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As filed with the Securities and Exchange Commission on June 1, 1999
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Registration No. 333-___________________________
Securities and Exchange Commission
Washington, D.C. 20549
Form S-3
Amendment No. 1
Registration Statement Under
The Securities Act of 1933
Commission File Number 1-10751
STAR MULTI CARE SERVICES, INC.
(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.)
33 Walt Whitman Road, Suite 302, Huntington Station, NY 11746
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(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 423-6688
Stephen Sternbach
Star Multi Care Services, Inc.
33 Walt Whitman Road
Suite 302
Huntington Station, NY 11746
With a Copy to:
Lawrence A. Muenz, Esquire
Muenz & Meritz, P.C.
Three Hughes Place
Dix Hills, New York 11746
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement
becomes effective.
If the only securities begin registered on this Form are being offered pursuant
to dividend or interest reinvestment, check the following box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box
<PAGE>
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
Calculation of Registration Fee
Title of each Proposed Proposed
class of maximum maximum Amount of
securities to Amount to be offering price aggregate registration
be registered registered per unit offering price fee
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<S> <C> <C> <C> <C>
Common Stock 821,429 $1.25 (1) $1,026,786 $285
Warrant 50,000 $1.725 (2) $ 86,250 $ 24
Dividend Shares 7,922 $1.25 (2) $ 14,375 $ 4
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Total Registration Fee $313
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) of the regulations promulgated under
Securities Act of 1933 and based upon the closing price of Common Stock
as reported by the Nasdaq Stock Market on May 28, 1999.
(2) Price calculated in accordance with Rule 457(g) of the regulations
promulgated under Securities Act of 1933
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission acting pursuant to said
section 8(a), may determine.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN OR CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY, IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR SOLICITATION. EXCEPT WHERE
OTHERWISE INDICATED, THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
879,351 shares
Common Stock
STAR MULTI CARE SERVICES, INC.
Date: June 21, 1999
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Page
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Available Information ........................................................ 2
Documents Incorporated by Reference........................................... 2
The Company................................................................... 3
Prospectus Summary ........................................................... 3
Risk Factors.................................................................. 4
Use of Proceeds...............................................................11
Selling Shareholders..........................................................11
Manner of Distribution........................................................12
Description of Securities.....................................................12
Experts.......................................................................14
Legal Matters.................................................................14
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
STAR MULTI CARE SERVICES, INC.
821,429 SHARES OF COMMON STOCK ISSUABLE
UPON CONVERSION OF CERTAIN PREFERRED STOCK
50,000 SHARES OF COMMON STOCK ISSUABLE
UPON THE EXERCISE OF CERTAIN OUTSTANDING WARRANTS
7,922 SHARES OF COMMON STOCK ISSUED
THROUGH THE PAYMENT OF DIVIDENDS ON THE PREFERRED STOCK
IN THE FORM OF COMMON STOCK
This Prospectus ("Prospectus") relates to the sale of 821,429 shares (such
shares referred to herein as the "Shareholder Securities") of Common Stock, par
value $.001 per share ("Common Stock") of Star Multi Care Services, Inc., a New
York corporation ("Star" or the "Company) issuable upon the conversion of
the Series A 8% Convertible Preferred Stock par value $1.00 per share, (the
"Preferred Stock"). This Prospectus also relates to the sale of 50,000 shares
of Common Stock issuable upon the exercise of a certain outstanding warrant
issued by the Company (the "Warrant Shares") and to the sale of 7,922 shares
of Common Stock issued by the Company through payment of dividends on the
Preferred Stock in the form of Common Stock (the "Dividend Shares"). [See
"Description of Securities."] On May 28, 1999, the closing price per share of
the Common Stock on The Nasdaq Stock Market ("NASDAQ") was $1.25. The Selling
Shareholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders and/or
the purchasers of the Shares for whom such broker-dealers may act as agents or
to whom they sell as principals, or both. [See "Selling Shareholders" and
"Manner of Distribution"]
The shares offered for sale by the shareholders of the Company upon the
conversion of the Preferred Stock, the Warrant Shares offered for sale by the
shareholders of the Company upon the exercise of Warrant and the Dividend Shares
offered by the shareholders of the Company upon the payment of dividends on the
Preferred Stock in the form of Common Stock share hereinafter shall be referred
to collectively as the "Shares". The shareholders of the Company offering the
shares for sale issuable upon the conversion of the Preferred Stock, the
shareholders of the Company offering the Warrant Shares for sale issuable upon
the exercise of the Warrant and the shareholders of the Company offering the
Dividend Shares for sale issuable upon the payment of dividends on the Preferred
Stock shall hereinafter be referred to collectively as the "Selling
Shareholders". The Shares may be offered for sale by the Selling Shareholders
from time to time in the over-the-counter market, in negotiated transactions or
a combination of such methods of sale at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
None of the proceeds from the sale of the Shares by the Selling Shareholders
will be received by the Company. The Company has agreed to bear all expenses
(other than selling discounts, concessions or commissions) in connection with
the registration and sale of the Shares being offered by the Selling
Shareholders against certain liabilities, including certain liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
For a discussion of the material risks that may be involved in investing in the
Shares, see "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 21, 1999.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act"), and in
accordance therewith files Annual, Quarterly and Current Reports (on Forms 10-K,
10-Q and 8-K, respectively), proxy statements utilized in the solicitation of
votes of shareholders as well as other information. You may read and copy such
information at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its public reference facilities in New York, New
York and Chicago, Illinois. For more information about the SEC's public
reference facilities, please call the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers, like Star, that file
electronically with the SEC. The address of that site is http://www.sec.gov.
The Prospectus constitutes a part of a Registration Statement on Form
S-3 (together with any amendments thereto, the "Registration Statement") filed
with the Commission under the Securities Act relating to the Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain portions
of which have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and in each
instance reference is made to such copy of such contract or other document filed
as an exhibit and schedules thereto. For further information regarding the
Company and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and such exhibits and schedules, which may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of which may be obtained from the Commission
upon payment of the fees prescribed by the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference into this prospectus the
information we file with the SEC. This means that: (1) incorporated documents
are considered part of this prospectus; (2)we can disclose important information
to you by referring you to those documents; and (3) information that we file
later with the SEC will automatically update and supersede previously filed
information. In accordance with the requirements of the Exchange Act, the
Company periodically files certain reports and other information with the
Commission. The following documents filed with the Commission are hereby
incorporated in this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998;
2. The Company's Quarterly Report on Form 10-Q for the fiscal
quarters ended August 31, 1998, November 30, 1998, and
February 28, 1999;
3. The Company's Definitive Proxy Statement dated November 5,
1998 in connection with the solicitation of proxies for the
Annual Meeting of the Company's shareholders held on December
9, 1998;
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 of 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering of the Shares shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing of such
documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a
Prospectus is delivered, on the written or oral request of any such person, a
copy of any or all of the documents incorporated by reference herein, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents. Such requests should be addressed to Star Multi
Care Services, Inc., 33 Walt Whitman Road, Suite 302, Huntington Station, New
York 11746, Attention: Stephen Sternbach, President and Chief Executive Officer.
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You should rely only on the information contained or incorporated by reference
in this prospectus and in any applicable prospectus supplement. We have not
authorized anyone to provide you with different information. We are not offering
to sell the debt securities in any jurisdiction where the offer or sale is not
permitted. You should not assume that the information in this prospectus, or any
supplement to this prospectus, is accurate as of any date other than the date on
the cover page of such document. Our business, financial condition and results
of operations may have changed since such date.
THE COMPANY
Star Multi Care Services, Inc. was initially established in 1938 in
Brooklyn, New York with the purpose of the Company to provide health facility
staffing and private duty nursing services. In 1987, the Company was purchased
by Stephen Sternbach, who functions, to date, as the President and Chief
Executive Officer. In 1989, the Company received a New York State Department
of Health license for operation of a Licensed Home Care Services Agency for
provision of home health care services. This marked the Company's entrance
into the home health care industry. The went public with an initial public
offering in 1991 and the Company was listed on the Nasdaq SmallCap Market, and
in 1995, began trading on the Nasdaq National Market.
The Company is currently in the business of providing professional
and paraprofessional home health care personnel to elderly, ill, and
physically challenged individuals in their homes, and to a lesser extent the
Company provides some health care facility staffing and private duty nursing
services. The Company maintains 13 Joint Commission accredited offices which
are either licensed and/or certified in five states. These states include, New
York, New Jersey, Pennsylvania, Ohio, and Florida. The Company currently
provides a full array of health care personnel services, which include
registered nurses, licensed practical nurses, home health aides, nurses aides
and personal care aide services. In some states the Company is licensed and/or
certified to provide physical therapy, speech therapy, occupational therapy,
respiratory therapy, and medical social work services. The Company maintains
full functionality for all services 7 days per week, 24 hours per day.
Combined through its offices the Company employees approximately 5,000 full
time and part time employees and services over 7,500 clients annually.
In January 1999, the Company completed implementation of new
standardized computer systems across all offices and departments which
significantly reduced operating cost and increased reporting capabilities.
Effective January 1, 1999 all field offices were fully functional and
utilizing the same operating software for client intake, scheduling,
personnel, clinical database management, billing, payroll and compliance. In
addition, new accounting financial software was also implemented January 1,
1999. These changes marked a significant transition from multiple operating
systems to one integrated standardized system.
Additionally, in May 1999, the Company was awarded Joint Commission
(JCAHO) Accreditation with Commendations. The principal executive offices of
the Company are located at 33 Walt Whitman Road, Suite 302, Huntington
Station, New York 11746. The Company's main telephone number is (516)423-6688.
PROSPECTUS SUMMARY
The information in this summary is qualified in its entirety by
reference to the information appearing elsewhere in this Prospectus and in the
documents incorporated herein by reference.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by the Selling Shareholders The Selling Shareholders who are holders of the
upon the conversion of the Preferred Stock Preferred Stock and may convert the Preferred Stock
are offering for sale 821,429 shares of Common Stock.
Common Stock issuable upon the exercise of a Warrant. The Company is registering 50,000 shares of Common
Stock issuable upon the exercise of a certain
outstanding warrant.
Common Stock issued through the payment of a dividend The Company is registering 7,922 shares of
on the Preferred Stock Common Stock issued through the payment of a
dividend upon the Preferred Stock
</TABLE>
3
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<TABLE>
<S> <C>
Securities Outstanding As of June 1, 1999, 5,257,363 shares of Common Stock
were issued and outstanding. On this date, warrants to
purchase 50,000 shares of Common Stock and stock
options to purchase 158,000 shares of Common Stock
were outstanding. A total of 821,429 and 7,922
Common Stock shares may be issued upon the
conversion of the Preferred Stock and the payment of
dividends on the Preferred Stock in the form of
Common Stock, respectively.
</TABLE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk, including, but not necessarily limited to the risk factors described
below. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company before making an
investment decision.
Financing Arrangements
The Company currently has available a line of credit with Daiwa
Securities America, Inc. ("Daiwa") which allows for borrowings of up to
$10,000,000 (the "Revolving Loan"). Pursuant to the Revolving Loan, the amount
the Company may borrow is limited up to 80 percent of eligible accounts
receivables that are aged less than 180 days at LIBOR +3 and the remaining
eligible receivables at LIBOR +6. The Revolving Loan provides for the lender to
receive a security interest in all of the assets of the Company and its
subsidiaries. The Company has entered into a waiver and amendment to its
Revolving Loan with Daiwa. Daiwa has agreed to waive three covenants that have
not been met by the Company through the period ended February 28, 1999. With
this waiver, the Company is in full compliance with all of the terms and
conditions of the Revolving Loan with Daiwa. In exchange for this waiver, the
Company has agreed to amend the lending agreements with Daiwa to provide: (i)
Effective May 15, 1999, and on the fifteenth of each consecutive ten months, the
available borrowing base under the Daiwa Revolving Loan shall be reduced 1%, for
a total reduction from 100% to 90% of eligible receivables and (ii) the Company
shall use the proceeds of any future issuance of preferred stock to pay down the
balance of the Revolving Loan by no less that $200,000. There can be no
guarantee that the Company will be in compliance with the covenants under the
Revolving Loan in the future, and should the Company not be able to comply with
these covenants, there is no assurance that Daiwa will grant a waiver to such
covenants in the future.
The Company intends to meet its long-term liquidity needs through available
cash, cash flow and the new Revolving Loan. 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.
Organizational Restructuring Changes
The Company has been confronted with a variety of Medicare and
Medicaid reimbursement and regulatory changes, as well as, internal and
governmental audit findings which has necessitated that the Company implement
internal operating restructuring. This restructuring included management
personnel changes and general staff reductions, discontinuation of certain
Medicare operations, implementation of standardized automated operating
systems across the Company, and the implementation of a Corporate Compliance
Program.
Over the last 12 months the Company has assembled a management team
of industry known professionals with a variety of health care skills and
expertise while simultaneously, to date, reducing administrative personnel
costs in excess of $1 million dollars.
Effective February 26, 1999, the Company also discontinued operations
in its Florida based Certified Home Health Agency regarding provision of
Medicare reimbursed home health care services. This was primarily done due to
reimbursement methodology changes within the Medicare system.
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Finally from a compliance perspective management implemented a three
tier compliance structure which includes:
Corporate Patient Care Committee, which reviews and establishes new
policy and procedures, and reviews internal audit findings by
department and branch.
Regional Quality Improvement Audit Committees, which conduct a series
of operational, financial, clinical, and personnel audits across all
offices and departments. These audits test all regulatory and
operational aspects of these areas with all findings reported to the
Corporate Compliance Director.
Corporate Compliance Program, which provides for a Director of
Corporate Compliance who reports directly to the Board of Directors.
This program provides an additional layer of internal audits,
investigation and reporting on all aspects of operation.
Customer Base
The Company has four types of customers, which form the base
of its referral source. The customer base includes state funded public
assistance programs (Medicaid), other third party payers
(subcontracts), insurance companies and private pay customers.
A substantial portion of the Company's revenues are derived
from home health care services provided to patients who are eligible
for Medicaid services referred to the Company through contract or
subcontract relationships. The Company maintains state and/or county
approval and/or contracts in New York, New Jersey, Ohio, and
Pennsylvania for provision of professional and para-professional
Medicaid services which include registered nurse, licensed practical
nurse, home health aide, personal care aide, homemaking, and live-in
companion services. Each state maintains its own initial approval and
annual re-approval criteria, which are subject to audit or
accreditation processes. These services are reimbursed directly by
state and/or local government and represent a combination of federal,
state and local funding. Clients are referred to the Company by
physicians, hospital discharge planning departments, and community
based medical service organizations. The majority of the business in
the states of New York, New Jersey, Ohio, and Pennsylvania is Medicaid
reimbursed. If a contract were to be lost or an annual
approval/accreditation not secured, it could have a significant and
adverse effect on the Company's operating results.
The Company is also federally certified to provide certified
home health agency services for which the Company is directly
reimbursed by Medicare. The Company maintains this certification in the
states of Florida, Ohio, and Pennsylvania, with client referrals coming
from physicians, hospital discharge planning departments, and community
based medical service organizations. On February 26, 1999, the Company
formally adopted a plan to abandon its Medicare business being provided
by one of its subsidiaries, Star Multi Care Services of Florida, Inc.
d/b/a American Healthcare Services.
During the fiscal years ended May 31, 1998, 1997, and 1996,
61%, 59%, and 59%, respectively of the Company's revenue were
attributable to Medicare, Medicaid and other governmental programs. The
increase in the most recent fiscal year is attributable to the full
impact of the Amserv operations and approximately nine months of the
EFCC operations in fiscal year 1998.
The Company's next largest customer base is derived from other
third party payers which consist of subcontracting relationships for
provision of personnel with community and facility based organizations
who are reimbursed directly by Medicaid, Medicare, and to some extent
insurance. This type of subcontract relationship is maintained with
certified home health agencies, long term home health care programs,
hospice programs, health maintenance organizations ("HMOs"), and Case
Management Organizations. Referrals and reimbursement for client care
5
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comes directly from these facilities that in turn are reimbursed by
Medicare, Medicaid, or insurance companies. This source has accounted
for 19%, 24% and 25% of revenue for fiscal years 1998, 1997, and 1996
respectively.
The insurance segment of the Company's business represented
18%, 16% and 15% of the Company's revenue in 1998, 1997, and 1996,
respectively. This business is made up of a mix of long term care
insurance, workers' compensation insurance, HMO, preferred provider
organizations ("PPO"), and general health insurance policies which
provide a home health care service benefits. Insurance referrals can
come directly through contractual relationships with insurance
companies, network alliances, physicians, and hospital based discharge
planners.
Private pay customers have represented approximately 2%, 1%
and 1% of the Company's revenue in 1998, 1997, and 1996, respectively.
These clients for a variety of reasons which include ineligibility for
public assistance or to supplement services provided by Medicare or
insurance programs have elected to pay part or all of their care out of
pocket. These customers come predominantly through referrals from
physicians, hospital discharge planners, and community-based
organizations.
Marketing and Sales
The Company maintains marketing activities in each of the five
states it operates in and concentrates its efforts through the use of
regional marketing teams. The Company believes in the use of office
specific operational plans for the management and marketing of regional
sales. The individual office operational plan format provides for the
comprehensive approach to office growth, marketing, and recruitment, as
well as the clinical and fiscal operation of each office. The plan
objective is to maximize internal growth and assure clinical/fiscal
integrity. The plan serves as the framework for development of a
continual process for quality and performance improvement in all areas
of responsibility including marketing. The marketing component of the
plan identifies all potential referral sources and establishes a
systematic referral source contact strategy across the marketing and
office staff. The plan is continually reassessed and refined to ensure
success, and serves as an evaluation tool to identify strengths as well
as areas needing organizational support
Star maintains regional marketing staff that focus on the
sales and marketing component goals of these plans. Star markets to the
key representatives of the contracting institutions, hospital discharge
planning departments, insurance companies, community-based facilities,
and physicians to secure contractual and referral relationships.
Representatives visit targeted facilities and programs maintaining the
Company presence with existing referral sources and acting as the first
line of communication with new referral sources. Beyond the traditional
personnel services offered by the industry the Company offers facility
staffing, Shared Aide Team Model services and a Pediatric specialty
program. From an operational perspective the Company markets quality
benchmarks as demonstrated by its Joint Commission accreditation
(JCAHO) and a full functioning Corporate Compliance Program. The
marketing representatives are supported by print and radio advertising,
direct mailing, and attendance at trade shows and regional health care
functions.
Competition
The home health care and facility staffing industry has a
variety of local, regional and national organizations, which comprise
the Company's competition base. The Company has numerous competitors in
each of the markets it serves, however regulatory and reimbursement
changes are causing consolidation within the industry at this time.
Smaller local and regional operations are finding it increasingly
difficult to remain in the market. Larger national companies with
substantially greater financial resources are continued to be viewed by
the Company as its major competitors.
Competition is based both on the quality of care provided to
clients and the price structure offered by the organization. The
Company believes that it has developed and maintains high quality
standards through its operational, clinical, and compliance policies,
procedures and activities. Cost effectiveness in operation, achieved
through improved automation platforms, new service delivery models, and
economies of scale has enabled the Company to be aggressive in its
pricing structures.
6
<PAGE>
Government Regulations, Licensing and Audits
The Company's business is subject to substantial and
frequently changing regulations by federal, state, and local
authorities, which require significant compliance responsibilities by
the Company. Each state in which the Company operates maintains its own
form of licensing standards and may maintain Certificate of Need
("CON") or other Medicare requirements specific to the state which are
above the minimum standard requirements established by the federal
government for participation in the Medicaid and Medicare programs. The
imposition of more restrictive regulatory requirements or the denial or
revocation of any license, certification, Medicaid or Medicare
approval, or permit necessary for operation in a particular market
could have a material adverse effect on the Company's operations. In
addition, any future expansion into new markets would require the
Company to comply with all licensing, and/or CON requirements and other
regulations pertinent to that jurisdiction.
The Company maintains all applicable licenses for provision of
home care and facility staffing services in the states of New York, New
Jersey, Pennsylvania, Ohio, and Florida. In addition, the Company
maintains Medicare Certification in certain offices and counties in the
states of Ohio, Pennsylvania, and Florida, with Florida maintaining CON
requirements. As a provider of services under the Medicare as well as
some state Medicaid programs the Company is required by the U.S. Health
Care Financing Administration and/or state health departments to
prepare cost reports reflecting annual expenditures and development of
capital expenditure plans. The regulatory agencies of the states in
which the Company operates require compliance with certain regulations
and standards with respect to health care personnel records, client
records, nursing and administrative supervision, incident and complaint
monitoring and follow-up, and the establishment of professional
advisory boards. Additionally, both federal and state Anti-kickback
regulations exist which must be complied with.
With participation in the Medicare and Medicaid programs the
Company is subject to survey and audit of operational, clinical and
financial records with respect to proper applications of general
regulations governing operation, cost reporting criteria, and other
payment formulas. These audits can result in retroactive adjustments
for payments received from these programs resulting in either amounts
due to governmental agencies from the Company or amounts due to the
Company as adjustments from the governmental agency.
Effective in January 1998, the Company was required to comply with
a new payment formula or reimbursement under the Medicare program. This
payment formula, termed the Interim Payment System ("IPS"), for
Medicare was developed by the U.S. Health Care Financing Administration
(HCFA) to serve as a middle step, as the government moved from a cost
based reimbursement system to a episodic disease based Prospective
Payment System (PPS). In addition, to the imposition of IPS, which set
per patient limits on Medicare home care reimbursements, HCFA also
revised regional cost limits which combined with IPS had a material
effect in reducing revenue and reimbursement for the Company's Florida
based certified home health agency from approximately $8.4 million in
revenue during the fiscal year ended May 31, 1998, to approximately
$5.4 million in corresponding reimbursement and revenue for fiscal year
ended May 31, 1999. The Company has restructured its Florida Medicare
operation to function under both the IPS and the revised cost limits.
However, congressional debate over the appropriateness and fairness of
retroactive establishment and imposition of regulations associated with
IPS and the changes in the cost limits could bring further modification
and or adjustments that may have a material adverse effect on the
Company's operations.
On July 16, 1998, Star was advised that an audit of American Health
Services, Star=s Medicare agency, was being commenced by the Office of Audit
Services, Office of Inspector General of the United States Department of Health
and Human Services. This audit was being conducted in conjunction with the
United States Attorney=s Office for the Southern District of Florida and
involved a review of claims for home health services submitted by American
Health Care Services during 1995 and 1996. A similar audit commenced during May
of 1997 for its submitted claims during 1993. Star has been advised by its
regulatory counsel that they have been in contact with the Office of Inspector
General and the Assistant United States Attorney assigned to this matter, and
there is no way to determine at this time the extent of Star's liability.
Regulatory counsel has advised Star that it may litigate or appeal any
determination of liability and pursue claims against third parties (e.g.,
subcontractors and licensed home health agencies) for a portion of any liability
of Star. Management anticipates that this matter should be satisfactorily
resolved. This is grounded upon the advice of regulatory counsel to the Company
as to the (1) the resolution of similar types of audits or claims based upon
their experience in the health care industry, handling appeals of these
determinations
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and dealing with similar matters before the Office of Inspector General and the
Department of Justice, even though there has not been a final determination of
liability, and there can be no assurance as to the ultimate liability; and (2)
the fact that Star will have the right, whether or not this audit or claim is
resolved in whole or in part in Star=s favor, to appeal or litigate any
liability, determination and pursue a claim against third-party independent
contractors and other parties that may have rendered services to Star, even
though there is no assurance that any such claims would ultimately be
collectible. Management anticipates that the matters will be satisfactorily
resolved.
In February 1998, Star Multi Care Services, Inc. (the "Company") was
advised by its regulatory counsel that jurisdiction with respect to a previously
disclosed audit (the "1997 Audit") of Star Multi Care Services of Florida, Inc.
d/b/a American Health Care Services, the Company's Medicare agency, by the
Office of Audit Services of the Office of Inspector General of the United States
Department of Health and Human Services, which had previously been forwarded to
the Civil Division of the United States Attorney for the Southern District of
Florida (the "US Attorney") by the Medicare intermediary assigned to administer
Medicare payments in Florida, has been relinquished by the US Attorney to the
Medicare intermediary for recovery of an administrative overpayment.
The Company had been informed that the Medicare intermediary has
assessed an administrative overpayment against the Company in the amount of
$1,248,747 based on the 1997 Audit. The Company has appealed the administrative
overpayment determination by pursuing administrative and judicial remedies. Such
appeal could result in elimination or reduction of the overpayment amount. The
Company's regulatory counsel has also advised that the Company has claims
against third- parties (e.g., subcontractors and licensed home health agencies)
for a portion of any liability of the Company in connection with such
administrative overpayment. The Company had established a reserve, in the period
ended February 28, 1998, for $1.25 million, in connection with the
administrative overpayment. As a result of this appeal, based upon preliminary
indications from the Medicare intermediary and the recommendation of the
Company's regulatory counsel, during the second quarter ended November 30, 1998,
the Company reduced this liability by $375,000 (30%) as of November 30, 1998 has
accrued $875,000. Management expects this matter to be satisfactorily
resolved.
In August 1995, the Office of Deputy Attorney General for Medicaid
Fraud Control initiated a personnel, clinical and billing investigation for
the years 1992 through 1995. On December 3, 1997, the Company was advised by
its counsel that the investigation, which was previously reported as pending,
may be expanded through 1997 and that the Company was a target of a criminal
investigation. In response to this, the Company conducted its own internal
investigation and has revised its systems and has voluntarily disclosed the
results of its internal investigation to the Office of Deputy Attorney General
for Medicaid Fraud Control. The Company has established a reserve of
$1,000,000 in connection with this matter. The amount accrued has been based
upon information learned to date, additional information may be learned in the
future which would require the Company to modify this amount.
The Company discovered errors in certain cost reports that had been
previously submitted by the Company to the New York State Department of Social
Services during the years 1993-1995, the basis of which served to determine the
Medicaid reimbursement rates in respect of the Company for the years 1994-1996.
Amended cost reports containing the correct data were submitted to the New York
State Department of Health (the "DOH") in February 1998, which are expected to
result in the DOH's retroactive recalculation of the Company's Medicaid
reimbursement rate and imposition of a substantial overpayment assessment
against the Company. The Company established a reserve, in the period ended
February 28, 1998, for $660,000, in connection with this overpayment assessment.
The Company announced on May 12, 1999 that it entered into a Settlement
Agreement with the State of New York whereby the State of New York will
discharge and forever release the Company, including its officers, directors and
employees, for any further liability regarding the Company's submission of
claims for or receipt of Medicaid payments for home health care services for the
audited period of 1992 through 1996. Previously, the Company had announced that
their claims for payments under the Medicaid program for this period were being
audited by the Attorney General's Medicaid Fraud Control Unit and that the
Company was a target of a criminal investigation. The Company had previously
accrued $1.7 ($1 million and $660,000) and has been able to settle those two
claims for $532,823 less than the initial accrual.
The Attorney General stated in his press release that the Company has
fully cooperated with the State's investigation and immediately remedied the
problems the Attorney General's office pointed out by improving its personnel
training procedures and submitting revised cost reports.
The terms of this Settlement Agreement provided for:
(a) No admission by Star of any criminal or civil liability,
guilt, wrongdoing or unacceptable practice, nor a
determination of guilt of any violation of any Federal, State
or Local statute, rule or regulation.
(b) The Company agreed to pay to New York State the total sum of
$1,167,177, with an initial payment of $200,000. The balance
shall be payable over four years at 9% interest.
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
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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 $10,000,000 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. 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 June 1, 1999, the Company had approximately 165
permanent employees. The Company also has a roster of temporary
professional and para-professional 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.
Expansion Risks
There can be no assurance that the Company will be able to expand its
operations successfully. Expansion of the Company's operations will be dependent
on, among other things, its ability to obtain new contracts and referrals to
service additional patients, retain skilled management and other personnel,
successfully manage growth and the availability of adequate financing. The
Company may also seek to expand its operations through acquisitions. There can
be no assurance that the Company will effect any acquisition or that if the
Company is able to effect any acquisitions that it will be able to successfully
integrate into its operations any newly acquired business. [See "Forward Looking
Statements - Cautionary Factors"]
No Dividends.
The Company has paid no cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. Under the terms
of the Revolving Loan, the Company cannot declare any dividend without the
consent of its lender.
Volatility: Price of Common Stock
The market price of the Company's Common Stock has been, and may in the
future be, highly volatile. Factors such as the Company's operating results,
prospects for the Company's services or developments at the Company's
competitors, revisions in the regulatory environment in which the Company
operates, as well as changes in home health care industry could have a
significant impact on the market price of the Company's Common Stock. Further,
in recent years, the securities markets have experienced a high level of price
and volume volatility and the market price of securities for many companies,
particularly emerging growth companies, have experienced wide fluctuations which
have not been necessarily related to the operating performance of such
companies.
Registration Rights and Shares Eligible for Future Sale
No prediction can be made as to the effect that sales of the previously
restricted shares or shares currently exercisable pursuant to outstanding
warrants or options may have on the prevailing market prices of the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public markets
could adversely affect prevailing market prices and could impair the Company's
ability to raise additional capital through its sale of equity securities.
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On April 30, 1999, the Company consummated the sale of $575,000 of Series A 8%
Convertible Preferred Stock (the "Preferred Stock") with included the grant of a
warrant to purchase 50,000 shares of the Company's Common Stock at $1.725 per
share. The Preferred Stock may be converted into Common Stock at a price equal
to a predetermined percentage discount from the market price.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to accept only two digit entries to represent years. For example, the
"1999" would be represented by "99". These systems and products will need to be
able to accept four digit entries to distinguish years beginning with 2000 from
prior years. As a result, systems and products that do not accept four digit
year entries will need to be upgraded or replaced to comply with such "Year
2000" requirements. The Company believes that its internal systems are Year 2000
compliant or will be upgraded or replaced in connection with previously planned
changes to information systems prior to the need to comply with Year 2000
requirements without material cost or expense. The anticipated costs of any Year
2000 modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to the availability or cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes and similar uncertainties. In addition, there can be no assurance
that Year 2000 compliance problems will not be revealed in the future which
could have a material adverse affect on the Company's business, financial
condition and results of operations. Many of the Company's customers and
suppliers may be affected by the Year 2000 issues that may require them to
expend significant resources to modify or replace their existing systems. This
may result in those customers having reduced funds to purchase the Company's
products or in those suppliers experiencing difficulties in producing or
shipping key components to the Company on a timely basis at all. (c)
Forward Looking Statements
Certain statements in this registration statement constitute"
forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are typically identified by
their inclusion of phrases such as "the Company anticipates", "the Company
believes" and other phrases of similar meaning. These forward looking statements
are based on the Company's current expectations. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause
the actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward- looking statements. The potential risks and
uncertainties which could cause actual results to differ materially from the
Company's expectations include the impact of further changes in the Medicare
reimbursement system, including any changes to the current IPS and/or the
ultimate implementation of a prospective payment system; government regulation;
health care reform; pricing pressures from third-party payors, including managed
care organizations; retroactive Medicare audit adjustments; and changes in laws
and interpretations of laws or regulations relating to the health care industry.
. This 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, 1998.
GOVERNMENT REGULATION. As a home health care provider, the Company is subject to
extensive and changing state and federal regulations relating to the licensing
and certification of its offices and the sale and delivery of its products and
services. The federal government and Medicare fiscal intermediaries have become
more vigilant in their review of Medicare and Medicaid reimbursements to home
health care providers generally, and are becoming more restrictive in their
interpretation of those costs for which reimbursement will be allowed to such
providers. Changes in the law and regulations as well as new interpretations
enforced by the relevant regulatory agencies could have an adverse effect on the
Company's operations and the cost of doing business.
THIRD-PARTY REIMBURSEMENT AND MANAGED CARE. Because the Company is reimbursed
for its services primarily by the Medicare/Medicaid programs, insurance
companies, managed care companies and other third-party payors, the
implementation of alternative payment methodologies for any of these payors
could have an impact on revenues and profit
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margins. Generally, managed care companies have sought to contain costs by
reducing payments to providers. Continued cost reduction efforts by managed care
companies could adversely affect the Company's results of operations.
HEALTH CARE REFORM. In August 1997, Congress enacted and President Clinton
signed into law the Balanced Budget Act of 1997 ("BBA"), resulting in
significant changes to cost based reimbursement for Medicare home health care
providers. Although the new legislation enacted by Congress retains a cost based
reimbursement system, the cost limits have been reduced for fiscal years which
began on or after October 1, 1997 and a new per-beneficiary limit is effective
for fiscal years which began after such date. The BBA provides two payment
systems -- an IPS which is effective for the Company beginning January 1, 1998
until the adoption of the successor payment system which is a new prospective
payment system tentatively scheduled to begin in late 1999. The effect of the
changes under IPS is to reduce the limits for the amount of costs that are
reimbursable to home health care providers under the Medicare program. The
Company anticipates a possible decrease in aggregate net revenues during the
course of the next fiscal year due principally to reductions in the limits for
the amount of costs that are reimbursable in connection with the provision of
Medicare services. The Company cannot quantify the full effect of IPS on the
Company's future performance because certain components of health care reform
legislation, such as the per-beneficiary limit, require annual data which will
not be known until a final assessment by Medicare and/or its fiscal intermediary
is completed for each annual period.
As Congress and state reimbursement entities assess alternative health
care delivery systems and payment methodologies, the Company cannot predict
which additional reforms may be adopted or what impact they may have on the
Company. Additionally, uncertainties relating to the nature and outcomes of
health care reforms have also generated numerous realignments, combinations and
consolidations in the health care industry which may also have an adverse impact
on the Company's business strategy and results of operations. The Company
expects that in addition to industry consolidation generally, there may be
consolidations within the Company's locations, and the number of offices has
been reduced in fiscal 1999.
BUSINESS CONDITIONS. The Company must continue to establish and maintain close
working relationships with physicians and physician groups, managed care
organizations, hospitals, clinics, nursing homes, social service agencies and
other health care providers. There can be no assurance that the Company will
continue to establish or maintain such relationships. The Company expects
additional competition will develop in future periods given the increasing
market demand for the type of services offered and the necessity to maximize
service volume due to anticipated operating margin decline.
ATTRACTION AND RETENTION OF EMPLOYEES. Maintaining quality managers and branch
administrators will play a significant part in the future success of the
Company. The Company's professional nurses and other health care personnel are
also key to the continued provision of quality care to the Company's patients .
The possible inability to attract and retain qualified skilled management and
sufficient numbers of credentialed health care professionals and
para-professionals could adversely affect the Company's operations and quality
of service.
USE OF PROCEEDS
If the Warrant is fully exercised, as such term is defined under the
"Description of Securities", the Company would receive gross proceeds of
$86,250. As the present market price is below the exercise price, there can be
no assurance that any portion of the Warrant will be exercised. The Company will
use any proceeds received from the exercise of the Warrant for working capital.
The above application reflect management's current plans and may be changed to
reflect various factors.
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders.
SELLING SHAREHOLDERS
Series A 8% Convertible Preferred
On April 30, 1999, the Company completed a private placement by the
sale of $575,000 Series A 8% Convertible Preferred Stock par value $1.00 per
share ("Preferred Stock") to the Shaar Fund, Ltd., providing the Company net
proceeds,
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after fees and expenses, of $500,000. After sixty days, the Preferred Stock may
be converted to Common Stock equal to the lessor of: (a) 125% of the market
price three trading days immediately preceding the closing date, or (b) the
market price of the Company's Common Stock discounted from 10% to 30%, such
discount increasing with the passage of time The Preferred Stock pays an 8%
dividend payable quarterly that may be converted into Common Stock at the option
of the Company. The investor also received a Common Stock Purchase Warrant (the
"Warrant") for the right to purchase 50,000 Common Stock shares of the Company
at 115% of the closing bid price on the trading day immediately preceding the
closing date of this sale. The Common Stock to be issued upon conversion of
Preferred Stock, the Common Stock to be issued upon exercise of Warrant, and
Common Stock issued for payment of Preferred Stock dividend shall be registered
by the Company under the Securities Act of 1933. Using an arbitrary price of
$1.00 per share at the time of conversion, it is estimated by the Company the
Preferred Stock may be converted into 821,429 shares of Common Stock.
Warrant Shares
The Common Stock Purchase Warrant (the "Warrant") permits the holder to
purchase up to 50,000 shares of the Company's Common Stock at 115% of the
closing bid price on the trading day immediately preceding the closing date of
the private placement. The exercise price for this Warrant is $1.725 per share.
Dividend Shares
The Preferred Stock pays an 8% dividend payable quarterly that may be
converted into Common Stock at the option of the Company. The Board of Directors
declared a quarterly dividend for the quarter ended June 30, 1999, payable to
holders of record of the Preferred Stock on June 30, 1999. In lieu of a cash
dividend, the Board of Direcotrs has elected to pay this quarterly dividend
in Common Stock of the Company equal to 7.922 shares.
MANNER OF DISTRIBUTION
Selling Shareholders may sell the Shares through broker-dealers,
agents, or directly to one or more purchasers. The distribution of the Shares
may be effected from time to time in one or more transactions in the
over-the-counter market or in transactions otherwise than in the
over-the-counter market including privately negotiated transactions. Any of such
transactions may be effected at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders
and/or commissions from purchasers of Shares for whom they may act as agent
(which discounts, concessions or commissions may or may not exceed those
customary in the type of transactions involved). The Selling Shareholders and
any broker-dealers or agents that participate in the distribution of Shares may
be deemed to be underwriters, and any profit on the sale of Shares by them and
any discounts, concessions or commission received by any such broker-dealers or
agents may be deemed to be underwriting discounts and commissions under the
Securities Act.
In order to comply with certain states' securities laws, if applicable,
the Shares offered hereby will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, the Shares may not be
sold in certain states unless they have been registered or qualified for sale in
such state or an exemption from regulation or qualification is available and is
complied with. Pursuant to the terms of the subscription agreements, the Company
intends to use its best efforts to register or qualify the Shares for resale or
to seek an exemption from registration or qualification in any state required in
order to facilitate as to a particular sale, the resale of the Shares by the
Selling Shareholders.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock $.001 par value per share. On June 1, 1999, there were issued and
outstanding 5,257,363 shares of Common Stock. Additionally, the Company has
authorized 5,000,000 shares of preferred stock $1.00 par value per share. The
Company has authorized 600 shares of Series A 8% Preferred Stock. On June 1,
1999, there were issued and outstanding 575 shares of the Series A 8% Preferred
Stock. The holders of the Series A 8% Preferred Stock have no voting power,
except as otherwise provided by the New York Business Corporation Law ("NYBCL"),
and in Article 7 and Article 8 of Article Fifth of the Company's Certificate of
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Incorporation.
Series A 8% Preferred Stock
On April 30, 1999, the Company completed a private placement
by the sale of $575,000 Series A 8% Convertible Preferred Stock par value $1.00
per share ("Preferred Stock") to the Shaar Fund, Ltd., providing the Company net
proceeds, after fees and expenses, of $500,000. After sixty days, the Preferred
Stock may be converted to Common Stock equal to the lessor of: (a) 125% of the
market price three trading days immediately preceding the closing date, or (b)
the market price of the Company's Common Stock discounted from 10% to 30%, such
discount increasing with the passage of time, as set forth below on Schedule I.
Under the terms of the Registration Rights Agreement regarding the sale of the
Preferred Stock, the Company has an obligation the file a registration statement
with the Securities and Exchange Commission within 30 days of the closing date
of the sale of the Preferred Stock. The registration statement must become
effective within 150 days. The method of conversion of the Preferred Stock to
Common Stock is set forth above under "Selling Shareholders".
Schedule I
Conversion Rates
As used in this Schedule I, "Closing Bid Price" means the closing bid
price for the Common Stock, par value $.001 per share, as reported by the
National Association of Securities Dealers Nasdaq Stock Market (or any other
exchange or over-the-counter market upon which the Common Stock is admitted and
listed for trading) for any trading day.
Days after Funding Date Price
- ----------------------- -----
60-90 90% of the lowest Closing Bid Price for the 10 day
period prior to conversion
91-120 85% of the lowest Closing Bid Price for the 13 day
period prior to conversion
121-150 82.5% of the lowest Closing Bid Price for the 15
day period prior to conversion
151-180 80% of the lowest Closing Bid Price for the 17 day
period prior to conversion
181-210 77.5% of the lowest Closing Bid Price for the 19
day period prior to conversion
211-240 75% of the lowest Closing Bid Price for the 22 day
period prior to conversion
241-270 72.5% of the lowest Closing Bid Price for the 25
day period prior to conversion
271- maturity 70% of the lowest Closing Bid Price for the 28 day
period prior to conversion
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Warrant Shares
The investor purchasing the Preferred Stock discussed above, also received a
Common Stock Purchase Warrant (the "Warrant") for the right to purchase 50,000
Common Stock shares of the Company at 115% of the closing bid price on the
trading day immediately preceding the closing date of this sale. Under the terms
of the Registration Rights Agreement regarding the sale of the Preferred Stock
and the issuance of the Warrant, the Company has an obligation the file a
registration statement with the Securities and Exchange Commission within 30
days of the closing date of the sale of the Preferred Stock. The registration
statement must become effective within 150 days.
Dividend Shares
The Preferred Stock pays an 8% dividend payable quarterly that may be converted
into common stock at the option of the Company. Under the terms of the
Registration Rights Agreement regarding the sale of the Preferred Stock and the
issuance of the Warrant, the Company has an obligation the file a registration
statement with the Securities and Exchange Commission within 30 days of the
closing date of the sale of the Preferred Stock to register those
shares issued through to payment of dividends in Common Stock in lieu of cash.
The registration statement must become effective within 150 days.
LEGAL MATTERS
In connection with this Registration Statement, the validity of the
shares being registered will be passed upon for the Company by Muenz & Meritz,
P.C., Dix Hills, New York.
EXPERTS
The consolidated balance sheet of the Company as of May 31, 1998 and
1997 and the consolidated statement of operations, stockholder's equity and
cash flows for each of the three years for the periods ended May 31, 1998,
1997 and 1996, incorporated by reference in this Prospectus from the Company's
Annual Report on Form 10-K for the period ended May 31, 1998, have been
incorporated herein in reliance on the report of Holtz Rubenstein & Co., LLP
given on the authority of that firm as experts in accounting and auditing.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
A reasonable estimate of the costs to be incurred in connection with
this Registration Statement and Prospectus, to be borne entirely by the
Registrant, is as follows:
Securities and Exchange Commission Registration Fee ......................$ 313
Accounting Fees and Expenses .............................................$2,000
Legal Fees and Expenses ..................................................$5,000
Printing and Publication .................................................$ 500
Miscellaneous ............................................................$ 0
TOTAL ....................................................................$7,813
Item 15. Indemnification of Officers and Directors
Under the New York State Business Corporation Law (the "NYBCL"),
indemnification of directors and officers may be provided to whatever extent
shall be authorized by a corporation's certificate of incorporation or a by-law
or vote
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adopted by the shareholders. However, the NYBCL does not permit indemnification
with respect to any matter as to which the director or officer has been
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the corporation. The NYBCL provides that no
indemnification of directors in shareholder derivative suits may be made in
respect of (i) a threatened action, or a pending action which is settled or
otherwise disposed of, or (ii) any claim, issue or matter as to which the
director or officer has been adjudged to be liable to the corporation, unless
and only to the extent that the court in which the action was brought or, if no
action is brought, any court of competent jurisdiction, determines upon
application that, in view of the circumstances of the case, the director or
officer is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper. The statutory
provisions for indemnification and advancement of expenses are not exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled independently of the applicable statutory provision.
The STAR By-laws currently provide for indemnification of directors and officers
and advancement of indemnified expenses to the full extent now or hereafter
permitted by the NYBCL
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to officers, directors or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Item 16. Exhibits
2. (a) Agreement and Plan of Merger Among Star
Multi Care Services, Inc., EFCC Acquisition
Corp. and EXTENDED FAMILY CARE CORPORATION,
dated as of January 3, 1997. Incorporated by
reference to Exhibit 2(a) to the Company's
Registration Statement on Form S-4 dated
July 29, 1997 (Registration No. 333-32171).
(b) First Amendment to Agreement and Plan of
Merger among the Company, EFCC Acquisition
Corp. and Extended Family Care Corporation,
dated as of April 6, 1997. Incorporated by
reference to Exhibit 2(a) to the Company's
Registration Statement on Form S-4 dated
July 29, 1997 (Registration No. 333-32171).
3. (a) * The Company's Certificate of Incorporation
filed April 25, 1961.
(b) * The Company's Certificate of Amendment to
Certificate of Incorporation filed February
22, 1989.
(c) * The Company's Certificate of Amendment to
Certificate of Incorporation filed December
4, 1990.
(d) The Company's 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) The Company's 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) The Company's 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.)
(g) The Company's Certificate of Amendment to
the Certificate of Incorporation filed
April 28, 1999.
4.1 Registration Rights Agreement dated April
26, 19999 between the Company and the
Convertible Preferred Stock Purhcaser.
5.1 Legal opinion of Muenz & Meritz, P.C.
9. (a) Sternbach Proxy
(b) Voting Trust Agreement dated as of June 20,
1996 by and among EFCC, Coss, Arbor, the
Voting Trustee of the Issuer and Kaufman.
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
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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 29, 1996.)
(f) The Company's Employee Stock Purchase Plan,
as amended on 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) * Agreement relating to purchase of the
Company among Stephen Sternbach, Renee the
Company and Leonard Taubenblatt dated
December 31, 1986.
(i) * New York State Department of Consumer
Affairs Employment Agency License.
(j) * New York State Health Department Home Care
License.
(k) * New Jersey Employment agency License.
(l) 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.)
(m) 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.)
(n) 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.)
(o) 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.)
(p) 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.)
(q) 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.)
(r) 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.)
(s) 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.)
(t) 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.)
(u) Lease dated December 7, 1998 between
Lighthouse Hicksville Limited Partnership, a
New York limited partnership, and Star Multi
Care Services, Inc., a Delaware corporation,
for the Company's office space in Hicksville
incorporated to the Company's Form 10-Q for
period ended November 30, 1998 as Exhibit
10.1 therein.
(v) Stock Purchase Agreement dated April 26,
1999 between the Company and The Shaar Fund,
Ltd.
(w) Common Stock Purchase Warrant dated
April 26, 1999.
16. (a) Letter dated April 25, 1995, as amended,
from Deloitte & Touche LLP to the Securities
and Exchange Commission. (Incorporated by
reference to EFCC's Current Report on Form
8-K/A dated March 21, 1995.)
21. List of subsidiaries.
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23. (a) Consent of Holtz Rubenstein & Co., LLP.
(b) Consent of Ernst & Young LLP.
(c) Consent of Muenz & Meritz, P.C. included in
Exhibit 5.1.
- -------------------
* Incorporated by reference to the Company's Registration Statement on
Form S-18 dated May 14, 1991 (Registration No. 33-39697-NY)
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
[Amended in Release No. 33-7168 (Paragraph 85,420), effective June 7, 1995, 60
FR 26604.]
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; [Amended in
Release No. 33-6423 (Paragraph 83,250), effective September 10, 1982, 47 F.R.
39799.]
Provided, however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this section do
not apply if the registration statement is on Form S-3 (Section 239.13 of this
chapter), Form S-8 (Section 239.16b of this chapter) or Form F-3 (Section 239.33
of this chapter), and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to section
13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement. [Amended in Release No. 33-7053
(Paragraph 85,331), effective April 26, 1994, 59 F.R. 21644.]
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Section 210.3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3 (Section 239.33 of this chapter), a
post-effective amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or Section 210.3-19 of this
chapter if such financial
17
<PAGE>
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3. [Added in Release No. FR-7 (Paragraph 72,407), effective
December 4, 1982, 47 F.R. 54764; amended in Release No. FR-41 (Paragraph
72,441), effective November 15, 1993, 58 F.R. 60304; and Release No. 33-7053
(Paragraph 85,331), effective April 26, 1994, 59 F.R. 21644.]
(b) Filings incorporating subsequent Exchange Act documents by reference.
Include the following if the registration statement incorporates by reference
any Exchange Act document filed subsequent to the effective date of the
registration statement:
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Huntington Station, the State of New York on June 1,
1999.
STAR MULTI CARE SERVICES, INC.
By: /s/ Stephen Sternbach
------------------------------------
Stephen Sternbach
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Stephen Sternbach President, Chairman of the Board June 1, 1999
- ---------------------- of Directors and Chief Executive Officer
Stephen Sternbach
/s/ John P. Innes, II Director June 1, 1999
- ----------------------
John P. Innes, II
/s/ Matthew Solof Director June 1, 1999
- ----------------------
Matthew Solof
/s/ Charles Berdan Director June 1, 1999
- ----------------------
Charles Berdan
/s/ Gary L. Weinberger Director June 1, 1999
- ----------------------
Gary L. Weinberger
/s/ Gregory Turchan Senior Vice President and June 1, 1999
- ----------------------
18
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Gregory Turchan Chief Operating Officer and
Director
19
