<PAGE>
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 February 29, 2000
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 1-10751
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. )
33 Walt Whitman Road, Huntington Station, New York 11746
---------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (631) 423-6689
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 6, 2000:
Class Number of Shares
----- ----------------
Common Stock, $0.001 par value 1,726,035
<PAGE>
STAR MULTI CARE SERVICES, INC.
INDEX
Page
Part I - Financial Information
Item 1
Consolidated Balance Sheets as of February 29, 2000 and May 31, 1999...... 3
Consolidated Statements of Operations for the three months and
nine months ended February 29, 2000 and February 28, 1999................. 4
Consolidated Statements of Cash Flows
for the nine months ended February 29, 2000 and February 28, 1999......... 5
Notes to Consolidated Financial Statements................................ 6-7
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................7-10
Part II - Other Information
Item 1. Legal Proceedings................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.............11-12
Item 6
Exhibits and Reports on Form 8-K ......................................... 12
Signatures................................................................ 13
2
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STAR MULTI CARE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
------------ ------------
ASSETS: Unaudited Audited
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 797,845 $ 1,734,421
Accounts receivable, less allowance for doubtful accounts of
$1,882,000 and $2,640,000 at February 29, 2000 and May 31,
1999, respectively 8,539,933 9,767,549
Prepaid expenses and other current assets 489,895 349,053
Deferred income taxes 1,362,332 1,399,000
------------ ------------
Total current assets 11,190,005 13,250,023
Property and equipment, net of accumulated depreciation and
amortization of $2,118,000 and $1,844,000 at February 29,
2000 and May 31, 1999 respectively 1,530,505 1,732,455
Notes receivable from officer 42,410 48,910
Intangible assets, net of accumulated amortization 10,874,944 11,252,311
Deferred income taxes 1,556,991 1,735,000
Other assets 194,928 152,849
------------ ------------
$ 25,389,783 $ 28,171,548
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Revolving credit line $ 5,005,305 --
Accrued payroll and related expenses 2,398,763 3,074,708
Accounts payable 607,593 841,962
Accrued expenses 426,062 671,153
Due to Medicare 2,593,324 2,593,324
------------ ------------
Total current liabilities 11,031,047 7,181,147
------------ ------------
Long-Term Liabilities:
Revolving credit line -- 6,225,484
Other long-term liabilities 944,202 1,375,932
------------ ------------
Total long-term liabilities 944,202 7,601,416
------------ ------------
Shareholders' equity:
Preferred stock, $1.00 par value per share, 5,000,000
shares authorized; 575 and 575 Series A 8% shares issued,
respectively 575 575
Common stock, $.001 par value per share, 5,000,000 shares
authorized; 1,800,366 and 1,798,288 shares issued,
respectively 1,801 1,798
Additional paid-in capital 21,473,755 21,466,882
Subscription receivable (397,782) (397,782)
Deficit (7,273,124) (7,403,566)
Treasury stock 79,100 and 45,833 common
shares at February 29, 2000 and May 31, 1999 respectively (390,691) (278,922)
------------ ------------
Total shareholders' equity 13,414,534 13,388,985
------------ ------------
$ 25,389,783 $ 28,171,548
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
February 29,2000 February 28, 1999 February 29,2000 February 28, 1999
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net revenues $ 9,463,568 $ 11,507,974 $ 29,742,062 $ 36,829,237
Operating costs and expenses:
Costs of revenue 6,468,844 7,988,970 20,384,498 25,476,743
Selling, general and administrative 2,514,393 3,177,528 7,504,618 8,948,518
Depreciation and amortization 172,326 287,301 655,368 811,898
Provision for doubtful accounts 91,471 157,469 394,169 542,392
Restructuring and termination expense -- 36,481 -- 177,616
------------ ------------ ------------ ------------
9,247,034 11,647,749 28,938,653 35,957,167
------------ ------------ ------------ ------------
Income (loss) from operations 216,534 (139,775) 803,409 872,070
Interest expense, net (184,144) (166,640) (479,813) (507,595)
------------ ------------ ------------ ------------
Income (loss) before income taxes 32,390 (306,415) 323,596 364,475
(Provision) benefit for income taxes (11,984) 202,331 (119,731) (112,988)
------------ ------------ ------------ ------------
Income (loss) from continuing operations 20,406 (104,084) 203,865 251,487
------------ ------------ ------------ ------------
Discontinued operations:
Loss from discontinued operations, net of
applicable income tax benefit -- (447,373) (38,923) (771,823)
------------ ------------ ------------ ------------
Net income (loss) 20,406 (551,457) 164,942 (520,336)
Dividend to preferred shareholders (11,500) -- (34,500) --
------------ ------------ ------------ ------------
Net income (loss) available to common shareholders $ 8,908 $ (551,457) $ 130,442 $ (520,336)
============ ============ ============ ============
Basic income (loss) per common share:
Continuing operations $ 0.01 $ (0.06) $ 0.10 $ 0.14
Discontinued operations -- (0.26) (0.02) (0.44)
------------ ------------ ------------ ------------
Net income (loss) $ 0.01 $ (0.32) $ 0.08 $ (0.30)
============ ============ ============ ============
Diluted income (loss) per common share:
Continuing operations $ 0.00 $ (0.06) $ 0.09 $ 0.14
Discontinued operations -- (0.26) (0.02) (0.44)
------------ ------------ ------------ ------------
Net income (loss) $ 0.00 $ (0.32) $ 0.07 $ (0.30)
============ ============ ============ ============
Weighted average number of common shares:
Basic 1,721,268 1,748,839 1,738,568 1,747,827
============ ============ ============ ============
Diluted 1,823,979 1,748,839 1,782,444 1,747,827
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
February 29, 2000 February 28, 1999
----------------- -----------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 164,942 $ (520,336)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Provision for doubtful accounts 394,169 542,392
Depreciation and amortization 655,368 808,346
Deferred income taxes 214,678 (540,568)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 828,854 (1,690,992)
Prepaid expenses and other current assets (140,842) (47,135)
Income taxes receivable -- 1,225,946
Other assets (42,079) (22,412)
Increase (decrease) in liabilities:
Regulatory costs and related expenses -- (575,000)
Accrued payroll and related expenses (675,945) (663,145)
Accounts payable and other accrued expenses (502,460) 203,660
Deferred revenue -- 1,576,037
----------- -----------
Total adjustments 731,743 817,129
----------- -----------
Net cash provided by operating activities 896,685 296,793
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (72,050) (222,793)
Repayment of note receivable from officer 6,500 9,350
Purchase of intangibles (4,033) (272,345)
----------- -----------
Net cash used in investing activities (69,583) (485,788)
----------- -----------
Cash flows from financing activities:
(Payments) proceeds from revolving credit
line (Daiwa) (1,220,179) 6,643,793
Repayment of revolving credit line (Chase) -- (6,207,852)
Repayment of long-term debt (431,730) (398,132)
Purchase of treasury stock (111,769) --
Proceeds from issuance of common stock -- 39,011
----------- -----------
Net cash (used in) provided by financing
activities (1,763,678) 76,820
----------- -----------
Net decrease in cash and cash equivalent (936,576) (112,175)
Cash and cash equivalents at beginning of period 1,734,421 1,867,286
----------- -----------
Cash and cash equivalents at end of period $ 797,845 $ 1,755,111
=========== ===========
Supplemental disclosures:
Income taxes paid $ -- $ 28,749
=========== ===========
Interest paid $ 578,727 $ 466,758
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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 February 29, 2000, results of its
operations for the three and nine month periods ended February 29, 2000 and
February 28, 1999 and cash flows for the nine month periods ended February 29,
2000 and February 28, 1999.
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-K for the fiscal year ended May 31, 1999, 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 and nine month periods ended
February 29, 2000 are not necessarily indicative of the results to be expected
for the full year.
Note 1: Net Income Per Common Share
Net income per common share and per common and common equivalent share is
based upon weighted average common and common equivalent shares outstanding
during each period. Common equivalent shares include the dilutive effect of
stock options if any.
Note 2: Credit Facility
On November 9, 1998, the Company entered into a $10 million revolving
credit facility (the "Credit Facility") with a new lender. The Credit Facility
permits the Company to borrow up to 80% of eligible accounts receivable (as
defined in the Credit Facility) that are aged less than 180 days (the "Basic
Borrowing Base") at LIBOR +3%, and the remaining eligible accounts receivable
(as defined in the Credit Facility) at LIBOR +6%. On April 23, 1999, the Credit
Facility was amended and provided for the lender to reduce the Basic Borrowing
Base percentage from 80% to 70%. The Credit Facility expires on November 9, 2000
and requires the Company to meet certain financial ratios and covenants,
including current ratio, minimum tangible net worth, debt service coverage and
interest coverage. All the assets of the Company collateralize the Credit
Facility.
On September 13, 1999, the lender amended the terms of the Credit
Facility. The amended Credit Facility provides for changes to certain financial
ratios and covenants, and increases the interest rate on the Basic Borrowing
Base from LIBOR +3% to LIBOR +4%, and on the remaining receivables from LIBOR
+6% to LIBOR +7%.
Note 3: Discontinued Operations
In February 1999 the Company formally adopted a plan to liquidate its
Medicare, both the indemnity and HMO, business being provided by one of its
subsidiaries, Star Multi Care Services of Florida, Inc. d/b/a American
Healthcare Services.
6
<PAGE>
The Company ceased operations effective July 1, 1999. The consolidated
statements of operations for the three and nine months periods ended February
29, 2000 and February 28, 1999, respectively, excludes revenue and expense for
its Medicare business on captions applicable to continuing operations. Losses
for the discontinued operations were $0 and $38,923, respectively for the three
and nine months ended February 29, 2000, and $447,373 and $771,823 respectively
for the three and nine months ended February 28, 1999.
On October 20, 1999, Star Multi Care Services of Florida, Inc. d/b/a
American Healthcare Services ("American Healthcare"), a wholly owned subsidiary
of Star Multi Care Services, Inc., filed in Florida Circuit Court, Broward
County, an Assignment for the Benefit of Creditors. Pursuant to this filing, all
assets of American Healthcare have been assigned to an assignee previously
selected by the Company. The assignee shall pay and discharge in full, to the
extent that funds are available from American Healthcare after payment of
administrative expenses, costs and disbursements, all debts and liabilities now
due from American Healthcare. Should funds from American Healthcare not be
sufficient to pay such debts and liabilities in full, the Assignee shall pay
such debts and liabilities on a pro rata basis and in proportion to their
priority as set forth in the applicable Florida Statute.
Note 4: Reverse Stock Split
The Board of Directors approved a 1 for 3 reverse split of the Company's
common stock effective December 13, 1999. The Board authorized an amendment to
the Certificate of Incorporation whereby the common stock of Company would be
split in a ratio of one for three and in addition, the total authorized number
of common stock shares was reduced from 10 million to 5 million. The par value
of the common remained unchanged at $.001 per share. The amendment to the
Certificate of Incorporation was ratified and approved by the shareholders of
the Company at the 1999 Annual Meeting of Shareholders held on December 1, 1999.
For all periods presented the per share amounts have been restated to reflect
the 1 for 3 reverse split.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis provides information, which the
Company's management believes, is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the 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, 1999.
The Company is subject to significant external factors, which could
significantly impact its business, including changes in Medicare reimbursement,
government fraud and abuse initiatives and other such factors, which are beyond
the control of the Company. These factors, as well as, future changes in
reimbursement and changes in interpretations of regulations, could cause future
results to differ materially from historical trends.
In 1997, Congress approved the Balanced Budget Act of 1997 (the "Budget
Act"). The Budget Act established an interim payment system (the "IPS") that
provided for the lowering of reimbursement limits for home health visit
services. For cost reporting periods beginning on or after October 1, 1997,
Medicare-reimbursed home health agencies were reimbursed the lesser of (i) their
actual costs, (ii) cost limits based on 105% of median costs of freestanding
home health agencies, or (iii) an agency-specific per-patient cost limit, based
on 98% of 1994 costs adjusted for inflation. The new IPS cost limits were
applied to the Company's Medicare operations in Florida for the cost reporting
period beginning January 1, 1998. The new methodology significantly reduced the
reimbursement for the Company's Medicare operations. Although the Company
designed and implemented a restructuring plan for its Medicare
7
<PAGE>
operations, based on a variety of factors including continued decline in
Medicare revenues, low operating margins, and the potential of a future 15%
reimbursement reduction in 2000, the Company elected to discontinue Medicare
operations in Florida on February 26, 1999.
This combined with the decrease in subcontract service revenues associated
with services provided to Medicare-certified agencies in New York and New
Jersey, resulted in a significant decrease in both direct and subcontract
Medicare reimbursed revenue. (See Management's Discussion and Analysis of
Financial Condition and Results of Operations - Discontinued Operations).
Results of Operations.
Quarter ended February 29, 2000 compared to quarter ended February 28,
1999.
Net revenues for the quarter ended February 29, 2000 decreased $2,044,406
or 17.8% to $9,463,568 from $11,507,974 for the quarter ended February 28, 1999.
The decrease in net revenue for the quarter ended February 29, 2000 from the
quarter ended February 28, 1999 is primarily attributable to a reduction in
authorization of service hours related to the New Jersey Medicaid Program, the
reduction of visit authorizations on Medicare subcontract services provided in
New York and New Jersey, resulting from general reductions in the Medicare
Program, and from the termination of under performing contracts in the Company's
Florida licensed operations.
Gross profit margin increased to 31.6% for the quarter ended February 29,
2000 from 30.6% for the quarter ended February 28, 1999. The increase in the
gross profit margin is primarily attributable to lower costs in payroll and
payroll related benefits.
Selling, general and administrative costs decreased $663,135 (20.9%) to
$2,514,393 for the quarter ended February 29, 2000, down from $3,177,528 for the
quarter ended February 28, 1999. Selling, general and administrative costs
decreased as a percentage of revenue from 27.6% for the same quarter last year
to 26.6% for the quarter ended February 29, 2000. The decrease in selling,
general, and administrative expenses is primarily attributable to the results of
the Company's restructuring efforts during the past year.
Income from operations increased to $216,534 for the quarter ended
February 29, 2000 from a loss of $139,775 for the quarter ended February 28,
1999, an increase of $356,309. The increase in income from operations for the
quarter ended February 29, 2000 from the quarter ended February 28, 1999, is
attributable to significant decreases in selling, general and administrative
expenses.
Net income for the quarter ended February 29, 2000 increased to $20,406
from a loss of $551,457 for the quarter ended February 28, 1999, an increase of
$571,863. The increase in net income for the quarter is attributable to the
restructuring efforts of the past year as well as an increase in the gross
profit margin, as compared to losses from discontinued operations that affected
the third quarter last year.
Nine months ended February 29, 2000 compared to nine months ended February
28, 1999.
Net revenues for the nine months ended February 29, 2000 decreased
$7,087,175 or 19.2% to $29,742,062 from $36,829,237 for the nine months ended
February 28, 1999. This decrease is primarily attributable to a reduction in
authorization of service hours related to the New Jersey Medicaid Program, the
reduction of visit authorizations on Medicare subcontract services provided in
New York and New Jersey, resulting from general reductions in the Medicare
Program and from the termination of underperforming contracts in the Company's
Florida licensed operations.
8
<PAGE>
Gross profit margin increased to 31.5% for the nine months ended February
29, 2000 from 30.8% for the nine months ended February 28, 1999. The increase in
the gross profit margin is primarily attributable to an elimination of low
profit margin contracts, change in wage and benefit programs for employees and
some small contract rate increases.
Selling, general and administrative costs decreased $1,443,900 (16.1%) to
$7,504,618 for the nine months ended February 29, 2000, down from $8,948,518 for
the nine months ended February 28, 1999. The decrease in selling, general and
administrative expenses is primarily attributable to the results of the
Company's restructuring efforts undertaken during the past year.
During this period, the Company consolidated branches and eliminated
various positions resulting from the integration of the Company's new computer
technology.
Net income for the nine months ended February 29, 2000 increased to
$164,942 from a loss of $520,336 for the nine months ended February 28, 1999, an
increase of $685,278.
Financial Condition, Liquidity and Capital Resources
As of February 29, 2000 cash and cash equivalents were $797,845 as
compared with $1,734,421 at May 31, 1999. The net decrease of $936,576 resulted
primarily from the repayment of long-term debt.
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 represents a substantial portion of
current and total assets at February 29, 2000 and May 31, 1999.
The Company currently has available a line of credit with a bank which
allows for borrowings of up to $10,000,000 (the "Credit Facility"). Pursuant to
the Credit Facility, the amount the Company may borrow is limited to 70% of
eligible accounts receivables that are aged less than 180 days at LIBOR +4% and
the remaining eligible receivables at LIBOR +7%. The Credit Facility provides
for the lender to receive a security interest in all of the assets of the
Company and its subsidiaries. As of February 29, 2000, the outstanding loan
balance is $5,005,305. The Credit Facility matures on November 9, 2000. The
Company is not in violation of any of the covenants of the Facility as of
February 29, 2000.
The Company intends to meet its long-term liquidity needs through
available cash, cash flow and the new Credit Facility. 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 funding will
be available to the Company on satisfactory terms. Additionally, there can be no
assurance that the Credit Facility can be extended beyond its expiration date
and/or can be replaced with another lender under favorable terms.
Other than the matters described above, the Company does not anticipate
any extraordinary material commitments for capital expenditures for the
Company's current fiscal year.
Reverse Split
The Board of Directors approved a 1 for 3 reverse split of the Company's
common stock effective December 13, 1999. The Board authorized an amendment to
the Certificate of Incorporation whereby the common stock of Company would be
split in a ratio of one for three and in addition, the total authorized
9
<PAGE>
number of common stock shares was reduced from 10 million to 5 million shares.
The par value of the common remained unchanged at $.001 per share. The amendment
to the Certificate of Incorporation was ratified and approved by the
shareholders of the Company at the 1999 Annual Meeting of Shareholders held on
December 1, 1999. For all periods presented the per share amounts have been
restated to reflect the 1 for 3 reverse split.
Pending Acquisition
On March 29, 2000, the Company announced that it had entered into a
definitive agreement to acquire the Pennsylvania operations of U.S. Home Care
located in Philadelphia, Lancaster and Pittsburgh. It is anticipated that these
operations will contribute approximately $4.5 million in additional revenue to
the Company and will be immediately accretive to the Company's profits. It is
expected that this transaction will be completed on or about May 1, 2000.
Year 2000 Compliance
All of the Company's computer systems operated following January 1, 2000
without any disruption as a result of the Year 2000. It in not anticipated that
there will be any future disruption due to Year 2000.
Forward Looking Statements
Certain statements in this report on Form 10-Q 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: (i) the attached consolidated financial statements and
notes thereto, (ii) with the Company's audited financial statements and notes
thereto for the fiscal year ended May 31, 1999, and (iii) with the section
entitled Forward Looking Statements appearing in the Company's Form 10-K which
is hereby incorporated by reference.
10
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In February 1998, Star 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,
Star'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.
Star was informed that the Medicare intermediary had assessed an
administrative overpayment against Star in the amount of $1,248,747 based on the
1997 Audit. We have appealed the administrative overpayment determination by
pursuing administrative and judicial remedies. Such appeal could result in
elimination or reduction of the overpayment amount. Star's Regulatory Counsel
has also advised that Star has claims against third parties (e.g.,
subcontractors and licensed home health agencies) for a portion of any liability
of Star in connection with such administrative overpayment. Star had established
a reserve, in the period ended February 28, 1998, for $1.25 million, in
connection with the administrative overpayment. In preparation of its
administrative appeal, Star's Regulatory Counsel has retained an expert to
review the government's statistical methods used in assessing the overpayment
against Star. The expert has advised Star's Regulatory Counsel that the
statistical sampling procedures used by the government indicate significant
errors and based upon these findings and in consultation with Regulatory
Counsel, the management of Star has reversed the reserve of $1.25 million as of
May 31, 1999.
On February 29, 2000, Star announced that based upon the Company's appeal,
the Administrative Law Judge has overturned the Medicare intermediary's
assessment of an overpayment of $1,248,747 to Star's Medicare agency, and that
it is not liable for any portion of this assessment. The reversal of this
overpayment assessment was for the fiscal 1993 period. The Departmental Appeals
Board can decide to review the Administrative Law Judge's decision on its own
motion within sixty days of February 23, 2000. Regulatory counsel has advised
the Company, however, that this would be highly unlikely. Although the Company
had previously fully reserved for this overpayment liability, in consultation
with Regulatory Counsel, the management of the Company had reversed the reserve
of $1.25 million as of May 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On December 1, 1999, at 3:00 PM, the Company held its Annual Meeting
of Shareholders at the Huntington Hilton Hotel.
(b) All of the members of the Board of Directors stood for reelection.
(c) The following items were voted upon at that Annual Shareholders
Meeting:
(1) The election of a board of six directors to serve until the
next annual meeting of shareholders and until their respective
successors are elected and qualified;
Vote
11
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For Withheld
--- --------
Stephen Sternbach 4,183,515 98,153
Gregory Turchan 4,184,087 97,581
Charles Berdan 4,184,100 97,568
John P. Innes II 4,180,122 101,546
Matthew Solof 4,182,122 99,546
Gary L. Weinberger 4,182,600 99,068
(2) The ratification and approval of the appointment of Holtz
Rubenstein & Co., LLP as the Company's independent certified
public accountants for the fiscal year ending May 31, 2000;
Vote
For Against Abstain
---- -------- -------
4,073,488 175,415 32,764
(3) The ratification and approval of the reverse stock split of
the Company's common stock in a ratio of 1 for 3 and
ratification and approval of an amendment to the Company's
Certificate of Incorporation to effectuate this stock split
and reduce the total authorized number of common stock
shares from 10,000,000 to 5,000,000 shares.
(4)
Vote
For Against Abstain Not Voted
---- -------- ------------ ---------
4,281,668 0 0 0
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits:
3.1 Amendment to the Certificate of Incorporation filed with the Secretary
of State of New York State on December 27, 1999 filed herein.
27. Financial Data Schedule
b. Reports on Form 8-K.
None
12
<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 hereunto duly authorized.
STAR MULTI CARE SERVICES, INC.
April 14, 2000 By: s/Stephen Sternbach
- -------------- -----------------------------------------
Date Chairman of the Board, President and
Chief Executive Officer
April 14, 2000 By: s/Virginia Wyan
- -------------- -----------------------------------------
Date Controller and Chief Accounting Officer
13
<PAGE>
Index of Exhibits
3.1 Amendment to the Certificate of Incorporation filed with the Secretary of
State of New York State on December 27, 1999 filed herein.
27. Financial Data Schedule
14
<PAGE>
Exhibit 3.1
CERTIFICATE OF
AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
STAR MULTI CARE SERVICES, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
* * * * *
The undersigned, being Senior Vice President, Secretary and Chief
Operating Officer of STAR MULTI CARE SERVICES, INC., a New York Corporation (the
"Corporation"), hereby certifies that:
(1) The name of the Corporation is Star Multi Care Services, Inc. The
name under which the Corporation was formed is Star Registry for Nurses, Inc.
(2) The date the Certificate of Incorporation was filed by the Department of
State was April 25, 1961.
(3) The amendment of the Certificate of Incorporation of the Corporation
affected by this Certificate of Amendment is as follows:
To decrease the aggregate number of shares the
Corporation shall have authority to issue by canceling and
retiring 5,000,000 shares of previously authorized and
unissued of the par value of $.001 per share Common Stock,
leaving an aggregate number of shares of which the Corporation
is authorized to issue being ten million (10,000,000) shares,
consisting of five million (5,000,000) shares of Common Stock
of the par value of $.001 per share and Five Million
(5,000,000) shares of Preferred Stock of the par value of
$1.00 per share; and
To consolidate the number of shares that were previously
issued and were outstanding pursuant to a "reverse split" of
the Common Stock shares of the Corporation in the ratio of one
(1) new share for every three (3) shares currently held by a
shareholder.
(4) To accomplish the foregoing amendment, the first paragraph of Paragraph
"FOURTH" of the Certificate of Incorporation is hereby amended and superceded in
its entirety and subparagraph (a)(5) is hereby added:
"FOURTH: The aggregate number of shares of which the
Corporation is authorized to issue is ten million (10,000,000)
shares, consisting of five million (5,000,000) shares of
Common Stock of the par value of $.001 per share and Five
Million (5,000,000) shares of Preferred Stock of the par value
of $1.00 per share.
(a) Common Stock
<PAGE>
5. All shares of Common Stock of the Corporation
shall be consolidated pursuant to a "reverse split" in the
ratio of one (1) new share for every three (3) shares
currently held by a stockholder and in the ratio of one (1)
new share for every 1.4481059 shares authorized and unissued.
No fractional shares or scrip shall be issued in connection
with the reverse split and all calculations that would result
in the issuance of a fractional share shall be rounded up to
the nearest whole share. Prior to the reverse split, there
were a total of ten million (10,000,000) Common Stock shares
of the par value of $.001 per share authorized of which
5,334,391 shares of Common Stock were issued and outstanding
and 4,665,609 shares unissued. Following the reverse split,
there were 1,778,130 shares of Common Stock of the par value
of $.001 per share issued and outstanding and 3,221,870 shares
unissued."
(5) The foregoing amendment of the Corporation's Certificate of Incorporation
was adopted by the Board of Directors of the Corporation (the "Board") at a
special meeting of the Board on December 1, 1999 and ratified and approved by a
majority of shareholders entitled to vote at the Corporation's Annual Meeting of
Shareholders held on December 1, 1999.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of the Certificate of Incorporation to be executed by a duly
authorized officer as of the 9th day of December 1999.
STAR MULTI CARE SERVICES, INC.
By: s/Gregory Turchan
-----------------------------------------
Gregory Turchan
Senior Vice President, Secretary
and Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> FEB-29-2000
<CASH> 797,845
<SECURITIES> 0
<RECEIVABLES> 10,421,933
<ALLOWANCES> 1,882,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,190,005
<PP&E> 3,648,479
<DEPRECIATION> 2,117,974
<TOTAL-ASSETS> 25,389,783
<CURRENT-LIABILITIES> 11,031,047
<BONDS> 0
0
575
<COMMON> 1,801
<OTHER-SE> 13,412,158
<TOTAL-LIABILITY-AND-EQUITY> 25,389,783
<SALES> 29,742,062
<TOTAL-REVENUES> 29,742,062
<CGS> 20,384,498
<TOTAL-COSTS> 20,384,498
<OTHER-EXPENSES> 655,368
<LOSS-PROVISION> 394,169
<INTEREST-EXPENSE> 479,813
<INCOME-PRETAX> 323,596
<INCOME-TAX> (119,731)
<INCOME-CONTINUING> 203,865
<DISCONTINUED> (38,923)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 130,442
<EPS-BASIC> .08
<EPS-DILUTED> .07
</TABLE>
