<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 November 30, 1999
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: (516) 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 January 4, 2000:
Class Number of Shares
----- ----------------
Common Stock, $0.001 par value 1,707,780
<PAGE>
STAR MULTI CARE SERVICES, INC.
INDEX
Page
Part I - Financial Information
Item 1
Consolidated Balance Sheets as of November 30, 1999 and May 31, 1999...... 3
Consolidated Statements of Operations for the three months and six
months ended November 30, 1999 and 1998................................ 4
Consolidated Statements of Cash Flows
for the six months ended November 30, 1999 and 1998.................... 5
Notes to Consolidated Financial Statements ............................... 6-7
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................... 7-9
Part II - Other Information
Item 6
Exhibits and Reports on Form 8-K ......................................... 10
Signatures................................................................ 10
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
------------- ------------
Unaudited Audited
<S> <C> <C>
ASSETS:
- -------
Current Assets:
Cash and cash equivalents $ 1,086,070 $ 1,734,421
Accounts receivable, less allowance for doubtful accounts
of $2,460,000 and $2,640,000 at November 30, 1999 and
May 31, 1999, respectively 8,946,799 9,767,549
Prepaid expenses and other current assets 328,660 349,053
Deferred income taxes 1,362,351 1,399,000
------------ ------------
Total current assets 11,723,880 13,250,023
Property and equipment, net of accumulated depreciation
and amortization of $1,690,000 and $1,844,000 at
November 30, 1999 and May 31, 1999, respectively 1,594,910 1,732,455
Notes receivable from officer 44,160 48,910
Intangible assets, net of accumulated amortization 10,971,161 11,252,311
Deferred income taxes 1,735,000 1,735,000
Other assets 158,013 152,849
------------ ------------
$ 26,227,124 $ 28,171,548
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accrued payroll and related expenses $ 2,548,524 $ 3,074,708
Accounts payable 801,836 841,962
Accrued expenses 263,143 671,153
Due to Medicare 2,593,324 2,593,324
------------ ------------
Total current liabilities 6,206,827 7,181,147
------------ ------------
Long-Term Liabilities:
Revolving credit line 5,517,673 6,225,484
Other long-term liabilities 1,092,371 1,375,932
------------ ------------
Total long-term liabilities 6,610,044 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 21,466,879 21,466,882
Subscription receivable (397,782) (397,782)
Deficit (7,270,529) (7,403,566)
Treasury stock 79,100 and 45,833 common shares at
November 30, 1999 and May 31, 1999, respectively (390,691) (278,922)
------------ ------------
Total shareholder's equity 13,410,253 13,388,985
------------ ------------
$ 26,227,124 $ 28,171,548
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
---------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C>
Net revenues $ 9,865,995 $ 12,039,648 $ 20,278,494 $ 24,999,233
Operating costs and expenses:
Costs of revenue 6,770,353 8,351,188 13,915,654 17,402,740
Selling, general and administrative 2,363,102 3,306,920 4,934,860 6,299,732
Depreciation and amortization 233,187 341,612 483,042 524,597
Provision for doubtful accounts 148,096 127,457 302,698 384,923
Restructuring and termination expense -- 141,135 -- 141,135
------------ ------------ ------------- -------------
9,514,738 12,268,312 19,636,254 24,753,127
------------ ------------ ------------- -------------
Income (loss) from operations 351,257 (228,664) 642,240 246,106
Interest expense, net (189,853) (200,004) (351,034) (340,955)
------------ ------------ ------------- -------------
Income (loss) before (provision) benefit for
income taxes 161,404 (428,668) 291,206 (94,849)
(Provision) benefit for income taxes (59,719) 201,473 (107,746) 44,579
------------ ------------ ------------- -------------
Income (loss) from continuing operations 101,685 (227,195) 183,460 (50,270)
------------ ------------ ------------- -------------
Discontinued operations:
Income (loss) from discontinued operations,
net of tax (48,349) 125,859 (38,923) 81,393
------------ ------------ ------------- -------------
Net income (loss) $ 53,336 $ (101,336) $ 144,537 $ 31,123
============ ============ ============= =============
Basic income (loss) per common share:
Continuing operations $ 0.06 $(0.13) $ .10 $(0.03)
Discontinued operations (0.03) 0.07 (.02) 0.05
------ ------ ----- ------
Net income (loss) $ 0.03 $(0.06) $ .08 $ 0.02
====== ====== ===== ======
Diluted income (loss) per common share:
Continuing operations $ 0.06 $(0.13) $ .10 $(0.03)
Discontinued operations (0.03) 0.07 (.02) 0.05
------ ------ ----- ------
Net income (loss) $ 0.03 $(0.06) $ .08 $ 0.02
====== ====== ===== ======
Weighted average number of common shares:
Basic 1,741,188 1,748,839 1,747,170 1,747,330
========= ========= ========= =========
Diluted 1,741,188 1,748,839 1,747,170 1,747,997
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended November 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 144,537 $ 31,122
----------- -----------
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Provision for doubtful accounts 302,698 384,923
Depreciation and amortization 483,042 555,104
Deferred income taxes 36,649 (236,160)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 518,052 (1,505,351)
Prepaid expenses and other current assets 20,393 (31,529)
Income taxes receivable -- 1,225,946
Other assets (5,164) (12,458)
Increase (decrease) in liabilities:
Accrued payroll and related expenses (526,184) (787,150)
Accounts payable and other accrued expenses (743,197) 8,055
Due to Medicare -- (515,939)
Other liabilities -- (207,554)
----------- -----------
Total adjustments 86,289 (90,235)
----------- -----------
Net cash (used in) provided by operating activities 230,826 (59,113)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (64,347) (221,194)
Repayment of note receivable from officer 4,750 5,850
Purchase of intangibles (272,345)
----------- -----------
Net cash used in investing activities (59,597) (487,689)
----------- -----------
Cash flows from financing activities:
Revolving credit line (Daiwa) (707,811) 868,334
Repayment of long-term debt -- (62,500)
Purchase of treasury stock (111,769) --
Proceeds from issuance of common stock -- 39,011
----------- -----------
Net cash (used in) provided by financing activities (819,580) 844,845
----------- -----------
Net increase (decrease) in cash and cash equivalents (648,351) 298,043
Cash and cash equivalents at beginning of period 1,734,421 1,867,286
----------- -----------
Cash and cash equivalents at end of period $ 1,086,070 $ 2,165,329
=========== ===========
Supplemental disclosures:
Income taxes paid $ 10,000 $ 28,749
=========== ===========
Interest paid $ 283,648 $ 288,228
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
STAR MULTI CARE SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the accompanying unaudited interim
consolidated financial statements of Star Multi Care Services, Inc. and its
subsidiaries (the "Company") contain all adjustments necessary to present fairly
the Company's financial position as of November 30, 1999, results of its
operations for the three and six months periods ended November 30, 1999 and 1998
and cash flows for the six month period ended November 30, 1999 and 1998.
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 six months periods ended
November 30, 1999 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: Reclassifications and Use of Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Such amounts include, among others, the allowance for doubtful accounts,
workers' compensation and medical benefit reserves for its Self Funded Plans,
other asset valuation allowances and certain liabilities. Management
periodically re-evaluates the estimates inherent in certain financial statement
amounts and may adjust accordingly.
Note 3: 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 4: 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. The Company ceased operations effective July 1, 1999. The
consolidated statements of operations for the three and six months periods ended
November 30, 1999 and 1998, respectively, excludes revenue and expense for its
Medicare business on captions applicable to
<PAGE>
continuing operations. Revenue for the discontinued operations were $0 and
$40,953, respectively for the three and six months ended November 30, 1999, and
$723,087 and $1,856,895, respectively for the three and six months ended
November 30, 1998.
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 5: 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 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).
<PAGE>
Results of Operations.
Quarter ended November 30, 1999 compared to quarter ended November 30,
1998.
Net revenues for the quarter ended November 30, 1999 decreased
$2,173,653 or 18% to $9,865,995 from $12,039,648 for the quarter ended November
30, 1998. The decrease in net revenue for the quarter ended November 30, 1999
from the quarter ended November 30, 1998 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.
Gross profit margin increased to 31.4% for the quarter ended November
30, 1999 from 30.6% for the quarter ended November 30, 1998. 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 small
contract rate increases.
Selling, general and administrative costs decreased $943,818 (28.5%) to
$2,363,102 for the quarter ended November 30, 1999, down from $3,306,920 for the
quarter ended November 30, 1998. 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 $351,257 for the quarter ended
November 30, 1999 from a loss of $(228,664) for the quarter ended November 30,
1998, an increase of $579,921. The increase in income from operations for the
quarter ended November 30, 1999 from the quarter ended November 30, 1998, is
attributable to significant decreases in selling, general and administrative
expenses.
Net income for the quarter ended November 30, 1999 increased to $53,336
from a loss of $(101,336) for the quarter ended November 30, 1998, an increase
of $154,672. 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, offset by losses from discontinued operations.
Six months ended November 30, 1999 compared to six months ended
November 30, 1998.
Net revenues for the six months ended November 30, 1999 decreased
$4,720,739 or 18.9% to $20,278,494 from $24,999,233 for the six months ended
November 30, 1998. 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.
Gross profit margin increased to 31.4% for the six months ended
November 30, 1999 from 30.4% for the six months ended November 30, 1998. 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 $1,364,872 (21.7%)
to $4,934,860 for the six months ended November 30, 1999, down from $6,299,732
for the six months ended November 30, 1998. Selling, general and administrative
costs decreased as a percentage of revenue from 25.2% for the same period last
year to 24.3% for the six months ended November 30, 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.
<PAGE>
Financial Condition, Liquidity and Capital Resources
As of November 30, 1999 cash and cash equivalents were $1,086,070 as
compared with $1,431,617 at May 31, 1999. The net decrease of $345,547 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 November 30, 1999 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 November 30, 1999, the outstanding loan
balance is $5,517,673. The Credit Facility matures on November 9, 2000. The
Company is not in violation of any of the covenants of the Facility as of
November 30, 1999.
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.
Subsequent Events
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.
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
<PAGE>
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.
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
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. The Company anticipates
that following completion of the Assignee's role of discharging American
Healthcare's debts, American Healthcare will be dissolved pursuant to Florida
law. Upon dissolution, the balance sheet of American Healthcare will no longer
be consolidated into the financial statements of the Company and should have a
favorable effect upon the consolidated balance sheet of the Company.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits:
10.1 WAIVER AND AMENDMENT dated as of September 13, 1999 to the
Receivables Purchase and Transfer Agreement, dated November 9, 1998, by
and among Star Multi Care Services, Inc., each of the parties named on
Schedule I thereto (each, including he Primary Servicer, a "Provider"
and, collectively, the "Providers") and SMCS Care, LLC, and to the Loan
and Security Agreement, dated as of November 9, 1998 between the SMCS
Care, LLC and Daiwa Healthco-3 LLC
27. Financial Data Schedule
2. Reports on Form 8-K.
None
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.
January 14 , 2000 By: s/Stephen Sternbach
- ----------------- ------------------------
Date Chairman of the Board, President and
Chief Executive Officer
<PAGE>
Index of Exhibits
10.1 WAIVER AND AMENDMENT dated as of September 13, 1999 to the
Receivables Purchase and Transfer Agreement, dated November 9, 1998, by
and among Star Multi Care Services, Inc., each of the parties named on
Schedule I thereto (each, including he Primary Servicer, a "Provider"
and, collectively, the "Providers") and SMCS Care, LLC, and to the Loan
and Security Agreement, dated as of November 9, 1998 between the SMCS
Care, LLC and Daiwa Healthco-3 LLC
27. Financial Data Schedule
<PAGE>
Exhibit 10.1
WAIVER AND AMENDMENT TO RECEIVABLES PURCHASE AND TRANSFER AGREEMENT AND
LOAN AND SECURITY AGREEMENT
WAIVER AND AMENDMENT dated as of September 13, 1999 (the
"Amendment"), to the Receivables Purchase and Transfer Agreement, dated November
9, 1998, (as amended, modified or supplemented from time to time in accordance
with its terms, the a"RPTA"), by and among Star Multi Care Services, Inc., a New
York corporation (the "Primary Servicer"), each of the parties named on Schedule
I thereto (each, including he Primary Servicer, a "Provider" and, collectively,
the "Providers") and SMCS Care, LLC, a New York limited liability company (the
"Purchaser"), and to the Loan and Security Agreement, dated as of November 9,
1998 (as amended, modified or supplemented from time to time in accordance with
its terms, the "LSA") between the Purchaser as borrower (the "Borrower"), and
Daiwa Healthco-3 LLC (the "Lender"),
WHEREAS, the parties hereto have agreed to amend certain
provisions of the LSA and RPTA,
WHEREAS, the parties hereto have agreed to waive certain
provisions of the LSA and RPTA,
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise specifically defined
herein, all capitalized terms used herein shall have the respective meanings
ascribed to such terms in the RPTA and the LSA.
2. Amendment to RPTA. Subject to the conditions as to
effectiveness set forth in Paragraph 6 of this Amendment, the RPTA is hereby
amended as follows:
(A) For the fiscal quarter ended August 31, 1999 and
thereafter, in Exhibit I of the RPTA, the definition of "Tangible Net Worth"
means, with respect to any Person at any time, the sum of (i) such Person's
capital stock, capital in excess of par or stated value of shares of its capital
stock, retained earnings and any other account which, in accordance with GAAP,
constitutes stockholders' equity, less (ii) treasury stock, minus (iii) the book
value of all assets classified as intangible under GAAP, including, without
limitation, goodwill, deferred taxes, deferred financing costs, trademarks,
trade names, patents, copyrights and licenses, plus $2,650,000.
(B) In Exhibit V of the RPTA, the following sections
shall be amended to read:
(x) Consolidated Tangible Net Worth. The
Providers permit the Consolidated Tangible Net Worth, calculated at the end of
each fiscal quarter of the Providers, to be: (i) less than $2,500,000 for each
of the quarters through May 31, 1999, (ii) less than $1,810,000 for the quarter
ended August 31, 1999, (iii) less than $1,977,000 for the quarter ended November
30, 1999, (iv) less than $2,129,000 for the quarter ended February 29, 2000, (v)
less than $2,321,000 for the quarter ended May 31, 2000, and (vi) less than
$2,511,000 for the quarter ended August 31, 2000.
(y) Consolidated Interest Coverage Ratio.
The Providers permit the Consolidated Interest Coverage Ratio, calculated as of
the end of each fiscal quarter of the Providers for the period of August 30,
1998 to November 30, 1998, the period of August 30, 1998 to February 28, 1999,
the period of August 30, 1998 to May 31, 1999 to be less than 2.50:1.00, and for
each fiscal quarter thereafter, to be less than 1.80:1.00.
(aa) Consolidated Debt Service Coverage
Ratio. The Providers permit the Consolidated Debt Service Coverage Ratio,
calculated as of the end of each fiscal quarter of the Providers, for the period
of August 30, 1998 to November 30, 1998, the period of August 30, 1998 to
February 28, 1999, the period of August 30, 1998 to May 31, 1999 to be less than
1.75:1.00 and for each fiscal quarter thereafter, to be less than 1.50:1.00
(dd) EBITDA. The Providers permit
EBITDA, calculated as of the fiscal quarter ended August 31, 1999 be less than
$475,000, for the fiscal quarter ended November 30, 1999 to be less than
$480,000, for the fiscal quarter ended February 29, 2000 to be less than
$460,000, and for each fiscal quarter ending May 31, 2000 and ending August 31,
2000 to be less than $515,000.
<PAGE>
(ee) Financial Statements. The financial
statements as attached hereto as Attachment I, shall be substantially identical
to those financial statements in the Primary Servicer's Form 10-K filed with the
Securities and Exchange Commission for the fiscal year ended May 31, 1999.
3. Amendment LSA. Effective on the date hereof, the LSA is
hereby amended as follows:
(A) Section 1.05 is hereby amended to read:
Section. 1.05 Interest and Non-Utilization Fee.
(a) Interest. The Borrower shall pay interest on the Revolving Loan on (i) each
Interest Payment Date and (ii) the Maturity Date (whether by acceleration or
otherwise), in each case, at an interest rate per annum equal to (x) with
respect to that portion of the Revolving Loan equal to the Basic Borrowing
Amount, the LIBO Rate in effect for applicable Interest Period plus 4% and (y)
with respect to that portion of the Revolving Loan that exceeds the Basic
Borrowing Amount (each such portion, an "Overadvance"and the aggregate principal
balance of all such Overadvances from time to time, the "Overadvance Loan"), the
LIBO Rate in effect for the applicable Interest Period plus 7%; provided,
however, that if the Borrower fails to comply with the provisions of clause (r)
of Exhibit IV, each of the foregoing interest rates shall increase by 2%. Once
any portion of the Revolving Loan exceeds the Basic Borrowing Amount and becomes
an Overadvance, such portion shall for all purposes hereof be considered an
Overadvance notwithstanding any event which would result in the outstanding
principal amount of the Revolving Loan to be less than the Basic Borrowing
Amount.
(b) Default Interest.
Notwithstanding anything to
the contrary contained
herein, while any Event of
Default is continuing,
interest on the Revolving
Loan shall be payable on
demand at a rate per annum
equal to four percentage
points (4.00%) in excess of
the rate then otherwise
applicable to the Revolving
Loan.
(c) Non-Utilization Fee. The
Borrower shall pay to the
Lender on the first Funding
Date of each month a fee
equal to 0.375% per annum
on the average amount,
calculated on a daily
basis, by which the
Revolving Commitment
exceeded the Revolving Loan
during the prior Month.
4. Waivers under LSA.
(A) The Lender hereby waives any existing Default or
Event of Default that arose solely as a result of a breach under clause (d) of
Exhibit V of the LSA referring to an Event of Termination under the RPTA
specified in Paragraph 5 of this Amendment.
(B) The Lender hereby waives its rights under the
provisions of Section 3.02(a) and (b) of the LSA solely for the Borrower's
failure to comply with the provisions of clause (d) of Exhibit V of the LSA for
the periods specified in Paragraph 5 of this Amendment.
(C) Except for the specific waivers set above, nothing
herein shall be deemed to be a waiver of any covenant or agreement contained in
the LSA.
5. Waivers under RPTA.
(A) The Purchaser hereby waives any existing Event of
Termination that arose solely as a result of the Providers' failure to comply
with the provisions of: clause (x), (y), (aa) and (bb) of Exhibit V of the RPTA
with respect to the fiscal quarter ended May 31, 1999.
(B) The Purchaser hereby waives its rights under the
provisions of Section 3.02(a) and (b) of the RPTA solely for the Providers'
failure to comply with the provisions of clauses (x), (y), (aa) and (bb) of
Exhibit V of the RPTA for the period specified in Paragraph 5(A) above.
(C) Except for the specific waivers set forth above,
nothing herein shall be deemed to be a waiver of any covenant or agreement
contained in the RPTA.
6. Conditions Precedent. Notwithstanding any term or provision
of this Amendment to the contrary, Paragraphs 2, 3, 4 and 5 hereof shall not
become effective until the Lender and the Purchaser shall have received
counterparts of this Amendment, duly executed and delivered on behalf of the
Primary Servicer, the Providers, the Purchaser, the Borrower and the Lender.
<PAGE>
7. Continued Effectiveness. Nothing herein shall be deemed a
waiver of any covenant (except as contained in Paragraphs 4 and 5 herein), or
agreement contained in, or any Default or Event of Default under the LSA, or any
Event of Termination under the RPTA and each of the parties hereto agrees that,
as amended by this Agreement, all of the covenants and agreements and other
provisions contained in the RPTA, LSA and the other Documents shall remain in
full force and effect from and after the date of this Amendment.
8. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute a single instrument. Delivery of an executed
counterpart of a signature page to this Amendment by facsimile shall be
effective as delivery of a manually executed counterpart of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
BORROWER AND PURCHASER: SMCS CARE, LLC
By:
------------------------------------------
Name:
Title:
LENDER: DAIWA HEALTHCO-3 LLC
By:
------------------------------------------
Name:
Title:
PROVIDERS: STAR MULTI CARE SERVICES, INC.
By:
------------------------------------------
Name:
Title:
STAR MULTI CARE SERVICES OF FLORIDA, INC.
By:
------------------------------------------
Name:
Title:
AMSERV HEALTHCARE OF OHIO, INC.
By:
------------------------------------------
Name:
Title:
AMSERV HEALTHCARE OF NEW JERSEY, INC.
By:
------------------------------------------
Name:
Title:
EFCC ACQUISITION CORP.
By:
------------------------------------------
Name:
Title:
<PAGE>
ATTACHMENT I
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
</TABLE>
<TABLE>
<CAPTION>
May 31,
------------------------------------
ASSETS (Note 7) 1999 1998
------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,734,421 $ 1,867,286
Accounts receivable, net of allowance for doubtful
accounts of $2,640,000 and $1,872,000 at May 31,
1999 and 1998, respectively (Notes 7 and 14) 9,767,549 10,108,879
Prepaid expenses and other current assets (Note 3) 349,053 382,899
Income taxes receivable - 1,225,946
Deferred income taxes (Note 8) 1,399,000 1,537,000
-------------- --------------
Total current assets 13,250,023 15,122,010
PROPERTY AND EQUIPMENT, net (Note 4) 1,732,455 1,999,924
NOTES RECEIVABLE FROM OFFICER (Note 12) 48,910 86,260
INTANGIBLE ASSETS, net (Note 5) 11,252,311 11,857,698
DEFERRED INCOME TAXES (Note 8) 1,735,000 619,000
OTHER ASSETS 152,849 185,715
-------------- --------------
$ 28,171,548 $ 29,870,607
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit line (Note 7) $ 6,225,484 $ 6,207,852
Accrued payroll and related expenses 3,074,708 3,214,207
Accounts payable 841,962 1,018,322
Accrued expenses (Note 6) 671,153 2,789,142
Due to Medicare (Note 9) 2,593,324 1,017,287
Current maturities of long-term debt - 125,000
-------------- --------------
Total current liabilities 13,406,631 14,371,810
-------------- --------------
LONG-TERM LIABILITIES:
Other long-term liabilities (Notes 6 and 15) 1,375,932 1,065,770
-------------- --------------
COMMITMENTS AND CONTINGENCY (Notes 15 and 16)
SHAREHOLDERS' EQUITY: (Notes 2, 10, 11, 12 and 15)
Convertible preferred stock - aggregate liquidation value
$575,000; $1.00 par value, 5,000,000 shares authorized;
575 and 0 shares issued, respectively 575 -
Common stock, $.001 par value, 10,000,000 shares authorized;
5,394,863 and 5,362,780 shares issued, respectively 5,395 5,363
Additional paid-in capital 21,463,285 20,951,899
Subscription receivable (397,782) (397,782)
Deficit (7,403,566) (5,847,531)
Treasury stock, 137,500 common shares
at May 31, 1999 and 1998 (278,922) (278,922)
-------------- --------------
Total shareholders' equity 13,388,985 14,433,027
-------------- --------------
$ 28,171,548 $ 29,870,607
============== ==============
</TABLE>
18
<PAGE>
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
May 31,
--------------------------------------------------------
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
REVENUES, net (Note 14) $ 47,108,677 $ 49,335,530 $ 41,857,126
--------------- --------------- --------------
OPERATING EXPENSES (Notes 12, 15 and 17)
Costs of revenues 32,718,139 34,341,973 28,245,533
Selling, general and administrative 12,610,794 13,494,731 9,346,385
Depreciation and amortization 1,106,952 910,659 624,248
Provision for doubtful accounts 1,580,224 1,561,874 479,640
Regulatory costs and related expenses (Note 6) - 2,030,511 -
Impairment of intangible assets 186,946 - -
Restructuring and termination expenses 222,615 362,718 -
--------------- --------------- --------------
48,425,670 52,702,466 38,695,806
--------------- --------------- --------------
OPERATING (LOSS) INCOME (1,316,993) (3,366,936) 3,161,320
INTEREST EXPENSE, net (652,714) (438,140) (140,477)
MERGER TRANSACTION COSTS - - (2,808,224)
--------------- --------------- --------------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (1,969,707) (3,805,076) 212,619
(BENEFIT) PROVISION FOR
INCOME TAXES (Note 8) (647,000) (1,183,000) 87,000
--------------- --------------- --------------
(LOSS) INCOME FROM CONTINUING
OPERATIONS (1,322,707) (2,622,076) 125,619
--------------- --------------- --------------
DISCONTINUED OPERATIONS: (Note 18)
Loss from discontinued operations, net of
tax benefit of $65,000, $690,000 and $0
for 1999, 1998 and 1997, respectively (145,008) (1,537,160) -
Loss on disposal, net of tax benefit
of $40,000 for 1999 (88,320) - -
--------------- --------------- --------------
LOSS FROM DISCONTINUED OPERATIONS (233,328) (1,537,160) -
--------------- --------------- --------------
NET (LOSS) INCOME $ (1,556,035) $ (4,159,236) $ 125,619
=============== =============== ==============
BASIC (LOSS) INCOME PER COMMON SHARE:
Continuing operations $ (.25) $ (.53) $ .03
Discontinued operations (.03) (.31) -
Loss on disposal (.02) - -
------ ------- -----
Net (loss) income $ (.30) $ (.84) $ .03
====== ====== =====
DILUTED (LOSS) INCOME PER COMMON SHARE:
Continuing operations $ (.25) $ (.53) $ .03
Discontinued operations (.03) (.31) -
Loss on disposal (.02) - -
------ ------- -----
Net (loss) income $ (.30) $ (.84) $ .03
====== ====== =====
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 5,246,684 4,972,207 3,969,910
========= ========= =========
Diluted 5,246,684 4,972,207 4,206,861
========= ========= =========
</TABLE>
<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>
<CAPTION>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAY-31-2000 MAY-31-2000
<PERIOD-START> JUN-01-1999 JUN-01-1999
<PERIOD-END> AUG-31-1999 NOV-30-1999
<CASH> 1,086,070 1,086,070
<SECURITIES> 0 0
<RECEIVABLES> 11,406,799 11,406,799
<ALLOWANCES> 2,460,000 2,460,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,723,880 11,723,880
<PP&E> 3,284,910 3,284,910
<DEPRECIATION> 1,690,000 1,690,000
<TOTAL-ASSETS> 26,227,124 26,227,124
<CURRENT-LIABILITIES> 11,724,500 11,724,500
<BONDS> 0 0
0 0
575 575
<COMMON> 1,801 1,798
<OTHER-SE> 13,407,877 13,407,877
<TOTAL-LIABILITY-AND-EQUITY> 26,227,124 26,227,124
<SALES> 9,865,995 20,278,494
<TOTAL-REVENUES> 9,865,995 20,278,494
<CGS> 6,770,353 13,915,654
<TOTAL-COSTS> 6,770,353 6,770,353
<OTHER-EXPENSES> 233,187 483,042
<LOSS-PROVISION> 148,096 302,698
<INTEREST-EXPENSE> 189,953 351,034
<INCOME-PRETAX> 161,404 291,206
<INCOME-TAX> 59,719 107,746
<INCOME-CONTINUING> 101,685 183,460
<DISCONTINUED> 48,349 38,923
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 53,336 144,537
<EPS-BASIC> .03 .08
<EPS-DILUTED> .03 .08
</TABLE>
