.)
(q) Asset Purchase Agreement dated as of January
6, 1995, as amended, by and between Long
Island Nursing Registry, Inc. and the
Company. (Incorporated by reference to
Exhibit 21 to the Company's Current Report
on Form 8-K dated May 19, 1995.)
(r) Employment Agreement dated May 19, 1995 by
and between the Company and Gregory Turchan.
(Incorporated by reference to Exhibit 99.1
to the Company's Current Report on Form 8-K
dated May 19, 1995.)
(s) Loan Agreement dated November 1, 1995 by and
between the Company and Chase Manhattan
Bank, N.A. (Incorporated by reference to
Exhibit 10.(w) to the Company's Quarterly
Report on Form 10-QSB for the quarterly
period ended November 30, 1995.)
21. ** List of subsidiaries.
23. ** Consent of Holtz Rubenstein & Co., LLP.
27. ** Financial Data Schedule.
- ---------------------
* Denotes Exhibits incorporated by reference to the Company's
Registration Statement on Form S-18 dated May 14, 1991 (Registration
No. 33-39697-NY).
** Filed herewith.
LIST OF SUBSDIARIES
Subsidiary State Of Incorporation
- ---------- ----------------------
1. Paragon Nurses Registry, Inc. New York
2. Star Registry, Inc. New York
3. AMSERV HEALTHCARE INC. Delaware
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference into the Registration
Statements on Form S-8 (No. 33-59056, No. 333-06063, and No. 333-05177) of our
report dated July 19, 1996 with respect to the consolidated financial statements
of Star Multi Care Services, Inc. included in the Annual Report (Form 10-KSB)
for the year ended May 31, 1996.
/s/ Holtz Rubenstein & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
August 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE MAY 31, 1996 CONSOLIDATED FINANCIAL STATEMENTS OF STAR
MULTI CARE SERVICES, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000874038
<NAME> STAR MULTI CARE SERVICES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 123,644
<SECURITIES> 0
<RECEIVABLES> 8,593,463
<ALLOWANCES> 533,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,994,458
<PP&E> 763,506
<DEPRECIATION> 414,605
<TOTAL-ASSETS> 12,712,884
<CURRENT-LIABILITIES> 2,131,892
<BONDS> 3,530,000
0
0
<COMMON> 2,468
<OTHER-SE> 7,048,524
<TOTAL-LIABILITY-AND-EQUITY> 12,712,884
<SALES> 36,338,876
<TOTAL-REVENUES> 36,338,876
<CGS> 23,754,263
<TOTAL-COSTS> 34,287,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 292,499
<INCOME-PRETAX> 1,772,858
<INCOME-TAX> 727,000
<INCOME-CONTINUING> 1,045,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045,858
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
