U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 1996
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.
(Exact Name of Registrant as specified in its charter)
New York 11-1975534
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
99 Railroad Station Plaza, Hicksville, New York 11801
-----------------------------------------------------------
(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 January 10, 1997:
Class Number of Shares
------------------------------ ----------------
Common Stock, $0.001 par value 4,165,008
<PAGE>
STAR MULTI CARE SERVICES, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of November 30, 1996 and May 31, 1996 ......3
Consolidated Statements of Income for the three months and six months
ended November 30, 1996 and 1995 .......................................4
Consolidated Statements of Cash Flows for the six months ended
November 30, 1996 and 1995 ............................................5
Notes to Interim Consolidated Financial Statements ........................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................7-8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................9
Item 4. Submission of Matters to a Vote of Security Holders.............9
Item 6. Exhibits and Reports on Form 8-K ...............................10
Signatures...........................................................11
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents ....................................... $ 181,873 $ 1,881,979
Short-term investments .......................................... -- 100,000
Accounts receivable, less allowance for doubtful accounts
of $615,000 and $808,000 at November 30, 1996 and
May 31, 1996, respectively ................................... 9,488,594 9,611,169
Prepaid expenses and other current assets ....................... 518,382 800,665
Deferred income taxes ........................................... 400,015 400,015
Income taxes receivable ......................................... 597,125 --
------------ ------------
Total current assets ..................................... 11,185,989 12,793,828
Property and equipment, net of accumulated depreciation
and amortization of $799,050 and $706,818 at
November 30, 1996 and May 31, 1996, respectively ............. 816,053 766,480
Notes receivable from officer ................................... 96,990 100,517
Intangible assets, net of accumulated amortization .............. 5,159,276 5,197,778
Other assets .................................................... 255,565 510,487
------------ ------------
$ 17,513,873 $ 19,369,090
============ ============
LIABILITIES, REDEEMABLE PREFERRED STOCK
---------------------------------------
AND SHAREHOLDERS' EQUITY
------------------------
Current liabilities:
Accrued payroll and related expenses ............................ $ 1,168,487 $ 1,329,826
Accounts payable and other accrued expenses ..................... 1,278,708 1,530,138
Net liability of discontinued operations ........................ 47,881 98,081
Income taxes payable ............................................ -- 295,647
Current maturities of long-term debt ............................ 125,000 125,000
------------ ------------
Total current liabilities ................................ 2,620,076 3,378,692
------------ ------------
REVOLVING CREDIT LINE ........................................... 1,900,000 3,280,000
------------ ------------
DEFERRED TAX LIABILITY .......................................... -- 39,909
------------ ------------
LONG-TERM LIABILITIES ........................................... 1,307,102 33,970
------------ ------------
LONG-TERM DEBT .................................................. 187,500 250,000
------------ ------------
Redeemable preferred stock
Preferred stock, $.01 par value; authorized 3,000,000 shares;
Class B; issued and outstanding 130,071 shares at May 31, 1996 -- 1,301
Additional paid-in capital ...................................... -- 340,135
------------ ------------
Total redeemable preferred stock ......................... -- 341,436
------------ ------------
Shareholders' equity
Preferred stock, $1.00 par value per share,
5,000,000 shares authorized in 1994 .......................... -- --
Common Stock, $.001 par value per share, 10,000,000 shares
authorized; 4,164,589 and 3,878,955 issued, respectively ..... 4,165 3,879
Additional paid-in capital ...................................... 14,795,602 13,288,548
Note receivable from officer .................................... (397,782) (397,782)
Unrealized gain (loss) on short-term investments ................ 4,000 (6,000)
Deficit ......................................................... (2,627,868) (564,640)
------------ ------------
11,778,117 12,324,005
Less treasury stock - 137,500 common shares at
November 30, 1996 and May 31, 1996 .............................. 278,922 278,922
------------ ------------
Total shareholders' equity ............................... 11,499,195 12,045,083
------------ ------------
$ 17,513,873 $ 19,369,090
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
November 30, November 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 13,274,633 $ 11,845,200 $ 25,837,793 $ 23,459,086
------------ ------------ ------------ ------------
Operating costs and expenses:
Costs of revenue 8,694,502 7,694,058 16,914,698 15,252,365
Selling, general and administrative 3,575,059 3,304,813 7,074,303 7,001,852
Depreciation and amortization 158,898 187,448 316,913 397,956
------------ ------------ ------------ ------------
Income from operations 846,174 658,881 1,531,879 806,913
Interest expense (40,376) (76,541) (114,973) (139,551)
Merger transaction costs -- -- (2,808,223) --
Interest income 7,446 49,325 36, 880 104,435
------------ ------------ ------------ ------------
Income (loss) before income taxes 813,244 631,665 (1,354,437) 771,797
(Provision) benefit for income taxes (334,000) (254,955) 555,000 (362,955)
------------ ------------ ------------ ------------
Net income (loss) $ 479,244 $ 376,710 $ (799,437) $ 408,842
============ ============ ============ ============
Net income (loss) per
common share $ 0.12 $ 0.09 $ (0.19) $ 0.10
============ ============ ============ ============
Shares used in computing per
share amounts 4,150,444 4,041,182 4,150,444 4,041,182
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ (799,437) $ 408,842
----------- -----------
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Provision for doubtful accounts 91,387 160,000
Depreciation and amortization of property and equipment 96,900 99,898
Amortization of intangible assets 220,013 298,058
Deferred income taxes (39,909) --
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 31,188 (1,888,516)
Prepaid expenses and other current assets 282,283 (207,866)
Income taxes receivable (597,125) 95,320
Other assets 254,922 22,873
Increase (decrease) in liabilities:
Accrued payroll and related expenses (161,339) (64,932)
Accounts payable and other accrued expenses 1,021,702 23,977
Income taxes payable (295,647) 4,611
----------- -----------
Total adjustments 904,375 (1,456,577)
----------- -----------
Net cash provided by (used in) operating activities 104,938 (1,047,735)
----------- -----------
Cash flows from investing activities:
Payments of costs related to discontinued operations (50,200) (177,302)
Purchase of property and equipment (146,473) (137,180)
Increase in intangibles (181,511) (25,988)
Repayment of note receivable from officer 3,527 16,471
Net proceeds from the sale of short-term investments 110,000 945,336
----------- -----------
Net cash (used in) provided by investing activities (264,657) 621,337
----------- -----------
Cash flows from financing activities:
Net repayments of and proceeds from revolving credit line (1,380,000) 1,300,000
Repayment of long-term debt (62,500) (62,500)
Redemption of class B preferred shares (341,436) --
Proceeds from issuance of common stock 243,549 18,752
----------- -----------
Net cash (used in) provided by financing activities (1,540,387) 1,256,252
----------- -----------
Net decrease (increase) in cash and cash equivalents (1,700,106) 829,854
Cash and cash equivalents at beginning of period 1,881,979 1,496,792
----------- -----------
Cash and cash equivalents at end of period $ 181,873 $ 2,326,646
=========== ===========
Supplemental disclosures:
Income taxes paid $ 328,436 $ 395,115
=========== ===========
Interest paid $ 126,000 $ 127,000
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
In the opinion of management, the accompanying unaudited interim
consolidated financial statements of Star Multi Care Services, Inc. and its
subsidiaries (the "Company") contain all adjustments necessary to present fairly
the Company's financial position as of November 30, 1996 and May 31, 1996 and
the results of its operations and cash flows for the three month periods and the
six month periods ended November 30, 1996 and 1995.
The accounting policies followed by the Company are set forth in Note
1 to the Company's consolidated financial statements included in its Annual
Report on Form 10-KSB for the fiscal year ended May 31, 1996, which is
incorporated herein by reference. Specific reference is made to this report for
the notes to consolidated financial statements included therein.
The results of operations for the three month period and the six
month period ended November 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
Note 1 - 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.
Note 2 - Merger
- ---------------
On August 23, 1996, the Company completed a merger 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
consummation of the merger was converted into .4090 shares of common stock of
the Company. The total shares issued amounted to 1,410,731. The Company also
assumed all outstanding options and other rights to acquire Amserv stock. All
costs related to the merger amounted to $2,808,223. Unpaid amounts at November
30, 1996 have been included in "Accounts payable and other accrued expenses" and
LONG-TERM LIABILITIES.
Note 3 - Stock Dividend
- -----------------------
The Company declared a 5% stock dividend which was distributed on
November 4, 1996 to shareholders of record as of October 11, 1996. A total of
190,761 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.
Note 4 - Supplementary Information - Statement Of Cash Flows
- ------------------------------------------------------------
During the six months ended November 30, 1996 the Company issued a 5%
stock dividend which amounted to $1,263,791.
6
<PAGE>
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 "Merger")
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
nursery 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 Merger, each share of common stock of Amserv, outstanding immediately prior
to consummation of the 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 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 November 30, 1996 and 1995 include
the operations of both the Company and Amserv.
Quarter ended and six months ended November 30, 1996 compared to quarter ended
and six months ended November 30, 1995.
Total net revenues increased $1,429,433 or 12% to $13,274,633 for the
quarter ended November 30, 1996 over net revenues of $11,845,200 for the quarter
ended November 30, 1995. For the six months ended November 30, 1996 net revenues
increased $2,378,707 or 10% to $25,837,793 from net revenues of $23,459,086 for
the six months ended November 30, 1995.
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 98% of 1996 net revenues and
providing temporary health care personnel recruiting to hospitals and nursing
homes represented approximately 2% of 1996 net revenues.
Gross profit margins were approximately 35% for the quarters ended
and six months ended November 30, 1996 and 1995.
Selling, general and administrative costs as a percentage of net
revenues were 27% for the quarter ended November 30, 1996 as compared with 28%
for the quarter ended November 30, 1995. Selling, general and administrative
costs as a percentage of net revenues were 27% for the six months ended November
30, 1996 as compared with 30% for the six months ended November 30, 1995. Such
decrease is primarily attributable to the increase in revenues being absorbed by
existing back office overhead.
7
<PAGE>
Income from operations increased $187,293 or 28% to $846,174 for the
quarter ended November 30, 1996 compared with $658,881 for the quarter ended
November 30, 1995. Income from operations increased $724,966 or 90% to
$1,531,879 for the six months ended November 30, 1996 compared with $806,913 for
the six months ended November 30, 1995.
The Company incurred a one-time charge of $2,808,223 for acquisition
costs, legal fees and restructuring expenses associated with the Merger with
Amserv, which contributed to a net loss for the six months ended November 30,
1996 of $799,437 compared with net income of $408,842 for the six months ended
November 30, 1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
As of November 30, 1996 cash and cash equivalents were $181,873 as
compared with $1,881,979 at May 31, 1996. The net decrease of $1,700,106
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 November 30, 1996 and May 31, 1996. During the six
months ended November 30, 1996, accounts receivable turnover was approximately
71 days while for the year ended May 31, 1996 turnover was approximately 73
days, a decrease of 2 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
November 30, 1996 were $1,900,000 as compared to $3,280,000 at May 31, 1996.
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.
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.
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.
8
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
------------------
A lawsuit was filed on November 14, 1996 in San Diego Superior Court
(Case No. 705475), by Eugene J. Mora against Amserv Healthcare, Inc., Star Multi
Care Services, Inc., William Fellerman, and Stephen Sternbach. Mr. Mora alleges
that he was the President and Chief Executive Officer of Amserv, at the time of
the merger between Amserv and the Company and that his employment contract with
Amserv was breached when he was terminated by Amserv and the Company following
the Merger.
Mr. Mora alleges that pursuant to his employment contract, upon
termination he would be entitled to five years of continued salary at $298,000
per year; an annual car allowance of $450 per month for the five year period;
payment for unutilized vacation days for a total of $112,000; and the cash value
of a whole life policy of life insurance, which premiums had been paid by
Amserv, for an approximate value of $350,000and approximately $ 48,000 in
various fringe benefits. Mr. Mora further alleges that he had a contract which
would result in him being hired as a consultant upon termination and this too
was breached. Under this allegation, Mr. Mora seeks damages for two years
consulting fee at $129,200 per year. Mr Mora also seeks reimbursement of
attorneys' fees.
The Company does not believe that this matter will result in a
material adverse impact on the Company.
In the Company's Annual Report on Form 10-KSB, for the fiscal year
ended May 31, 1996, the Company reported the existence of certain legal
proceedings against Amserv. On September 13, 1996 the Company settled and
resolved completely all pending litigation against Amserv previously reported.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The annual meeting of shareholders of the Company (the "Meeting") was
held on December 18, 1996. Proxies for the Meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, and there was
no solicitation in opposition.
At the Meeting, Stephen Sternbach, William Fellerman, Charles Berdan,
John Innes II, Matthew Solof, Melvin Katten and Gary Weinberger were elected as
directors of the Company to serve until the Company's next annual meeting of
shareholders and until their respective successors are elected and qualified. In
addition, at the Meeting, the appointment of Holtz Rubenstein & Co., LLP as
independent auditors of the Company for the fiscal year ending May 31, 1997 was
ratified. The votes for each of such proposals were as follows:
Shares Voted
1. Election of Directors For Withheld
------------ --------
Stephen Sternbach 3,758,754 2,073
William Fellerman 3,758,754 2,073
Charles Berdan 3,758,439 2,388
John Innes II 3,757,914 2,913
Matthew Solof 3,758,439 2,388
Melvin L. Katten 3,758,754 2,073
Gary L. Weinberger 3,753,831 6,996
2. Over 99% of the votes cast at the Meeting, voted in favor of the
ratification of Holtz Rubenstein & Co., LLP as independent auditors.
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. Exhibits
27. Financial Data Schedule
b. The Company filed no reports on form 8-K during the quarter ended
November 30, 1996.
All items required in Part II have been previously filed or are not applicable
for the quarter ended November 30, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAR MULTI CARE SERVICES, INC.
1/14/97 By: /s/ WILLIAM FELLERMAN
- ------- -----------------------------
Date William Fellerman
Chief Financial Officer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000874038
<NAME> STAR MULTI CARE SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 181,873
<SECURITIES> 0
<RECEIVABLES> 10,103,594
<ALLOWANCES> 615,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,185,989
<PP&E> 1,615,103
<DEPRECIATION> 799,050
<TOTAL-ASSETS> 17,513,873
<CURRENT-LIABILITIES> 2,620,076
<BONDS> 0
0
0
<COMMON> 4,165
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,513,873
<SALES> 25,837,793
<TOTAL-REVENUES> 25,837,793
<CGS> 16,914,698
<TOTAL-COSTS> 24,305,914
<OTHER-EXPENSES> 2,808,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,973
<INCOME-PRETAX> (1,354,437)
<INCOME-TAX> 555,000
<INCOME-CONTINUING> (799,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (799,437)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
