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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 15, 1999
NORTHSTAR HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 0-21752 25-1697152
(State or other jurisdiction of Incorporation) (Commission File No.) (IRS Employer Identification No.)
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665 PHILADELPHIA STREET, INDIANA, PENNSYLVANIA 15701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (724) 349-7500
Not Applicable
(Former name or former address, if changed from last report)
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ITEM 5. OTHER EVENTS
Hiring of Chief Financial Officer
On November 1, 1999, the Company hired James R. Martin as its new
Executive Vice President, Chief Financial Officer, Treasurer, and Principal
Accounting Officer. Mr. Martin entered into an employment agreement with the
Company for a term of three (3) years. Mr. Martin will perform the duties
customarily attributed to the office of the chief financial officer under the
direction of the Chief Executive Officer of the Company. James R. Martin has
been appointed to the Board of Directors to fill a vacancy on the Board until
elections are held at the next annual meeting of shareholders.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of businesses being acquired: None.
(b) Pro Forma financial information: None.
(c) Exhibits:
10. Letter of Employment October 18, 1999 between James
R. Martin Northstar Health Services, Inc.
99. Press Release, dated November 12, 1999, issued by the
Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Northstar Health Services, Inc.
/s/ Thomas W. Zaucha
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Name: Thomas W. Zaucha
Title: Chairman, CEO, President and Director
(Principal Executive Officer)
/s/ James R. Martin
- ---------------------------------------------------
Name: James R. Martin
Title: Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Accounting and Financial Officer)
November 15, 1999
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Exhibit 10
LETTER OF EMPLOYMENT
This Letter of Employment effective November 1, 1999, by and between Northstar
Health Services, Inc. (NSHS), 665 Philadelphia Street, Indiana, Pennsylvania
15701, and James R. Martin, CPA, 309 Tulip Drive, Indiana, Pennsylvania 15701
(JRM) is inclusive of the following terms and conditions:
OFFICE AND SCOPE OF DUTIES
JRM will be employed as the Executive Vice President and Chief Financial Officer
of NSHS and shall report directly to the Chief Executive Officer, unless
otherwise agreed to by JRM. JRM will perform the duties customarily attributed
to the Office of Chief Financial Officer under the direction of the CEO and the
guidelines of the Bylaws of the company. JRM will have full authority to make
decisions related to the operations of the Finance Department. The Finance
Department will include, at a minimum, the following departments: General
Accounting, Accounts Payable, Accounts Receivable/Billing, Payroll, Human
Resources, Shareholder Relations, and MIS. JRM is recognized as a member of
Executive Management, and as such, has authority that supersedes that of
subsidiary management personnel. Further, it is the intention of Executive
Management for JRM to be elected by the Board of Directors to the position of
Treasurer of the Board and appointed as a Board member until elections are held
at the next annual meeting of the shareholders.
TERM
This agreement will be for three (3) years. The term will automatically be
extended for an additional one (1) year period unless terminated by written
notice by NSHS at least 90 days prior to the termination date. However, upon the
occurrence of a Change of Control, the term of this agreement shall change to
include the following option of JRM. A Change of Control is defined as any of
the following: acquisition by third parties; merger; consolidation; sale of more
than 50% of assets; liquidation or dissolution of the company; or any person or
group becoming the beneficial owner of more than 30% of the stock of NSHS, other
than Thomas W. Zaucha, Thomas W. and Alice L. Zaucha, The Zaucha Family Limited
Partnership, individually or collectively. In the event of a Change of Control,
JRM will have the option of remaining with the company or any surviving company
for the term of this agreement or being paid twelve (12) months of pay as
severance, following ninety (90) days of employment with the surviving company
and written notice of JRM's intent to resign. This agreement may also be amended
at any time subject to mutual agreement of JRM and NSHS.
SALARY AND BENEFITS
JRM will be paid at the rate of One Hundred Twenty Five Thousand Dollars
($125,000) per year. This rate of pay may not be reduced without JRM's approval.
Increases may be granted at NSHS's discretion. JRM will be entitled to all
benefits customary to full time exempt management employees, with the following
exceptions: JRM will receive four (4) weeks vacation per year and a mutually
agreeable company car or car allowance. JRM will be required to maintain his
professional CPA status by completing continuing professional education (CPE)
courses as required by the AICPA and PICPA. JRM will direct such CPE toward SEC,
tax and related courses that pertain to NSHS areas of activity. CPE related
costs will be reimbursed by the company. Upon signing of this agreement, NSHS
will grant JRM 100,000 options of NSHS stock at an exercise price of the closing
stock price on November 1, 1999, pursuant to the 1997 Stock Option Plan. The
options will vest in accordance with the following: 25,000 at the time of
signing of this Letter of Employment; 25,000 on the first anniversary date of
the signing of this Letter of Employment; 25,000 on the second anniversary date
of the signing of this Letter of Employment; and 25,000 on completion of the
refinancing of Cerberus Capital Management, LLC Credit Agreement with another
lending institution.
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Agreed to this 18th day of October , 1999, by:
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/s/ James R. Martin, C.P.A. /s/ Thomas W. Zaucha
- --------------------------- -------------------------------
JAMES R. MARTIN, CPA THOMAS W. ZAUCHA
NORTHSTAR HEALTH SERVICES, INC.
/s/ Denise A. Shildt /s/ Denise A. Shildt
- --------------------------- -------------------------------
Witness Witness
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Exhibit 99
Contact: Thomas W Zaucha, Chairman and CEO James R Martin, CFO and Treasurer
Northstar Health Services, Inc. OR Northstar Health Services, Inc.
(724) 465-3200 (724) 465-3215
For Immediate Release
NORTHSTAR HEALTH ANNOUNCES OPERATING RESULTS FOR THIRD QUARTER
AND EXECUTIVE APPOINTMENT
INDIANA, PA - NOVEMBER 12, 1999 - Northstar Health Services, Inc. (OTCBB:NSTR),
today announced results for the three and nine months ended September 30, 1999
and the appointment of James R. Martin as Executive Vice President, Treasurer
and Chief Financial Officer.
OPERATING RESULTS
On August 13, 1999, the Company terminated the mobile diagnostic services
performed by its Penn Vascusonics subsidiary. In the third quarter of 1999, the
Company recorded a provision for the impairment related to this subsidiary.
These costs included a charge of $334,000 for impaired fixed assets and $596,000
for impaired goodwill. In the third quarter of 1999 and 1998, Penn Vascusonics
lost $175,000 and $134,000, respectively, from operations, and $397,000 and
$225,000, respectively, for the nine months ended September 30, 1999 and 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Including the charge related to the sale of Penn Vascusonics, the third quarter
of 1999 results declined compared with the prior year with the third quarter of
1999 showing a net loss of $743,000 compared to a profit of $213,000 for the
same period in 1998. Net loss per share for the third quarter of 1999 was $.012
on 5,975,424 weighted average shares outstanding compared to a net income per
share of $.04 on 5,975,424 weighted average shares outstanding for the same
period in 1998.
The Company's total revenues decreased by $1,161,000 or 14.6% from $7,933,000
for the third quarter of 1998 to $6,772,000 for the third quarter of 1999. There
was a decline in revenues of approximately $829,000 as the result of the closure
or termination of certain clinics and contracts. A decline in management fee
revenues of approximately $226,000 is attributable to the termination of all
mobile diagnostic services effective August 13, 1999. Net patient service
revenue from continuing operations decreased $145,000 as a result of a change in
Medicare compensation for therapy services provided by outpatient rehabilitation
agencies that was effective January 1, 1999, that negatively affected net
reimbursement from Medicare and certain other payors. Revenues declined
approximately $214,000 as a result of the sale in 1998 of the Company's
interests in two joint ventures that provided mobile diagnostic services,
including cardiac services, in Western Pennsylvania. These decreases were
partially offset by an increase in net patient service revenues of $253,000 as a
result of the Company opening new outpatient offices and entering into new
contracts.
Due to the decrease in revenues and the Company's cost reduction program
initiated in 1998, costs of service decreased $630,000 from $3,690,000 for the
third quarter of 1998 to $3,060,000 for 1999, or 17.1%. As a percentage of net
patient services revenue, costs of service decreased from 48.5% in the third
quarter of 1998 to 45.9% in the third quarter of 1999. Gross profit declined
$531,000, from $4,243,000 for the third quarter of 1998 to $3,712,000 for 1999,
as the cost reduction program did not fully offset the decrease in gross margin
due to volume. However, as a percentage of total revenue gross profit increased
from 53.5% of total revenue for the third quarter of 1998 to 54.8% of total
revenue for 1999.
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Total selling, general and administrative expenses for the third quarter
decreased $421,000 from $2,665,000 in 1998 to $2,244,000 in 1999. The 15.8%
decrease can be attributed to the cost reduction program initiated in May 1998,
and the regional management reorganization that was completed in December 1998.
Interest expense was $505,000 for the third quarter of 1999 compared to $535,000
for 1998. This decrease can be attributed to a decline in the Company's weighted
average interest rate from 1998 to 1999. Certain costs estimated at $175,000
associated with the restructuring of the Company's senior debt were recorded in
the third quarter of 1999, as well as the write-off of deferred financing costs
related to the previous debt instrument of $151,000. These costs were partially
offset by a favorable reversal of legal expenses of $118,000. The Company
reported net non-operating income of $1,000 in the third quarter of 1999
compared to the net non-operating income of $40,000 in the third quarter of
1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Including the charge related to the sale of Penn Vascusonics, during the first
nine months of 1999, results declined, with the first nine months of 1999
showing a net loss of $583,000 compared to a profit of $156,000 for the same
period in 1998. Net loss per share for the first nine months of 1999 was $.10 on
5,975,424 weighted average shares outstanding compared to a profit per share of
$.03 on 5,988,638 weighted average shares outstanding for the same period in
1998.
For the nine-month period ended September 30, 1999, the Company's total revenues
declined by $3,590,000, or 14.7% from $24,403,000 for the first nine months of
1998 to $20,813,000 for 1999. Revenues decreased approximately $2,437,000 as the
result of the closure or termination of certain clinics and contracts. This was
partially offset by the Company opening new outpatient offices and entering into
new contracts that resulted in an increase in net patient services revenue of
$488,000. A decline in management fee revenues of approximately $340,000 is
attributable to the termination of all mobile diagnostic services effective
August 13, 1999. Net patient service revenue from continuing operations
decreased $590,000 as a result of a change in Medicare compensation for therapy
services provided by outpatient rehabilitation agencies that was effective
January 1, 1999, that negatively affected net reimbursement from Medicare and
certain other payors. Revenues also declined $711,000 as the result of the sale
in 1998 of the Company's interest in two joint ventures that provided mobile
diagnostic services, including cardiac services, in Western Pennsylvania.
Due to a decrease in total revenues, the continued stabilization of the
Company's workforce and revenue base and the Company's cost reduction program
initiated in 1998, subcontracted services were significantly reduced and direct
labor costs declined, thereby decreasing the Company's costs of service by
$2,004,000 from $11,380,000 for the first nine months of 1998 to $9,376,000 for
1999, or 17.6%. As a percentage of net patient service revenue, cost of service
decreased during the first nine months of 1999, from 48.8% in 1998 to 46.7% in
1999. As a result of the decrease in total revenue in the first nine months of
1999, gross profit decreased $1,586,000 from $13,023,000 for the first nine
months of 1998 to $11,437,000 for 1999. As a percentage of total revenue, gross
profit increased from 53.4% of revenue for the first nine months of 1998 to
55.0% for the first nine months of 1999.
Total selling, general and administrative expenses for the first nine months
decreased $1,292,000 from $8,353,000 in 1998 to $7,061,000 in 1999. The 15.5%
decrease can be attributed to the cost reduction program initiated in May 1998,
and the regional management reorganization that was completed in December 1998.
Interest expenses were $1,518,000 for the first nine months of 1999 compared to
$1,598,000 for 1998. This decrease can be attributed to the amortization of
leases and other debt. The Company reported net non-operating expense of $3,000
for the first nine months of 1999 compared to $57,000 in net non-operating
income in the first nine months of 1998. Net operating income for the first nine
months of 1998 included approximately $7,900 in gain on the disposal of fixed
assets compared to $7,000 in losses for the first nine months of 1999. Certain
costs estimated at $175,000 associated with the restructuring of the company's
senior debt was recorded in the third quarter of 1999, as well as the write-off
of deferred financing costs related to the previous debt instrument of $151,000.
These costs were partially offset by a favorable reversal of legal expenses of
$118,000.
2
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Thomas W. Zaucha, Chairman and CEO of Northstar Health Services, Inc., stated,
"The change in Medicare reimbursement that became effective January 1, 1999,
coupled with the lower reimbursement for those patients cared for under managed
care plans continue to have a negative effect on our revenues. In addition, the
termination of contract rehabilitation services in long term care facilities as
a result of changes in Medicare reimbursement, associated with the Balanced
Budget Act, further compromised revenues and income in 1999 when compared with
1998. Finally, the liquidation of the mobile diagnostics subsidiary impacted
revenues negatively but it is anticipated to improve the bottom line income
going forward."
Mr. Zaucha also stated, "The opening of 12 new outpatient centers in 1999
creates opportunities for growth in outpatient revenues in 2000 due to the
maturation of these new centers. Throughout 1999 we have adapted our expenses
accordingly and intend to continue to do so going forward. We are pleased that
we were able to maintain our level of profits from the outpatient physical
therapy and rehabilitation business. We intend to continue to focus our efforts
on improving the performance of our core outpatient physical therapy and
rehabilitation business. The fact that we have completed the restructuring of
our debt with Cerberus Capital Management, LLC, and with the exception of one
case, the settlement of all litigation associated with past officers and
directors creates the time for management to concentrate on the growth and
development of the 70 outpatient centers currently owned and operated under the
name of Keystone Rehabilitation Systems."
EXECUTIVE APPOINTMENT
Today, Mr. Thomas W. Zaucha announced the appointment of James R. Martin, as
Executive Vice President, Treasurer and Chief Financial Officer of Northstar
Health Services, Inc.
Mr. Martin joins Northstar with over thirty years financial experience and will
be responsible for all accounting, treasury, risk management and human resource
operations.
Mr. Martin, a Certified Public Accountant, was previously Treasurer of Glenshaw
Glass Company with additional domestic and international responsibilities for
Glenshaw's parent company, G&G Investments, Inc. G&G is the third largest glass
container manufacturer in North America through its Anchor Glass and Consumers
Glass (Canada) affiliates.
Mr. Martin has undergraduate and MBA degrees from Duquesne University and began
his career with a "big-five" public accounting firm. He will report to Mr.
Zaucha and he has also been elected to the Company's Board of Directors.
Mr. Zaucha commented, "The appointment of Jim Martin to the position of
Executive Vice President, Treasurer and Chief Financial Officer provides
significant benefits to the Company and its management team. His appointment as
a Board member further communicates the directors' and officers' commitment to
this Company and its shareholders. Jim's credentials as a former Controller of a
Fortune 600 Company, coupled with his experience in administration with G&G
Investments, Inc. certainly qualify him for this position. I look forward to
having him at my side for many years as we advance the Company to new levels."
####
Northstar Health Services, Inc., is a leading provider of physical therapy
rehabilitation and contracted long term care services at outpatient
rehabilitation clinics and by contract to other healthcare facilities in
Pennsylvania and Ohio.
Forward-looking statements in this release are made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties,
3
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including, without limitations, changes in policies regarding reimbursement,
increased levels of competition, competition for qualified personnel, the
outcomes of current litigation involving the Company, and the ability to have
its Common Stock relisted on a national market or exchange and other risks
detailed from time to time in the Company's SEC reports.
####
TABLE FOLLOWS
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NORTHSTAR HEALTH SERVICES, INC.
CONSOLIDATED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1999 1998 1999 1998
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TOTAL REVENUE $ 6,772 $ 7,933 $ 20,813 $ 24,403
COSTS OF SERVICE 3,060 3,690 9,376 11,380
GROSS PROFIT 3,712 4,243 11,437 13,023
TOTAL OPERATING EXPENSES *3,867 3,440 *10,249 10,970
OPERATING (LOSS)/ INCOME (155) 803 1,188 2,053
NET (LOSS) /INCOME (743) 213
(583) 156
(LOSS)/INCOME PER SHARE -
BASIC (0.12) 0.04 (0.10) 0.03
(LOSS)/INCOME PER SHARE -
DILUTED (0.12) 0.04 (0.10) 0.03
WEIGHTED AVG. NUMBER
OF COMMON SHARES -
BASIC 5,975,424 5,975,424 5,975,424 5,975,424
WEIGHTED AVG. NUMBER
OF COMMON SHARES -
DILUTED 5,975,424 6,002,517 5,975,424 5,988,638
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*INCLUDES A PROVISION OF $930,0000 FOR IMPAIRMENT OF SUBSIDIARY ASSETS.
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