U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10 Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1997
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission File Number 0-21299
STAR MULTI CARE SERVICES, INC.
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(Exact Name of Registrant as specified 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 offices including zip code)
Registrant's telephone number, including area code: (516) 938-2016
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 11, 1997:
CLASS NUMBER OF SHARES
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Common Stock, $0.001 par value 4,154,318
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
attached consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the fiscal year
ended May 31, 1996.
RESULTS OF OPERATIONS.
On August 23, 1996, the Company completed a merger (the "Amserv
Merger"), accounted for as a pooling of interests, with AMSERV HEALTHCARE, INC.
("Amserv"), a health care service company that provides home care services,
including 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, in New
Jersey and Ohio. In accordance with the terms of the Amserv Merger, each share
of common stock of Amserv, outstanding immediately prior to consummation of the
Amserv Merger, was converted into .4090 shares of common stock of the Company. A
total of 1,410,731 shares of common stock of the Company were issued upon
consummation of the Amserv Merger. The Company also assumed all outstanding
options and other rights to acquire Amserv stock. The following results of
combined operations for the periods ending February 28, 1997 and 1996 include
the operations of both the Company and Amserv.
QUARTER ENDED AND NINE MONTHS ENDED FEBRUARY 28, 1997 COMPARED TO
QUARTER ENDED AND NINE MONTHS ENDED FEBRUARY 29, 1996.
Total net revenues increased $1,321,680 or 11% to $13,326,186 for the
quarter ended February 28, 1997 over net revenues of $12,004,506 for the quarter
ended February 29, 1996. For the nine months ended February 28, 1997 net
revenues increased $3,700,387 or 10% to $39,163,979 from net revenues of
$35,463,592 for the nine months ended February 29, 1996.
The Company's decided shift towards providing placement services of
registered nurses and home health aides to patients for care at home ("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 99% of fiscal 1997 net revenues and
providing temporary health care personnel recruiting to hospitals and nursing
homes represented approximately 1% of fiscal 1997 net revenues.
Gross profit margins were approximately 35% for the quarter ended and
nine months ended February 28, 1997 and 1996.
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Selling, general and administrative costs and depreciation and
amortization as a percentage of net revenues were 28% for the quarter ended
February 28, 1997 as compared with 30% for the quarter ended February 29, 1996.
Selling, general and administrative costs and depreciation and amortization as a
percentage of net revenues were 28% for the nine months ended February 28, 1997
as compared with 31% for the nine months ended February 29, 1996. Such decrease
is primarily attributable to the increase in revenues being without a
proportionate increase in back office overhead.
Income from operations increased $231,733 or 36% to $874,440 for the
quarter ended February 28, 1997 compared with $642,707 for the quarter ended
February 29, 1996. Income from operations increased $956,699 or 66% to
$2,406,319 for the nine months ended February 28, 1997 compared with $1,449,620
for the nine months ended February 29, 1996.
The Company incurred a one-time charge of $2,808,223 for acquisition
costs, legal fees and restructuring expenses associated with the Amserv Merger,
which contributed to a net loss for the nine months ended February 28, 1997 of
$297,561 compared with net income of $766,342 for the nine months ended February
29, 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1997 cash and cash equivalents were $78,574 as
compared with $1,881,979 at May 31, 1996. The net decrease of $1,803,405
resulted primarily from the repayment of its revolving credit line.
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. Accounts receivable represent a substantial portion of
current and total assets at February 28, 1997 and May 31, 1996. During the nine
months ended February 28, 1997 and for the year ended May 31, 1996, accounts
receivable turnover was approximately 71 days.
The Company currently has available a line of credit with a bank
which allows for maximum borrowings of $8,000,000. This line of credit expires
on October 31, 1998 and is subject to renewal. However, as the Company's
business expands, additional financing may be required. Short-term borrowings at
February 28, 1997 were $1,997,000 as compared to $3,280,000 at May 31, 1996.
On January 3, 1997, the Company entered into an agreement and plan of
merger (the "EFCC Merger Agreement") to acquire (the "EFCC Merger") Extended
Family Care Corporation ("EFCC"), a health care service company which provides
home care services in New Jersey, New York and Pennsylvania. Pursuant to the
terms of the EFCC Merger, the Company will pay $2,400,000 in cash (plus cash
payments to dissenting shareholders, if any) and $4,850,000 in stock (less the
amount that would have been paid to dissenting shareholders, if any) or
$7,250,000 cash at the Company's option (the "Cash Option").
Unless the Company exercises the Cash Option, in which case the
Company would have to raise $7,250,000 through additional borrowing or
otherwise, the Company does not anticipate any extraordinary material cash
commitments for capital expenditures for the Company's current fiscal year and
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.
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Unless the Company exercises the Cash Option, 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 addition to the proposed acquisition of EFCC, 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.
In connection with the EFCC Merger, the Company and EFCC have entered
into a consulting agreement, which is subject to approval by the New York State
Department of Health, pursuant to which the Company will render to EFCC
consulting and advisory services in connection with the management, operation
and supervision of EFCC. The term of the consulting agreement will end on the
earlier of (i) one year from signing of the EFCC Merger Agreement, (ii) the
effective time of the EFCC Merger or (iii) the termination of the EFCC Merger
Agreement. In consideration for the consulting services rendered by the Company,
EFCC will pay $25,000 per month payable (a) $15,000 in arrears on the last day
of each month and (b) the remaining $10,000 on the earlier of the closing date
or termination of the EFCC Merger Agreement. As of February 28, 1997 $35,000 due
from EFCC is included in prepaid and other current assets. The EFCC Merger is
subject to approval by the shareholders of both the company and EFCC as well as
the satisfaction of certain other conditions and is expected to be consummated
on or before August 15, 1997.
Home health care organizations involved in federal and state funded
programs, are subject to periodic survey by regulatory agencies. Accordingly, in
December, 1996, a survey by state and federal regulatory agencies was conducted
at the Medicare-certified home health agency operated by the Company. The
findings of the initial survey indicated that a follow up survey was warranted.
The findings of the survey, held in March, 1997, were favorable and the Company
was orally advised that only minor deficiencies existed. The final written
report, confirming the surveyors' findings, however, has not been received by
the Company and there can be no assurances that the written report will reflect
the surveyors' verbal representations.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAR MULTI CARE SERVICES, INC.
APRIL 18, 1997 By: /S/ WILLIAM FELLERMAN
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Date William Fellerman
Chief Financial Officer (Principal
Financial Officer)
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