SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
For the fiscal year ended July 31, 2001 mmission File Number 0-12927
NATIONAL HOME HEALTH CARE CORP.
(Exact name of Registrant as specified in its charter)
Delaware 22-2981141
--------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK 10583
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-722-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: common stock, par
value $.001 per share.
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, as amended, during the preceding 12 months (or for such shorter period
that registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of October 26, 2001, the aggregate market value of the common stock of the
Registrant, its only class of voting securities, held by non-affiliates of the
Registrant was approximately $47,544,462, calculated on the basis of the average
closing bid and asked prices of such stock on the National Association of
Securities Dealers Automated Quotation System on that date, as reported by the
National Association of Securities Dealers, Inc.
The number of shares outstanding of the Registrant's common stock on October 26,
2001 was 5,200,151.
Portions of the Registrant's Proxy Statement for its 2001 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.
PART I
ITEM 1. BUSINESS.
GENERAL
National Home Health Care Corp. (the "Company") is a Delaware corporation
which was incorporated in 1983 and completed its initial public offering that
year. Formerly Family Treatment Centers of America, Inc. and then National HMO
Corp., in 1991 the Company changed its name to National Home Health Care Corp.
The Company is a provider of home health care services in New York, New Jersey
and Connecticut.
The Company has four principal operating subsidiaries:
o Health Acquisition Corp., formerly Allen Health Care Services, Inc.
("Allen Health Care"), a New York corporation that conducts home health care
operations in New York.
o New England Home Care, Inc. ("New England"), a Connecticut corporation
that conducts home health care operations in Connecticut.
o Accredited Health Services, Inc. ("Accredited"), a New Jersey corporation
that conducts home health care operations in New Jersey.
o Connecticut Staffing Works Corp. ("Connecticut Staffing"), a Connecticut
corporation that conducts healthcare staffing operations in Connecticut.
In January 1996, the outpatient medical service business of the Company,
formerly known as Brevard Medical Center, Inc. and First Health, Inc., was
reorganized as SunStar Healthcare, Inc. ("SunStar"), a newly-formed,
wholly-owned subsidiary of the Company. In May 1996, SunStar completed its
initial public offering (thus reducing the Company's ownership percentage in
SunStar to approximately 37.6%) following a complete change in management and
the adoption of a business plan by new management for the establishment of a
health maintenance organization. As a result, SunStar was no longer consolidated
with the Company for accounting purposes and the Company accounted for its
investment in SunStar using the equity method of accounting. During the fiscal
year ended July 31, 1998, the Company's ownership percentage in SunStar was
reduced to 30.5% as a result of the issuance by SunStar of additional shares of
its common stock pursuant to a private placement. As of July 31, 2001, the
Company's ownership percentage in SunStar was 21.6% and the Company's value of
its investment in SunStar was $0. In February 2000, SunStar's sole operating
subsidiary effectively discontinued operations.
HEALTH ACQUISITION CORP.
D/B/A ALLEN HEALTH CARE SERVICES
In October 1986, the Company acquired all of the outstanding capital stock
of Allen Health Care. Allen Health Care is a provider of personal home health
care services in New York State. Services are provided by registered nurses,
personal care aides, home health aides and homemakers (collectively,
"caregivers"). The Company is licensed by the Public Health Council of the State
of New York Department of Health. Allen Health Care maintains its principal
administrative office
-2-
in Jamaica, New York and has branch offices in Lindenhurst and Mount Vernon, New
York. Case coordinating of patients is performed at these three offices. In
addition, the company has satellite offices in Brooklyn, Hempstead and the
Bronx, New York. The satellite offices are primarily used for the recruitment
and training of home health aides. Services are provided in the following
counties in the State of New York: Nassau, Suffolk, Westchester, Queens, Kings,
New York and the Bronx.
All home health care personnel are licensed or agency certified under a New
York State approved program and can be engaged on a full-time, part-time or
live-in basis. Since July 1996, Allen Health Care has required residential
criminal background investigations for all new personnel. In addition, urine
drug testing is part of the pre-employment screening process and is performed
annually and randomly thereafter. In February 1999, Allen Health Care was
re-surveyed by the Joint Commission of Accreditation of Health Care
Organizations ("JCAHO"), an accrediting body for health care providers. JCAHO
accreditation is associated with providing quality services. This status is
required by many of the certified home health care agencies that Allen Health
Care currently services. The re-survey resulted in Allen Health Care extending
its accredited status through the year 2002.
Reimbursement for Allen Health Care's services is primarily by certified
home health care agencies ("CHHAs") and long-term health care provider programs
that subcontract their patients to Allen Health Care, as well as from private
payors and the Nassau, Suffolk and Westchester Counties Departments of Social
Services Medicaid Programs, for which Allen Health Care is a participating
provider.
Allen Health Care provides home health care services to its clients
twenty-four hours per day, seven days per week. Although Allen Health Care's
offices are open during normal business hours, personnel are available
twenty-four hours per day to respond to emergencies and to provide other service
requests. The registered nurses of Allen Health Care, in accordance with New
York State Department of Health regulations and contract requirements, visit
patients regularly and review records of service completed by the home health
aide and personnel care aides daily. These records are maintained by Allen
Health Care. In addition, the home care coordinator ensures that appropriate
coverage is maintained for all patients and acts as the liaison among family
members, aides and professional staff.
Allen Health Care has expanded in recent years through selected
acquisitions of complementary businesses in its geographic region. In March
1997, Allen Health Care completed the acquisition of certain assets of C.J. Home
Care, Inc., d/b/a Garden City Home Care, a New York licensed home health care
agency that provided home health aide services in Nassau County, New York. In
May 1997, Allen Health Care completed the acquisition of certain assets of Home
Health Aides, Inc. and H.H.A. Aides, Inc., two New York licensed home health
care agencies that provided home health aide services in both Nassau and Suffolk
Counties, New York. The latter acquisition gave the Company an entree into the
Shared Aide Program in Nassau County. The Shared Aide Program is a program for
Medicaid patients that brings together a group of home health aides to care for
patients in one geographic area, thus increasing operating efficiencies and
reducing costs.
In August 1998, Allen Health Care completed the acquisition of certain
assets of Bryan Employment Agency, Inc., d/b/a Bryan Home Care Services ("Bryan
HomeCare"), a New York licensed home health care agency that provided home
health aide services in Westchester County, New York. The acquisition expanded
the geographic presence of the Company and enabled Allen
-3-
Health Care to become a participating provider in the Westchester County
Department of Social Services Medicaid Program.
To a large extent, Allen Health Care's continued growth depends on its
ability to recruit and maintain qualified personnel. Allen Health Care's
training programs for home health aides and personal care aides have been
approved by the New York State Department of Health. Allen Health Care believes
that it offers competitive salaries and fringe benefits and has been able to
keep its home health aides working on a steady basis.
NEW ENGLAND HOME CARE, INC.
In August 1995, the Company acquired New England in a stock purchase
arrangement. New England is a Medicare certified and licensed home health care
company in Connecticut. In October 1998, New England was re-surveyed by JCAHO,
resulting in New England extending its accredited status through 2001. New
England provides services throughout the state of Connecticut. Services include
skilled nursing, physical therapy, occupational therapy, medical social
services, home health aide and homemaker services. In addition, New England
provides specialty services consisting of adult/geriatric, pediatric, post-acute
rehabilitation, behavioral medicine and maternal/child health. New England
provides full-service home health care twenty-four hours per day, seven days per
week. Weekends, holidays and after-hours are supported by an on-call system for
each office location with medical supervision by a registered nurse at all
times. All home health care personnel are licensed or agency certified under a
Connecticut state-approved program and can be engaged on a full-time, part-time
or live-in basis. Since 1995, New England has performed criminal background
investigations on all new personnel.
New England maintains its principal administrative office in Milford,
Connecticut. In addition, New England has an administrative office in Cromwell
and satellite offices in Norwalk, Hamden, Waterbury, Danbury, Branford,
Hartford, Norwich and Bridgeport, Connecticut. Case coordinating of patients is
performed at the Milford administrative office. The satellite offices are used
as drop-off offices for paperwork, recruitment, in services and orientation of
personnel. Reimbursement for New England's services is primarily provided by the
Connecticut Medicaid Program, the Federal Medicare Program, managed care
companies, private payors, hospices and other Medicare certified home health
agencies and long-term care providers that subcontract their patients to New
England.
New England has expanded its operations in the past year through increased
penetration of market share in Connecticut and selected acquisitions of
complementary assets in its geographic region. In November 1999, New England
acquired certain assets of Optimum Care Services of Connecticut, Inc., Optimum
Home Health of Connecticut, Inc. and Optimum Home Care of Connecticut, Inc.
(collectively, the "Optimum Entities"). The Optimum Entities included a Medicare
certified and licensed home health care company engaged in providing home health
care services in Connecticut. The assets were acquired from a court-appointed
Chapter 7 trustee. The final purchase price of $4,400,000 in cash was determined
through an auction process conducted at the United States Bankruptcy Court for
the District of Massachusetts. The acquisition of these assets was coupled with
a successful penetration of the market share made available as a result of the
liquidation of the Optimum Entities.
In April 2000, New England acquired certain assets of the Connecticut
operations of U.S. HomeCare Corp. ("U.S. HomeCare-Connecticut"), a Medicare
certified and licensed home health
-4-
care company engaged in providing home health care services in Connecticut, for
$300,000 in cash. The acquisition complemented the Company's existing operations
in Connecticut.
The continued growth of New England depends on its ability to recruit and
retain qualified personnel. New England's training program for home health aides
has been approved under a Connecticut state-approved program. New England
primarily recruits nurses through newspaper advertisements. New England believes
that it offers competitive salaries and fringe benefits and has been able to
keep its employees working on a steady basis.
New England, as a participant in the Medicare and Medicaid programs, is
subject to survey and audits of operational, clinical and financial records with
respect to proper applications of general regulations governing operations, cost
reporting and billing of claims. These audits can result in retroactive
adjustments for payments received from these programs resulting in amounts due
to governmental agencies.
CONNECTICUT STAFFING WORKS CORP.
Connecticut Staffing was organized in October 1999 to operate certain of
the assets acquired from the Optimum Entities.
Connecticut Staffing is a full-service health care staffing company. It
provides temporary staffing to hospitals, skilled nursing facilities, home
health organizations and schools and other institutions. Staffing personnel
include registered nurses, licensed practical nurses, certified nursing
assistants, home health aides, homemakers, opticians, medical secretaries and
emergency medical technicians. The company maintains its administrative office
in Cromwell, Connecticut. Staffing services are provided twenty-four hours per
day, seven days per week. Staffing coordinators are in the office from 6 a.m. to
10 p.m. Weekends, holidays and after hours are supported by an on-call system
which pages a staffing coordinator.
The company maintains a roster of quality professional personnel. The
continued success of Connecticut Staffing is dependent on its ability to
maintain its steady roster of per diem workers for meeting the staffing
requirements of its clients. The company believes that it offers competitive
salaries and fringe benefits and has been able to keep its personnel working on
a steady basis.
ACCREDITED HEALTH SERVICES, INC.
In October 1998, the Company acquired all of the outstanding capital stock
of Accredited. Accredited is a licensed home health care company that provides
home health aide services and skilled nursing services in Bergen, Hudson,
Passaic, Essex, Morris, Union, Somerset and Middlesex Counties, New Jersey.
Accredited maintains its principal administrative office in Hackensack, New
Jersey and has a branch office in Verona, New Jersey. Case coordinating of
patients is performed in both the Hackensack and Verona offices.
Accredited provides home health care services to its clients twenty-four
hours per day, seven days per week. Weekends, holidays and after-hours are
supported by an on-call system for each office. All home health aides are
licensed under a New Jersey state-approved program and can be engaged on a
full-time, part-time or live-in basis. In March 2001, Accredited was re-surveyed
by the Commission on Accreditation for Home Care (CAHC), one of the accrediting
bodies required for participation as a Medicaid provider in New Jersey. This
accreditation was extended for an additional six months, through October 2001.
Reimbursement for Accredited's services is primarily
-5-
by the State of New Jersey Medicaid Program, Medicare certified home health care
agencies that subcontract their patients to Accredited and private payors.
In August 2000, Accredited completed the acquisition of certain assets of
Health Force Owned, Ltd. and its affiliates (collectively, "Health Force"). The
acquisition complemented the Company's existing operations in New Jersey and
also expanded its services to include skilled nursing. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Accredited's growth depends on its ability to recruit and retain qualified
home health aides. The company believes that it offers competitive salaries and
fringe benefits and has been able to keep its home health aides working on a
steady basis.
ORGANIZATION
The Company's corporate headquarters are located in Scarsdale, New York,
where all corporate administrative functions are performed. The Company's
operations are divided among its four operating subsidiaries, which operate as
separate entities in each state. Each subsidiary has a main administrative
office where all management functions are performed and overseen by the
subsidiary President. Each administrative office performs intake and case
coordinating of patients, corporate compliance, human resources, marketing and
all financial and accounting functions.
INSURANCE
The Company and its subsidiaries maintain professional malpractice
liability coverage on professionals employed in the rendering of health care
services providing coverage per occurrence and in the aggregate and coverage for
the customary risks inherent in the operation of business in general. Recent
market conditions with respect to liability insurance have caused wide
fluctuations in the cost and availability of coverage. The Company also carries
directors and officers liability insurance. While the Company believes its
insurance policies are adequate in the amount and coverage for its current
operations, there can be no assurance that coverage will continue to be
available in adequate amounts or at a reasonable cost.
EMPLOYEES AND LABOR RELATIONS
As of October 26, 2001, the Company had approximately 2,800 full and
part-time employees of whom approximately 19 were employed in various management
capacities and four (4) were employed in marketing capacities. The Company has
no union contracts with any of its employees. The Company believes its
relationship with its employees is satisfactory. The Company has standardized
procedures for recruiting, interviewing and reference checking prospective
health care personnel. All nurses and home health aides must be licensed or
certified by appropriate authorities.
A majority of the employees of Allen Health Care have voted in favor of
AFSCME District Council 1707 as their collective bargaining representative.
Negotiations with that union have commenced, although the terms of any
collective bargaining agreement have not been determined.
-6-
RISK FACTORS
This section summarizes certain risks, among others, that should be
considered by stockholders and prospective investors in the Company. Many of
these risks are discussed in other sections of this report. Some of the
following statements are forward-looking statements. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Disclosure Regarding Private Litigation Reform Act of 1995."
IF THE COMPANY IS UNABLE TO ATTRACT QUALIFIED CAREGIVERS FOR ITS HOME HEALTH
CARE BUSINESS AT REASONABLE COSTS, IT COULD INCREASE THE COMPANY'S OPERATING
COSTS AND NEGATIVELY IMPACT ITS BUSINESS
The Company relies significantly on its ability to attract and retain
caregivers who possess the skills, experience and licenses necessary to meet the
requirements of the Company's customers. The Company competes for home health
care services personnel with other providers of home health care services. The
Company must continually evaluate and expand its network of caregivers to keep
pace with its customers' needs. Currently, there is a shortage of qualified
nurses and a diminishing pool of home health aides in the states in which the
Company conducts its business, competition for nursing personnel is increasing,
and salaries and benefits have risen. The Company may be unable to continue to
increase the number of caregivers that it recruits, decreasing the potential for
growth of the Company's business. The Company's ability to attract and retain
caregivers depends on several factors, including the Company's ability to
provide such caregivers with assignments that they view as attractive and with
competitive benefits and wages. There can be no assurance that the Company will
be successful in any of these areas. The cost of attracting caregivers and
providing them with attractive benefit packages may be higher than the Company
anticipates and, as a result, if it is unable to pass these costs on to its
customers, the Company's profitability could decline. Moreover, if the Company
is unable to attract and retain caregivers, the quality of its services to its
customers may decline and, as a result, it could lose certain customers. In
addition, a majority of the employees of Allen Health Care have voted in favor
of AFSCME District Council 1707 as their collective bargaining representative.
Negotiations with that union have commenced, although the terms of any
collective bargaining agreement have not been determined. There can be no
assurance that further unionizing activity will not occur at other subsidiaries
of the Company nor that any such activity will not have a material adverse
effect on the Company.
THE COMPANY OPERATES IN A HIGHLY COMPETITIVE MARKET AND ITS SUCCESS DEPENDS ON
ITS ABILITY TO REMAIN COMPETITIVE IN OBTAINING AND RETAINING REFERRALS AND
CAREGIVERS
The home health care business is highly competitive. Some of the Company's
competitors, unlike the Company, provide pharmaceutical products and other home
health care services that generate additional referrals. Some of the Company's
competitors may have greater marketing and financial resources than the Company.
The Company believes that the primary competitive factors in obtaining and
retaining customers are the quality of services provided and the pricing of such
services, as well as identifying qualified caregivers for specific job
requirements and providing qualified employees in a timely manner. The Company
competes for caregivers based on the quantity, diversity and quality of
assignments offered, compensation packages and the benefits that it provides.
Competition for referrals and caregivers may increase in the future and, as a
result, the Company may not be able to remain competitive. To the extent
competitors seek to gain or retain market share by reducing prices or increasing
marketing expenditures, the Company could lose revenues or customers and its
margins could decline,
-7-
which could have a material adverse effect on the Company. In addition, the
development of alternative recruitment channels could lead the Company's
customers to bypass its services, which would also cause the Company's revenues
and margins to decline.
THE COMPANY'S BUSINESS DEPENDS UPON ITS ABILITY TO SECURE NEW BUSINESS FROM ITS
CUSTOMERS BECAUSE THE COMPANY DOES NOT HAVE LONG-TERM AGREEMENTS OR EXCLUSIVE
CONTRACTS WITH THEM
The Company does not have long-term agreements or exclusive guaranteed
order contracts with its customers. The success of the Company's business is
dependent upon its ability to continually secure new business from its customers
and to service such new business with its caregivers. The Company's customers
are free to seek services from the Company's competitors and choose to use
caregivers that such competitors offer them. Therefore, the Company must
maintain positive relationships with its customers, otherwise the Company may be
unable to generate new business for its caregivers, which could have a material
adverse effect on the Company.
HEALTHCARE REFORM COULD NEGATIVELY IMPACT THE COMPANY'S BUSINESS OPPORTUNITIES,
REVENUES AND MARGINS
The U.S. government has undertaken efforts to control growing healthcare
costs through legislation, regulation and voluntary agreements with medical care
providers and drug companies. In the recent past, the U.S. Congress has
considered several comprehensive healthcare reform proposals. The proposals were
generally intended to expand healthcare coverage for the uninsured and reduce
the growth of total healthcare expenditures. While the U.S. Congress did not
adopt any comprehensive reform proposals, members of Congress may raise similar
proposals in the future. If any of these proposals are approved, the Company's
current customers may react by spending less on home health care services. If
this were to occur, the Company would have fewer business opportunities, which
could have a material adverse effect on its business.
Furthermore, third parties such as health maintenance organizations,
increasingly challenge the prices charged for medical care. Failure by the
Company's current customers to obtain full reimbursement from those third
parties could reduce the demand or the price paid for the Company's services.
IF THE COMPANY IS FOUND TO BE IN VIOLATION OF MEDICARE AND MEDICAID
REIMBURSEMENT REGULATIONS, IT COULD BECOME SUBJECT TO RETROACTIVE ADJUSTMENTS
AND RECOUPMENTS
The Company, as a Medicare and Medicaid provider, is subject to retroactive
adjustments due to prior year audits, reviews and investigations, government
fraud and abuse initiatives and other similar actions. Federal regulations also
provide for withholding payments to recoup amounts payable under the programs.
While the Company believes it is in material compliance with applicable Medicare
and Medicaid reimbursement regulations, there can be no assurance that the
Company, pursuant to such audits, reviews and investigations, among other
things, will be found to be in compliance in all respects with such
reimbursement regulations. A determination that the Company is in violation of
any such reimbursement regulations could result in retroactive adjustments and
recoupments and have a material adverse effect on the Company.
-8-
THE COMPANY OPERATES IN A REGULATED INDUSTRY AND CHANGES IN REGULATIONS OR
VIOLATIONS OF REGULATIONS MAY RESULT IN INCREASED COSTS OR SANCTIONS THAT COULD
REDUCE ITS REVENUES AND PROFITABILITY
The Company is subject to substantial and frequently changing federal,
state and local regulation. The Company must also comply with state licensing
along with federal and state eligibility standards for certification as a
Medicare and Medicaid provider. In addition, new laws and regulations are
adopted periodically to regulate new and existing services in the health care
industry. Changes in laws or regulations or new interpretations of existing laws
or regulations can have a dramatic effect on operating methods, costs and
reimbursement amounts provided by government and other third-party payors.
Federal laws governing the Company's activities include regulation of Medicare
reimbursement and certification and certain financial relationships with health
care providers (collectively, the "fraud and abuse laws"). Although the Company
intends to comply with all applicable federal and state fraud and abuse laws,
these laws are not always clear and may be subject to a range of potential
interpretations. (For further discussion on such fraud and abuse laws, see " -
Medicare Fraud and Abuse"). There can be no assurance that administrative or
judicial clarification or interpretation of existing laws or regulations, or
legislative enactments of new laws or regulations, will not have a material
adverse effect on the Company. The Company is subject to state laws governing
Medicaid, professional training, licensure and financial relationships with
physicians. The Company's operations must comply with all applicable laws,
regulations and licensing standards and all of the Company's employees who are
caregivers must maintain licenses to provide services offered by the Company. In
addition, the Balanced Budget Act of 1997, as amended (the "Balanced Budget
Act"), introduced several government initiatives causing changes to Medicare
reimbursement, which changes have resulted in the Company experiencing a decline
in revenue from its Medicare certified nursing agency. (For further discussion
on the Balanced Budget Act, see " - Medicare"). There can be no assurance that
federal, state or local governments will not change existing standards or impose
additional standards. Any failure to comply with existing or future standards
could have a material adverse effect on the Company.
SIGNIFICANT LEGAL ACTIONS COULD SUBJECT THE COMPANY TO SUBSTANTIAL LIABILITIES
Provision of home health care services entails an inherent risk of
liability. Certain participants in the home health care industry may be subject
to lawsuits which may involve large claims and significant defense costs. It is
expected that the Company periodically will be subject to such suits as a result
of the nature of its business. The Company currently maintains professional
liability insurance intended to cover such claims in amounts which management
believes are in accordance with industry standards. There can be no assurance
that the Company will be able to obtain liability insurance coverage in the
future on acceptable terms, if at all. There can be no assurance that claims in
excess of the Company's insurance coverage or claims not covered by the
Company's insurance coverage will not arise. A successful claim against the
Company in excess of the Company's insurance coverage could have a material
adverse effect on the Company. Claims against the Company, regardless of their
merit or eventual outcome, may also have a material adverse effect on the
Company's ability to attract customers or to expand its business. In addition,
one of the Company's subsidiaries is self-insured for its workers compensation
and is at risk for claims up to certain levels.
-9-
THE COMPANY IS DEPENDENT ON REIMBURSEMENT BY THIRD-PARTY PAYORS
For the twelve months ended July 31, 2001, 2000 and 1999, the percentage of
the Company's revenues derived from Medicare and Medicaid was 51%, 36% and 34%,
respectively. The revenues and profitability of the Company are affected by the
continuing efforts of all third-party payors to contain or reduce the costs of
health care by lowering reimbursement rates, narrowing the scope of covered
services, increasing case management review of services and negotiating reduced
contract pricing. Any changes in reimbursement levels under Medicare, Medicaid
or other payor sources and any changes in applicable government regulations
could have a material adverse effect on the Company. Changes in the mix of the
Company's patients among Medicare, Medicaid and other payor sources may also
affect the Company's revenues and profitability. There can be no assurance that
the Company will continue to maintain its current payor or revenue mix.
THERE IS NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO COMPLY WITH NEW FEDERAL
HEALTH CARE INITIATIVES, PARTICULARLY CONCERNING MEDICARE AND MEDICAID
The health care industry continues to undergo dramatic changes. With the
change in administration, new federal health care initiatives, particularly
concerning Medicare and Medicaid, may be launched. For example, the Health
Insurance Portability and Accountability Act, introduced in 1996, has mandated
an extensive set of regulations to protect the privacy of identifiable health
information, and is currently scheduled to become effective in early 2002. There
can be no assurance that other equally sweeping federal health care legislation
will not be adopted in the future. It is also possible that proposed federal
legislation will include language that provides incentives to further encourage
Medicare recipients to shift to Medicare at-risk managed care programs. Some
states are adopting health care programs and initiatives as a replacement for
Medicaid. There can be no assurance that the adoption of such legislation or
other changes in the administration or interpretation of governmental health
care programs or initiatives will not have a material adverse effect on the
Company.
THERE CAN BE NO ASSURANCE (I) THAT THE COMPANY WILL BE ABLE TO SUCCESSFULLY
COMPLETE THE INTEGRATION OF ITS RECENT ACQUISITIONS AND MARKET PENETRATIONS, OR
(II) THAT THE COMPANY WOULD BE SUCCESSFUL IN CLAIMS, IF ANY, FOR INDEMNIFICATION
FROM SELLERS IN SUCH TRANSACTIONS
In recent years, the Company's strategic focus was on the acquisition of
small to medium sized home health care providers in targeted markets. These
acquisitions involve significant risks and uncertainties, including difficulties
integrating acquired personnel and other corporate cultures into the Company's
business, the potential loss of key employees or customers of acquired
companies, the assumption of liabilities and exposure to unforeseen liabilities
of acquired companies and the diversion of management attention from existing
operations. The Company may not be able to fully integrate the operations of the
acquired businesses with its own in an efficient and cost-effective manner. The
failure to effectively integrate either of these businesses could have a
material adverse effect on the Company. In addition, the Company's growth over
the last several years principally has been the result of acquisitions and
penetrations of markets abandoned by competitors. There can be no assurance that
the Company will be able to identify suitable acquisitions or available market
share in the future nor that any such opportunities, if identified, will be
consummated on terms favorable to the Company, if at all. In the absence of such
successful transactions, there can be no assurance that the Company will
-10-
experience further growth, nor that such transactions, if consummated, will
result in further growth.
In addition, although the Company attempted in its acquisitions to
determine the nature and extent of any pre-existing liabilities, and generally
has the right to seek indemnification from the previous owners for acts or
omissions arising prior to the date of the acquisition, resolving issues of
liability between the parties could involve a significant amount of time,
manpower and expense on the part of the Company. If the Company or any of its
subsidiaries were to be unsuccessful in a claim for indemnity from a seller, the
liability imposed on the Company or its subsidiary could have a material adverse
effect on the Company.
DIFFICULTIES IN MAINTAINING THE COMPANY'S MANAGEMENT INFORMATION AND
COMMUNICATIONS SYSTEMS MAY RESULT IN INCREASED COSTS THAT MAY REDUCE THE
COMPANY'S PROFITABILITY
The Company's ability to deliver its home health care services to its
customers and manage its internal systems depends to a large extent upon the
performance of the Company's management information and communications systems.
If these systems do not adequately support the Company's operations, or if the
Company is required to incur significant additional costs to maintain or expand
these systems, its business and financial results could be materially adversely
affected.
THE LOSS OF KEY SENIOR MANAGEMENT PERSONNEL COULD ADVERSELY AFFECT THE COMPANY'S
ABILITY TO REMAIN COMPETITIVE
The Company believes that the success of its business strategy and its
ability to operate profitably depends on the continued employment of its senior
management team. If any member of the Company's senior management team become
unable or unwilling to continue in his present positions, the Company's business
and financial results could be materially adversely affected.
COMPETITION
The home health care field is highly competitive in each state in which the
Company operates. The Company is competing with numerous other licensed as well
as certified home health care agencies in each of the markets it serves. In
addition, the Company competes with companies that, in addition to providing
home health aide and skilled nursing services, also, unlike the Company, provide
pharmaceutical products and other home health care services that generate
additional referrals. Competition also involves the quality of services provided
and the pricing for such services. As a result of changes in Medicare
reimbursement and the competitive pressures of managed care, the home health
care industry continues to experience consolidation. In addition, the Company
believes that smaller, less financially secure home health agencies will
continue to find it difficult to compete for market share and comply with
regulatory compliance standards.
The Company's ability to attract a staff of highly trained personnel is a
material element of its business. There currently is intense competition for
qualified personnel and there can be no assurance that the Company will be
successful in maintaining or in securing additional qualified personnel. The
Company recruits personnel principally through newspaper advertisements and
through referrals from existing personnel.
-11-
CUSTOMERS
The Company provides its services to four types of payor sources. These
sources include federal and state funded public assistance programs (Medicare
and Medicaid), other third party payors (subcontracts), insurance companies and
private payors.
A substantial portion of the Company's revenue is derived from subcontracts
that the Company has with Medicare certified home health care agencies and
long-term health care provider programs that subcontract their patients to the
Company. From time to time, some of these agencies have requested bids from the
home care agencies to which they subcontract. If the Company is not successful
in maintaining these contracts as they came up for bid, it could have a
materially adverse effect on the Company's results of operations.
One or more customers have each accounted for more than 10% of the
Company's revenue. For the fiscal years ended July 31, 2001, 2000 and 1999,
Visiting Nurse Service of New York, a non-profit Medicare home health care
agency, accounted for 6%, 10% and 16%, respectively, of the Company's revenue;
the State of New York Department of Social Services personal care aide program
for the counties of Nassau, Suffolk and Westchester accounted for 10%, 9% and
16%, respectively, of the Company's revenue; and the State of Connecticut
Department of Social Services medical assistance program accounted for 32%, 17%
and 6%, respectively, of the Company's revenue. The loss of any of the foregoing
customers would have a material adverse effect on the Company.
Although the Company had been notified in October 1999 by Visiting Nurse
Service of New York that commencing in 2000 it would not continue to subcontract
home health aides from Allen Health Care, in each of the last two years Allen
Health Care had its contract with Visiting Nurse Service of New York renewed for
an additional year.
GOVERNMENT REGULATIONS AND LICENSING
The health care industry is highly regulated. The Company's business is
subject to substantial and frequently changing regulations by federal, state and
local authorities. The Company must comply with state licensing along with
federal and state eligibility standards for certification as a Medicare and
Medicaid provider.
The ability of the Company to operate profitably will depend in part upon
the Company obtaining and maintaining all necessary licenses and other approvals
in compliance with applicable health care regulations.
-12-
MEDICARE
Title XVIII of the Social Security Act authorizes Part A of the Medicare
program, the health insurance program that pays for home health care services
for covered persons (typically, those aged 65 and older and long-term disabled).
Home health care providers may participate in the Medicare program subject to
certain conditions of participation and upon acceptance of a provider agreement
by the Secretary of Health and Human Services. Only enumerated services, upon
satisfaction of certain coverage criteria, are eligible for reimbursement as a
Medicare provider. The Company is currently Medicare certified in Connecticut.
Approximately 2%, 6% and 8% of revenue for the fiscal years ended July 31, 2001,
2000 and 1999, respectively, were derived from the Medicare program.
The Balanced Budget Act was signed into law in August 1997. The Balanced
Budget Act made significant changes in the reimbursement system for Medicare
home health services. The primary change that affects the Company is a
restructuring of the reimbursement system related to Medicare certified home
care agencies.
Under the Balanced Budget Act, Medicare home care reimbursement changes
were scheduled in two phases. A temporary or interim payment system ("IPS") took
effect for cost reports beginning on or after October 1, 1997. Under IPS,
Medicare home health care providers were reimbursed the lower 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. Under IPS, most Medicare providers
were reimbursed under an agency-specific per patient cost limit. Prior to the
implementation of IPS, Medicare reimbursed providers on reasonable cost basis
subject to program-imposed cost per visit limitations. Effective October 1,
2000, under the prospective payment system, the last remaining phase under the
Balanced Budget Act, Medicare now reimburses providers a predetermined base
payment. The payment is adjusted for the health condition and care needs of the
beneficiary and also is adjusted for the geographic differences in wages across
the country. Medicare provides home health agencies with payments for 60-day
"episodes of care". The 60-day episode is the basic unit of payment. The 60-day
episode coordinates with the 60-day physician re-certification of the plan of
care and with the 60-day reassessment of the patient using the Outcomes and
Assessment Information Set ("Oasis"). Oasis is the outcome study that Medicare
utilized over a two-year period to determine the amount of reimbursement to
providers for each 60-day episode.
As a result of the changes to Medicare reimbursement imposed by the
Balanced Budget Act, the Company experienced a decline in revenue from its
Medicare certified nursing agency. In addition, the Company's operations in New
York and New Jersey are dependent upon referrals primarily from Medicare
certified agencies, whose future reimbursement may be adversely affected.
Accordingly, there can be no assurance that the Company's future referrals will
not result in reduced reimbursement rates or reduced volume in business. To
date, the impact of the change to the prospective payment system has not had a
material effect on the Company's operations.
MEDICARE FRAUD AND ABUSE
Provisions of the Social Security Act under Medicare and Medicaid generally
prohibit soliciting, receiving, offering or paying, directly or indirectly, any
form of remuneration in return for the referral of Medicare or state health care
program patients or patient care opportunities, or in return for the purchase,
lease or order of any facility item or service that is covered by Medicare or
-13-
state health care program. The federal government has published regulations that
provide exceptions, or "safe harbors", for business transactions that will be
deemed not to violate the anti-kickback statute. Violations of the statute may
result in civil and criminal penalties and exclusion from participation in the
Medicare and Medicaid programs. The Company believes that its current operations
are not in violation of the anti-kickback statute.
MEDICAID
Approximately 48%, 30% and 27% of revenue for the fiscal years ended July
31, 2001, 2000 and 1999, respectively, were derived from state sponsored
Medicaid programs. Reimbursement for home health care services rendered to
eligible Medicaid recipients is made in an amount determined in accordance with
procedures and standards established by state law under federal guidelines.
States differ as to reimbursement policies and rates. The Company is a licensed
Medicaid provider in Connecticut, New Jersey and in Nassau, Suffolk and
Westchester Counties, New York. Medicaid reimbursement rates may be reduced in
response to state economic and budgetary constraints, as well as in response to
changes in the Medicare program.
ITEM 2. PROPERTIES.
The Company, directly or through certain subsidiaries, leases various
office facilities under lease agreements with various expiration dates through
the year 2005. The following sets forth the location, approximate square footage
and use of each office, and the expiration date of each lease:
Approximate Expiration Date
Location Square Feet Use of Lease
Scarsdale, NY 2,679 Corporate headquarters October 31, 2003
Queens, NY 12,300 Administrative office January 31, 2005
Lindenhurst, NY 1,250 Branch office July 31, 2002
Mount Vernon, NY 2,400 Branch office December 31, 2001
Hempstead, NY 3,800 Satellite office September 30, 2004
Brooklyn, NY 800 Satellite office October 31, 2001
Bronx, NY 648 Satellite office August 31, 2001
Milford, CT 15,036 Administrative office September 30, 2002
Cromwell, CT 12,419 Administrative office June 30, 2003
Norwalk, CT 1,400 Satellite office September 30, 2001
Hamden, CT 774 Satellite office July 31, 2002
Waterbury, CT 2,000 Satellite office October 31, 2003
Danbury, CT 780 Satellite office June 30, 2002
Branford, CT 200 Satellite office August 31, 2001
Hartford, CT 989 Satellite office April 30, 2002
Norwich, CT 1,200 Satellite office April 30, 2002
Bridgeport, CT 588 Satellite office April 30, 2002
Hackensack, NJ 4,281 Administrative office September 30, 2005
Verona, NJ 1,765 Branch office October 31, 2001
The Company believes that its office facilities are adequate for the
conduct of its existing operations. The Company regularly evaluates the
suitability and the overall adequacy of its various offices. The Company
believes that it will be able to either (i) renew any leases that will expire
-14-
during the current fiscal year or (ii) find adequate leases in lieu of any
leases that have expired or will expire during the current fiscal year.
ITEM 3. LEGAL PROCEEDINGS.
The Company, certain of its officers and directors (who previously were
outside directors of SunStar) (the "director defendants") and other parties were
named as defendants in In Re SunStar Healthcare Securities Litigation (United
States District Court for Middle District of Florida), a consolidated class
action brought on behalf of a purported class of shareholders of SunStar who
purchased stock of SunStar between June 15, 1998 and December 14, 1999. In
February 2001, the Court dismissed the Consolidated Amended Complaint and
granted plaintiffs leave to amend. The plaintiffs' Second Consolidated Amended
Complaint (the "Complaint") purported to assert claims under sections 10(b) (and
Rule 10b-5 promulgated thereunder) and 20(a) of the Securities Exchange Act of
1934, as amended, based upon alleged acts or omissions of the defendants that
allegedly resulted in misrepresentations or omissions of material information
concerning the financial condition of SunStar (and its subsidiary SunStar Health
Plan, Inc., a Florida HMO presently in receivership ("Plan")). The Complaint
also alleged that the Company (which allegedly held 30.5% of SunStar's common
stock during SunStar's fiscal year ended July 31, 1998 and reduced its holdings
to approximately 25% in 1999) and the director defendants exercised control over
SunStar and therefore are liable as "controlling persons" of SunStar. In October
2001, the Court granted the defendants' motion to dismiss the Complaint with
prejudice. The Company does not know whether plaintiffs will exercise their
right to appeal this decision against them.
In a related action, the director defendants, along with thirteen others,
are named as defendants in Department of Insurance of the State of Florida v.
Warren D. Stowell et al. (Circuit Court, Seminole County, Florida) in which the
plaintiff as the receiver of Plan brings claims purporting to arise out of the
same facts forming the basis of the class action described in the paragraph
above and other alleged matters relating to the insolvency of Plan. The Company
understands that a related action also has been brought by the plaintiff against
SunStar's and Plan's auditors. The Company is not a party to these actions. An
amended complaint relating to the action captioned above was filed on November
17, 2000, and on February 12, 2001 the director defendants filed motions to
dismiss the action. On May 7, 2001, the Court granted the director defendants'
motion to dismiss and granted the plaintiff leave to serve a further amended
complaint. On July 24, 2001, the plaintiff served an amended complaint. On
September 24, 2001 the director defendants filed a motion to dismiss the amended
complaint. The Company intends to indemnify the director defendants to the
fullest extent permitted under its by-laws and applicable law in connection with
all of the actions described herein. At this early stage of the action captioned
above, it is premature to assess the likelihood of the Company incurring any
loss by virtue of the foregoing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of stockholders of the Company during
the fourth quarter of the fiscal year ended July 31, 2001.
-15-
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS.
(A) MARKET INFORMATION
The Company's common stock is quoted on the NASDAQ National Market under
the symbol NHHC. The following table presents the quarterly high and low bid
quotations in the over-the-counter market, as reported by the National
Association of Securities Dealers for the two fiscal years ended July 31, 2000
and 2001. These quotations reflect the inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
Market Prices
--------------------------------------
High Low
Year ended July 31, 2000
1st Quarter.............................................................. $4.75 $3.75
2nd Quarter.............................................................. 4.25 3.50
3rd Quarter.............................................................. 5.06 3.63
4th Quarter.............................................................. 5.00 4.00
Year ended July 31, 2001
1st Quarter.............................................................. $6.94 $4.50
2nd Quarter.............................................................. 5.75 5.06
3rd Quarter.............................................................. 7.31 5.12
4th Quarter.............................................................. 10.03 6.10
(B) HOLDERS
There were approximately 135 holders of record of the Company's common
stock as of October 26, 2001, excluding shares held by depository companies for
certain beneficial owners.
(C) Dividends
The Company has not declared or paid any cash dividends on its common stock
during the last three fiscal years. It anticipates that for the foreseeable
future all earnings will be retained for use in its business and, accordingly,
it does not intend to pay cash dividends. On March 13, 2001, the Board of
Directors of the Company declared a 5% stock dividend payable on March 23, 2001
to stockholders of record on March 16, 2001.
ITEM 6. SELECTED FINANCIAL DATA.
The following table, which presents selected financial data for the Company
for each of the last five fiscal years, has been derived from the Company's
audited Consolidated Financial Statements. The data set forth below should be
read in conjunction with the Consolidated Financial Statements in Item 8 of this
Report.
-16-
Fiscal Years Ended July 31,
--------------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenue ......................... $ 74,492,000 $ 55,574,000 $ 38,518,000 $ 34,313,000 $ 35,070,000
Operating expenses .............. 67,804,000 51,247,000 36,090,000 31,394,000 31,770,000
Income from operations .......... 6,688,000 4,327,000 2,428,000 2,919,000 3,300,000
Other income (loss):
Interest income ................ 216,000 220,000 385,000 547,000 446,000
Gain resulting from sale of
Subsidiary's stock ........... -- 1,602,000 -- -- --
Gain resulting from subsidiary's
stock offering ................ -- -- -- 331,000 --
(Loss) from equity investee .... -- -- (674,000) (1,630,000) (612,000)
Income before income taxes ...... 6,904,000 6,149,000 2,139,000 2,167,000 3,134,000
Provision for income taxes ...... 2,704,000 2,058,000 1,001,000 964,000 1,278,000
Net income ...................... 4,200,000 4,091,000 1,138,000 1,203,000 1,856,000
Diluted net income per share of
common stock .................... $ 0.78 $ 0.77 $ 0.21 $ 0.22 $ 0.33
The above results include the operations of SunStar through April 30, 1996.
Subsequent thereto, the operations of SunStar are recorded on the equity method
and are reflected above as loss from equity investee.
At July 31,
-----------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets...................... $37,250,000 $30,988,000 $26,092,000 $25,503,000 $25,224,000
Working capital................... 22,426,000 19,312,000 17,708,000 19,134,000 16,853,000
Retained earnings................. 14,784,000 12,274,000 8,183,000 7,045,000 5,842,000
Stockholders' equity.............. 32,584,000 28,486,000 25,013,000 24,281,000 23,360,000
Item 7. 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 consolidated financial statements and
notes appearing elsewhere herein.
The Company is subject to external factors that could significantly
impact its business, including potential reductions in reimbursement rates by
Medicare, Medicaid and third party
-17-
payors for the Company's services, retroactive adjustments due to prior year
audits, reviews and investigations, government fraud and abuse initiatives and
other such factors that are beyond the control of the Company. These factors
could cause future results to differ materially from historical results.
The implementation of IPS under the Balanced Budget Act resulted in a
decrease in Medicare revenue from the Company's Medicare certified agency. See
"Item 1. Business - General - Medicare".
On August 25, 2000, the Company acquired through Accredited certain assets
of Health Force. Health Force's operations included the provision of home health
aide and skilled nursing services in northern and central New Jersey. The
acquisition was accounted for utilizing purchase accounting principles.
On April 14, 2000, the Company acquired through New England certain assets
of U.S. HomeCare-Connecticut. The acquisition was accounted for utilizing
purchase accounting principles. See "Item 1. Business - General - New England
Home Care, Inc.".
On November 1, 1999, the Company acquired through New England certain
assets of the Optimum Entities. The Company is operating the acquired assets
through New England and Connecticut Staffing. The Optimum Entities had been
engaged in the business of providing home health care and staffing related
services in Connecticut. The acquisition was accounted for utilizing purchase
accounting principles. See "Item 1. Business - General - New England Home Care,
Inc.".
On October 30, 1998, the Company acquired all the outstanding common shares
of Accredited, a licensed home health care company that provides home health
care services in Bergen, Hudson, Passaic, Essex, Morris, Union, Somerset and
Middlesex Counties, New Jersey. The acquisition was accounted for utilizing
purchase accounting principles. See "Item 1. Business - General - Accredited
Health Services, Inc.".
On August 10, 1998, the Company acquired through Allen Health Care certain
assets of Bryan Home Care. The acquisition was accounted for utilizing purchase
accounting principles. See "Item 1. Business - General - Health Acquisition
Corp. d/b/a Allen Health Care Services".
SunStar, formerly a wholly owned subsidiary of the Company, had comprised
the Company's Florida outpatient medical center operations. In May 1996, SunStar
completed its initial public offering following a complete change in management
and the adoption of a business plan by new management for the establishment of a
health maintenance organization. As a result, SunStar was no longer consolidated
with the Company for accounting purposes. The Company had utilized the equity
method of accounting for its investment in SunStar. In February 2000, SunStar's
sole operating subsidiary effectively discontinued operations. As of July 31,
2001, the Company's value of its investment in SunStar is $0.
-18-
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JULY 31,
2001 2000 1999
---- ---- ----
Net patient revenue 100.0% 100.0% 100.0%
Cost of revenue 65.2 65.6 65.8
General and administrative 23.7 24.4 26.4
Bad debt expense .8 1.0 --
Amortization of intangibles 1.3 1.2 1.4
---- ---- ----
Total operating expenses 91.0 92.2 93.6
Income from operations 9.0 7.8 6.4
Gain resulting from sale of stock of equity investee -- 2.9 --
(Loss) from equity investee -- -- (1.8)
Interest income .3 .4 1.0
---- ---- ----
Income before income taxes 9.3 11.1 5.6
Provision for income taxes 3.7 3.7 2.6
---- ---- ----
Net income 5.6% 7.4% 3.0%
==== ==== ====
YEAR ENDED JULY 31, 2001 COMPARED TO YEAR ENDED JULY 31, 2000
For the fiscal year ended July 31, 2001 ("fiscal 2001"), net patient
revenue increased $18,918,000, or 34%, to $74,492,000 from $55,574,000 for the
fiscal year ended July 31, 2000 ("fiscal 2000"). This increase is attributable
to $8,190,000 of net patient revenue realized from the expansion of the
Company's operations in Connecticut through the opportunity represented by the
liquidation of the Optimum Entities, the acquisition in November 1999 of certain
assets of the Optimum Entities, the acquisition of certain assets of U.S.
HomeCare-Connecticut in April 2000 and the successful penetration of the
available market share. In addition, as a result of the acquisition in August
2000 of certain assets of Health Force in New Jersey, the Company's net patient
revenue increased $3,538,000 over fiscal 2000. Further, the Company's net
patient revenue in New York increased $7,190,000 as a result of, among other
things, the Company's ability to capitalize on additional market share resulting
from the abandonment of Health Force's operations there.
-19-
Gross profit margin increased to 34.8% for fiscal 2001 from 34.4% for
fiscal 2000. This slight increase is attributable to the higher reimbursement
rates realized from the expansion in the Connecticut and New Jersey markets.
General and administrative expenses increased $4,091,000, or 30.2% to
$17,628,000 from $13,537,000 in fiscal 2000. This increase is attributable to
the additional general and administrative expenses, consisting primarily of
additional administrative personnel and occupancy related costs, incurred in
connection with the expansion into the markets previously served by the Optimum
Entities, U.S. HomeCare-Connecticut and Health Force. As a percentage of net
patient revenue, general and administrative expenses decreased to 23.7% in
fiscal 2001 from 24.4% in fiscal 2000.
Amortization of intangibles increased $296,000, or 44.8% to $956,000 in
fiscal 2001 from $660,000 in fiscal 2000. This increase is attributable to the
amortization of goodwill and intangibles associated with the acquisitions of
certain assets of the Optimum Entities, U.S. Home Care-Connecticut and Health
Force.
The Company recorded a bad debt provision of $670,000 in fiscal 2001, as
compared to $595,000 in fiscal 2000. The Company has experienced increases in
accounts receivable with certain of the Medicare certified agencies and
healthcare facilities with which it contracts.
As a result of the foregoing, income from operations increased $2,361,000,
or 54.6% to $6,688,000 in fiscal 2001 from $4,327,000 in fiscal 2000.
Interest income decreased slightly to $216,000 in fiscal 2001 from $220,000
in fiscal 2000. This decrease is attributable to the decline in interest rates
during fiscal 2001.
During fiscal 2000, the Company recorded a gain resulting from the sale of
stock of equity investee of $1,602,000 resulting from the sale of 259,510 shares
of SunStar.
The Company's effective tax rate increased to 39.2% in fiscal 2001 as
compared to 35.5% in fiscal 2000. This increase is attributable to a lower
effective tax rate on the gain resulting from the sale of stock of equity
investee in fiscal 2000. Excluding the gain resulting from the sale of stock of
equity investee, the effective tax rate decreased from 41.3% in fiscal 2000.
This decrease is the result of a benefit recorded in fiscal 2001 for an
over-accrual of taxes in fiscal 2000.
Net income increased $109,000, or 2.7% to $4,200,000, or $.78 per share in
fiscal 2001 from $4,091,000, or $.77 per share in fiscal 2000.
YEAR ENDED JULY 31, 2000 COMPARED TO YEAR ENDED JULY 31, 1999
For fiscal 2000, net patient revenue increased $17,056,000, or 44.3%, to
$55,574,000 from $38,518,000 for the fiscal year ended July 31, 1999 ("fiscal
1999"). This increase was attributable to $17,877,000 of net patient revenue
realized from the expansion of the Company's operations in Connecticut through
the opportunity represented by the liquidation of the Optimum Entities, the
acquisition on November 1, 1999 of certain assets of the Optimum Entities and
the successful penetration of the available market share, offset by the decline
in same source net patient revenue of ($821,000). As a result of such expansion,
net patient revenue from New
-20-
England increased $14,109,000, or 145.7% to $23,627,000 for fiscal 2000 from
$9,685,000 for fiscal 1999. To a lesser degree, net patient revenue generated
from New England also benefited from the acquisition of certain assets of U.S.
HomeCare-Connecticut. Also as a result of such expansion, net patient revenue
from Connecticut Staffing generated net patient revenue of $3,768,000 for fiscal
2000 as compared to $0 for fiscal 1999. During fiscal 2000, net patient revenue
from Allen Health Care decreased ($1,282,000), or (5.2%) to $23,627,000 from
$24,909,000 for fiscal 1999. This decrease was attributable to the decline in
hours and, in some cases, a decrease in reimbursement rates from the Medicare
certified home health care agencies that Allen Health Care contracts with, as a
result of the implementation of IPS. Net patient revenue from Accredited for
fiscal 2000 was $4,385,000 as compared to $3,924,000 for fiscal 1999. This
increase was attributable to twelve months of revenue in fiscal 2000 as compared
to nine months of revenue in fiscal 1999.
Gross profit margin increased to 34.4% for fiscal 2000 from 34.2% for
fiscal 1999. This increase was attributable to the higher reimbursement rates
realized in the expansion into the market previously served by the Optimum
Entities and U.S. HomeCare-Connecticut.
General and administrative expenses increased $3,354,000, or 32.9%, to
$13,537,000 in fiscal 2000 from $10,183,000 in fiscal 1999. This increase was
attributable to the additional general and administrative expenses incurred in
connection with the expansion into the market previously served by the Optimum
Entities and U.S. HomeCare-Connecticut. As a percentage of net patient revenue,
general and administrative expenses decreased to 24.4% in fiscal 2000 from 26.4%
in fiscal 1999.
The Company recorded a provision of $595,000 in bad debt expense in fiscal
2000 as compared to $0 in fiscal 1999. As the Company did not have experience
with many of the new payor sources with which it started contracting as a result
of the expansion into the new markets in Connecticut, the Company established a
reserve against its accounts receivable. In addition, the Company experienced
increases in accounts receivable balances with certain of the Medicare certified
agencies with which it contracted. Accordingly, the Company reserved against
accounts receivable in the event that some of these accounts would have to be
written off. The Company was closely monitoring the credit terms extended to
these agencies.
Amortization of intangibles increased $110,000, or 20%, to $660,000 in
fiscal 2000 from $550,000 in fiscal 1999. This increase was attributable to the
amortization of goodwill and intangibles associated with the acquisition of
certain assets of the Optimum Entities and U.S. HomeCare-Connecticut during
fiscal 2000.
As a result of the foregoing, income from operations increased $1,899,000,
or 78.2%, to $4,327,000 in fiscal 2000 from $2,428,000 in fiscal 1999.
Interest income decreased ($165,000), or (42.9%), to $220,000 in fiscal
2000 from $385,000 in fiscal 1999. This decrease was attributable to cash used
in investing activities resulting from the acquisition of certain assets of the
Optimum Entities and U.S. HomeCare-Connecticut.
During fiscal 2000, the Company recorded a gain on sale of subsidiary stock
of $1,602,000 resulting from the sale of 259,510 shares of SunStar. During
fiscal 1999,
-21-
the Company recorded a loss from equity investee of ($674,000), representing the
Company's share of the net loss reported by SunStar for the same period.
The Company's effective tax rate decreased to 33.5% in fiscal 2000 as
compared to 46.8% in fiscal 1999. This decrease was attributable to both a lower
effective tax rate on the sale of SunStar stock in fiscal 2000 and to no income
tax benefit recorded in fiscal 1999 related to the loss from equity investee.
Excluding the gain resulting from sale of subsidiary stock and the loss from
equity investee, the effective tax rate increased to 41.3% in fiscal 2000 from
35.6% in fiscal 1999. This increase was the result of a benefit recorded in
fiscal 1999 for an overacrrual of taxes in the fiscal year ended July 31, 1998.
Net income increased $2,953,000, or 259%, to $4,091,000, or $.78 per share
in fiscal 2000 from $1,138,000, or $.21 per share in fiscal 1999.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Current assets increased to $27,092,000 and current liabilities increased
to $4,666,000, respectively, at July 31, 2001. This resulted in an increase in
working capital of $3,114,000 from $19,312,000 at July 31, 2000 to $22,426,000
at July 31, 2001. Cash and cash equivalents increased $4,226,000 to $9,082,000
at July 31, 2001 from $4,856,000 at July 31, 2000. This increase in cash and
working capital is primarily attributable to the net cash provided by operating
activities, offset by the cash used to acquire certain assets of Health Force in
August 2000.
Net cash provided by operating activities was $6,513,000 in fiscal 2001 as
compared to $1,305,000 in fiscal 2000. The increase in cash provided by
operating activities of $5,208,000, or 399%, is attributable to an increase in
operating cash flow of $1,745,000, net decreases in operating assets of
$2,568,000 and net increases in operating liabilities of $895,000.
Investing activities in fiscal 2001 used cash of ($2,185,000) as compared
to cash used of ($3,273,000) in fiscal 2000. The cash used in investing
activities in fiscal 2001 consisted of the purchase of certain assets of Health
Force and the purchase of equipment, offset by the proceeds from the sale of
assets. The cash used in investing activities in fiscal 2000 consisted of the
acquisitions made by the Company and the purchase of equipment, offset by the
proceeds of sale of stock of equity investee, proceeds of investments and the
sale of assets.
Financing activities in fiscal 2001 used cash of ($102,000) as compared to
($618,000) in fiscal 2000. The cash used in fiscal 2001 reflects the purchase of
treasury shares pursuant to the Company's stock repurchase plan, offset by the
proceeds from the exercise of stock options and the related tax benefit. Net
cash used in financing activities in fiscal 2000 reflects the purchase of
treasury shares.
The nature of the Company's business requires weekly payments to health
care personnel at the time services are rendered. The Company typically receives
payment for these services on a basis of 90 to 120 days with respect to
contracted and insurance business and 15 to 45 days with respect to certain
governmental payors, such as Medicare and Medicaid programs. Accounts receivable
turnover was 81 days in fiscal 2001 and 89 days in fiscal 2000.
-22-
On October 24, 2001, the Company closed on a $7,500,000 committed revolving
line of credit facility (the "credit facility") with its bank. The credit
facility provides for the Company to borrow up to the lesser of $7,500,000 or
80% of eligible accounts receivable that are aged less than 120 days at the
bank's prime rate or LIBOR plus 2.5%. The credit facility expires on October 23,
2003 and requires the Company to meet certain financial covenants and ratios.
The Company is required to pay .25% commitment fee on unused amounts, payable
quarterly in arrears.
The Company intends to meet its short term and long term liquidity needs
with its current cash balances, cash flow from operations and its existing
credit facility.
In October 2001, the Board of Directors extended for one year its program
to repurchase its common stock. Purchases in the aggregate amount of up to
$1,000,000 in purchase price during the one-year extension would be made from
time to time in the open market and through privately negotiated transactions,
subject to general market and other conditions. The buyback program would be
financed out of existing cash or cash equivalents.
Other than as set forth herein, the Company has no material commitments for
capital expenditures.
INFLATION AND SEASONALITY
The rate of inflation had no material effect on operations for fiscal 2001.
The effects of inflation on personnel costs in the future could have an adverse
effect on operations, as the Company may not be able to increase its charges for
services rendered. The Company's business is not seasonal.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized the FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS
-23-
142. SFAS 142 is required to be applied in fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142 requires the
Company to complete a transitional goodwill impairment test six months from the
date of adoption. The Company is also required to reassess the useful lives of
other intangible assets within the first interim quarter after adoption of SFAS
142.
The Company's previous business combinations were accounted for using the
purchase method. As of July 31, 2001, the net carrying amount of goodwill is
$7,166,000 and other intangible assets is $1,817,000. Amortization expense
during the year ended July 31, 2001 was $956,000. Currently the Company is
assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142
will impact its financial position and results of operations.
DISCLOSURE REGARDING PRIVATE LITIGATION REFORM ACT OF 1995
Except for historical information contained in this report on Form 10-K,
certain matters set forth herein are forward-looking statements that are
dependent on certain risks and uncertainties, including such factors, among
others, as market acceptance, pricing and demand for the Company's services,
changing regulatory environment, changing economic conditions, risks in
connection with acquisitions, ability to attract and retain qualified personnel,
ability to manage the Company's growth, and other risks detailed in the
Company's other filings with the Securities and Exchange Commission (the "SEC").
In particular, in addition to the specific regulatory matters described herein,
the Company generally, as a participant in the home health care industry, is
subject to extensive federal, state and local regulations. There can be no
assurance that any of these regulations will not change from existing standards,
that additional standards will not be imposed or that the Company will not
experience adverse effects as a result of efforts to comply with applicable
standards, which are extensive, complex and often-changing.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by this item is set forth in the
Consolidated Financial Statements on pages F-1 through F-31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On June 22, 2001, the Company dismissed Holtz Rubenstein & Co., LLP ("Holtz
Rubenstein") as the Company's independent public accountants.
On June 22, 2001, the Company selected BDO Seidman, LLP ("BDO Seidman") to
replace Holtz Rubenstein as the Company's independent public accountants. The
decision to change auditors was approved by the Audit Committee of the Board of
Directors.
-24-
Holtz Rubenstein's report on the financial statements of the Company
for each of the past two fiscal years did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.
During fiscal 1999 and fiscal 2000, and the subsequent interim period
through June 22, 2001, there were no disagreements with Holtz Rubenstein on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Holtz Rubenstein, would have caused Holtz Rubenstein to make
reference to the subject matter of the disagreements in connection with its
audit report with respect to financial statements of the Company.
During fiscal 1999 and fiscal 2000, and the subsequent interim period
through June 22, 2001, there was no disagreement or difference of opinion with
Holtz Rubenstein regarding any "reportable event," as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.
On June 22, 2001, the Company filed a Current Report on Form 8-K, as
amended (the "Report") and provided Holtz Rubenstein with a copy of this Report,
requesting that Holtz Rubenstein furnish the Company with a letter addressed to
the SEC stating whether it agreed with the statements made by the Company. Such
letter was attached to the Report as Exhibit 16 and is hereby incorporated by
reference.
During fiscal 1999 and fiscal 2000, and the subsequent interim period
through June 22, 2001, neither the Company nor anyone on behalf of the Company
consulted BDO Seidman regarding either the application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the financial statements of the Company or any
matter that was either the subject of a disagreement, within the meaning of Item
304(a)(1)(iv) of Regulation S-K, or any reportable event, as that term is
defined in Item 304(a)(1)(v) of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by each of the items of Part III is omitted from
this Report. Pursuant to the General Instruction G(3) to Form 10-K, the
information is included in the Company's Proxy Statement for its 2001 Annual
Meeting of Stockholders to be held on December 6, 2001, and is incorporated
herein by reference. The Company intends to file such Proxy Statement with the
SEC not later than 120 days subsequent to July 31, 2001.
-25-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following represents a listing of all financial statements,
financial statement schedules and exhibits filed as part of this Report.
(1) Financial Statements (see index to the consolidated financial
statements).
-26-
National Home Health Care Corp.
and Subsidiaries
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL MATERIAL
YEARS ENDED JULY 31, 2001 AND 2000
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONTENTS
REPORT OF BDO SEIDMAN, LLP, INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS F-3
REPORT OF HOLTZ RUBENSTEIN & Co., LLP, Independent
Certified Public Accountants F-4
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets F-5
Statements of earnings F-6
Statements of changes in stockholders' equity F-7
Statements of cash flows F-8
Summary of accounting policies F-9 - F-14
Notes to consolidated financial statements F-15 - F-27
SUPPLEMENTAL MATERIAL:
Report of BDO Seidman, LLP, Independent
Certified Public Accountants on supplemental material F-29
Report of Holtz Rubenstein & Co., LLP, Independent
Certified Public Accountants on schedule F-30
Schedule II: Valuation and qualifying accounts F-31
F-2
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
INDEPENDENT AUDITORS' REPORT
Board of Directors
National Home Health Care Corp.
Scarsdale, New York
We have audited the accompanying consolidated balance sheet of National Home
Health Care Corp. and Subsidiaries as of July 31, 2001 and related consolidated
statements of earnings, changes in stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2001 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Home Health Care Corp. and Subsidiaries at July 31, 2001, and the results of
their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
September 28, 2001
F-3
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York
We have audited the accompanying consolidated balance sheet of National Home
Health Care Corp. and Subsidiaries as of July 31, 2000 and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for the two years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the financial statements of SunStar Healthcare, Inc., a
corporation in which the Company had a 30.5% equity interest, which statements
reflect a net loss of ($1,631,000) for the period ended December 31, 1998. Those
statements were audited by other auditors whose report has been furnished to us;
insofar as our opinion on the 1999 consolidated financial statements relates to
data included for SunStar Healthcare, Inc. it is based solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the report of other auditors, with
respect to SunStar Healthcare, Inc. as described above, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of National Home Health Care Corp. and its
Subsidiaries as of July 31, 2000, and the consolidated results of their
operations and their consolidated cash flows for the two years then ended, in
conformity with generally accepted accounting principles.
/S/ HOLTZ RUBENSTEIN & Co., LLP
Melville, New York
October 3, 2000
F-4
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 2001 2000
------------------------------------------------------------------------ --------------------- ---------------------
ASSETS
CURRENT:
Cash, (including cash equivalents of $7,150,000 and $2,942,000,
respectively) (Note 8) $ 9,082,000 $ 4,856,000
Investments 18,000 18,000
Accounts receivable, less allowance for doubtful accounts of
$865,000 and $673,000, respectively (Note 8) 15,983,000 15,847,000
Prepaid expenses and other 1,199,000 589,000
Deferred income taxes (Note 7) 810,000 504,000
------------------------------------------------------------------------ --------------------- ---------------------
TOTAL CURRENT ASSETS 27,092,000 21,814,000
------------------------------------------------------------------------ --------------------- ---------------------
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET (NOTE 1) 939,000 760,000
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET (NOTE 2) 7,166,000 6,945,000
OTHER INTANGIBLE ASSETS, NET (NOTE 3) 1,817,000 1,257,000
DEPOSITS AND OTHER ASSETS 236,000 212,000
------------------------------------------------------------------------ --------------------- ---------------------
$37,250,000 $30,988,000
------------------------------------------------------------------------ --------------------- ---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 4) $ 3,268,000 $ 2,203,000
Estimated third-party payor settlements 1,090,000 132,000
Deferred revenue 282,000 -
Income taxes payable 26,000 167,000
------------------------------------------------------------------------ --------------------- ---------------------
Total current liabilities 4,666,000 2,502,000
------------------------------------------------------------------------ --------------------- ---------------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, shares authorized - 20,000,000;
issued - 6,491,229 and 6,228,746, respectively 6,000 6,000
Additional paid-in capital 20,306,000 18,525,000
Retained earnings 14,784,000 12,274,000
------------------------------------------------------------------------ --------------------- ---------------------
35,096,000 30,805,000
Less treasury stock (1,310,679 and 1,276,788 shares)- at cost 2,512,000 2,319,000
------------------------------------------------------------------------ --------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 32,584,000 28,486,000
------------------------------------------------------------------------ --------------------- ---------------------
$37,250,000 $30,988,000
------------------------------------------------------------------------ --------------------- ---------------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended July 31, 2001 2000 1999
---- ---- ----
NET PATIENT REVENUE (Note 8) $74,492,000 $55,574,000 $38,518,000
--------------------------------------------------------------- ----------------- ------------------ -----------------
OPERATING EXPENSES:
Cost of revenue 48,550,000 36,455,000 25,357,000
General and administrative 17,628,000 13,537,000 10,183,000
Amortization of intangibles 956,000 660,000 550,000
Provision for doubtful accounts 670,000 595,000 -
--------------------------------------------------------------- ----------------- ------------------ -----------------
TOTAL OPERATING EXPENSES 67,804,000 51,247,000 36,090,000
--------------------------------------------------------------- ----------------- ------------------ -----------------
INCOME FROM OPERATIONS 6,688,000 4,327,000 2,428,000
--------------------------------------------------------------- ----------------- ------------------ -----------------
OTHER INCOME (EXPENSE):
Interest income 216,000 220,000 385,000
Gain resulting from sale of stock of equity investee
(Note 5) - 1,602,000 -
Loss from equity investee (Note 5) - - (674,000)
--------------------------------------------------------------- ----------------- ------------------ -----------------
TOTAL OTHER INCOME (EXPENSES) 216,000 1,822,000 (289,000)
--------------------------------------------------------------- ----------------- ------------------ -----------------
INCOME BEFORE INCOME TAXES 6,904,000 6,149,000 2,139,000
PROVISION FOR INCOME TAXES (NOTE 7) 2,704,000 2,058,000 1,001,000
--------------------------------------------------------------- ----------------- ------------------ -----------------
NET INCOME $ 4,200,000 $ 4,091,000 $ 1,138,000
--------------------------------------------------------------- ----------------- ------------------ -----------------
NET INCOME PER COMMON SHARE:
Basic $ .81 $ .78 $ .21
Diluted $ .78 $ .77 $ .21
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 5,179,824 5,274,215 5,406,453
Diluted 5,351,203 5,287,345 5,461,470
--------------------------------------------------------------- ----------------- ------------------ -----------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------ PAID-IN RETAINED -------------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
--------------------------------------------- ----------- ------------ -------------- --------------- ----------- ------------
Balance, July 31, 1998 6,228,746 $6,000 $18,525,000 $7,045,000 1,028,879 $(1,295,000)
Net income - - - 1,138,000 - -
Acquisition of treasury stock - - - - 96,057 (406,000)
--------------------------------------------- ----------- ------------ -------------- ------------- ------------ ------------
Balance, July 31, 1999 6,228,746 6,000 18,525,000 8,183,000 1,124,936 (1,701,000)
Net income - - - 4,091,000 - -
Acquisition of treasury stock - - - - 151,842 (618,000)
--------------------------------------------- ----------- ------------ -------------- ------------- ------------ ------------
Balance, July 31, 2000 6,228,746 6,000 18,525,000 12,274,000 1,276,778 (2,319,000)
Net income - - - 4,200,000 - -
Stock dividend declared March 16, 2001 245,983 - 1,690,000 (1,690,000) - -
Exercise of stock options 16,500 - 69,000 - - -
Tax Benefit of stock option exercise - - 22,000 - - -
Acquisition of treasury stock - - - - 33,901 (193,000)
--------------------------------------------- ----------- ------------ -------------- ------------- ------------ ------------
BALANCE, JULY 31, 2001 6,491,229 $6,000 $20,306,000 $14,784,000 1,310,679 $(2,512,000)
--------------------------------------------- ----------- ------------ -------------- ------------- ------------ ------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO FINANCIAL STATEMENTS.
F-7
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31, 2001 2000 1999
------------------------------------------------------------------ ---------------- ----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,200,000 $ 4,091,000 $ 1,138,000
------------------------------------------------------------------ ---------------- ----------------- ----------------
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 1,194,000 881,000 682,000
Gain resulting from sale of equity investee stock - (1,602,000) -
Provision for doubtful accounts, net of write-offs 192,000 281,000 -
Deferred income taxes (306,000) (87,000) -
Loss from equity investee - - 674,000
(Gain) loss on sale of assets 31,000 2,000 (3,000)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (328,000) (3,099,000) (1,400,000)
Prepaid expenses and other (634,000) (431,000) 7,000
(Increase) decrease in liabilities:
Accounts payable, accrued expenses and other
liabilities 1,065,000 1,124,000 (62,000)
Deferred revenue 282,000 - -
Income taxes payable (141,000) 277,000 8,000
Estimated third party-payor settlements 958,000 (132,000) (209,000)
------------------------------------------------------------------ ---------------- ----------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,513,000 1,305,000 835,000
------------------------------------------------------------------ ---------------- ----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and leasehold improvements (470,000) (257,000) (195,000)
Purchase of assets of business (1,737,000) (4,801,000) (1,943,000)
Purchase of Accredited Health Service, Inc., net of cash - (1,736,000)
acquired -
Proceeds from sale of equity investee stock - 1,602,000 -
Proceeds from sales of assets 22,000 23,000 6,000
Proceeds of investments - 160,000 310,000
------------------------------------------------------------------ ---------------- ----------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (2,185,000) (3,273,000) (3,558,000)
------------------------------------------------------------------ ---------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (193,000) (618,000) (406,000)
Proceeds from exercise of stock options 69,000 - -
Other 22,000 - -
Repayment of notes payable - - (421,000)
------------------------------------------------------------------ ---------------- ----------------- ----------------
NET CASH USED IN FINANCING ACTIVITIES (102,000) (618,000) (827,000)
------------------------------------------------------------------ ---------------- ----------------- ----------------
Net increase (decrease) in cash and cash equivalents 4,226,000 (2,586,000) (3,550,000)
Cash and cash equivalents, beginning of year 4,856,000 7,442,000 10,992,000
------------------------------------------------------------------ ---------------- ----------------- ----------------
Cash and cash equivalents, end of year $ 9,082,000 $ 4,856,000 $ 7,442,000
------------------------------------------------------------------ ---------------- ----------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID FOR:
Interest $ 1,000 $ 16,000 $ 4,000
Income taxes $ 3,129,000 $ 1,870,000 $ 1,100,000
------------------------------------------------------------------ ---------------- ----------------- ----------------
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
BUSINESS National Home Health Care Corp. and
Subsidiaries (the "Company") is a provider
of home health care services, including
nursing care, personal care and other
specialized health services. Due to the
similarities in services, management
considers their operations to be one
reportable business segment.
PRINCIPLES The consolidated financial statements
CONSOLIDATION include the accounts of National Home
Health Care Corp. and its wholly-owned
subsidiaries. All significant intercompany
balances and transactions have been
eliminated in the consolidated financial
statements.
REVENUE RECOGNITION AND Net patient revenue is reported at
ALLOWANCE FOR DOUBTFUL estimated net realizable amounts from
ACCOUNTS patients, third-party payors, and others
for services rendered and includes
estimated retroactive revenue adjustments
relating to future audits, reviews and
investigations. Estimated retroactive
adjustments are modified in future periods
as adjustments based on reviews or as
years are no longer subject to reviews. A
provision for doubtful accounts is
recorded based upon management's
evaluation of current industry conditions,
historical collection experience and other
relevant factors which, in the opinion of
management, require recognition in
estimating the allowance for doubtful
accounts.
Under Medicaid, Medicare and other
cost-based reimbursement programs, the
Company is reimbursed for services
rendered to covered program patients as
determined by reimbursement formulas. Laws
and regulations governing these programs
are extremely complex and subject to
interpretation. As a result, it is
possible that recorded estimates will
change.
F-9
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
REVENUE RECOGNITION AND Approximately 51%, 36% and 34% of net
ALLOWANCE FOR DOUBTFUL patient revenue for the fiscal years for
ACCOUNTS (CONTINUED) ended July 31, 2001, 2000 and 1999,
respectively, were derived under federal
and state third-party reimbursement
programs.
CASH AND CASH For the purposes of the statements of cash
EQUIVALENTS flows, the Company considers all highly
liquid investment instruments purchased
with a maturity of three months or less to
be cash equivalents.
FURNITURE, EQUIPMENT Furniture, equipment and leasehold
AND LEASEHOLD improvements are stated at cost.
IMPROVEMENTS Depreciation is being provided on the
straight-line method over the estimated
useful lives of the assets (generally five
to ten years). Amortization of leasehold
improvements is being provided on the
straight-line method over the various
lease terms or estimated useful lives, if
shorter.
EXCESS OF COST OVER FAIR The excess of cost over the fair value of
VALUE OF NET ASSETS net assets acquired (goodwill) is being
ACQUIRED amortized principally over a period of 20
years on a straight-line basis. Goodwill
is evaluated periodically and adjusted if
necessary, if events and circumstances
indicate that a permanent decline in value
below the current unamortized historical
cost has occurred
NET INCOME PER COMMON SHARE Basic net income per common share is
computed by dividing income available to
common shareholders by the
weighted-average number of common shares
outstanding. Diluted earnings per share
reflect, in periods in which they have a
dilutive effect, the impact of common
shares issuable upon exercise of stock
options.
F-10
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NET INCOME PER COMMON The reconciliation for the years ended
SHARE (CONTINUED) July 31, 2001, 2000 and 1999 are as
follows:
YEARS ENDED JULY 31, 2001 2000 1999
Average number of shares
outstanding 5,179,824 5,274,215 5,406,453
Effect of dilutive securities -
common stock options 171,379 13,130 55,017
Diluted shares outstanding 5,351,203 5,287,345 5,461,470
FAIR VALUE OF FINANCIAL The carrying amount reported in the
INSTRUMENTS consolidated balance sheets for cash,
accounts receivable, accounts payable and
accrued liabilities approximates fair
value because of the immediate or
short-term maturity of the financial
instruments.
ACCOUNTING FOR STOCK The Company accounts for employee
OPTIONS stock-based compensation in accordance
with Accounting Principles Board Opinion
No. 25 (APB Opinion 25), "Accounting for
Stock Issued to Employees" using intrinsic
values with appropriate disclosure in
conformity with the fair value based
method in accordance with the Statement of
Financial Accounting Standard No. 123
("SFAS 123").
ESTIMATED THIRD-PARTY The amount represents overpayments from
PAYOR SETTLEMENT third-party payors. The Company settlement
anticipates that the third-party payor
will recoup these funds in subsequent
periods.
USE OF ESTIMATES The preparation of financial statements in
conformity with generally accepted
accounting principles requires management
to make estimates and assumptions that
affect the reported amounts of assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates. Such estimates relate
primarily to third-party payor settlements
and valuation reserves for accounts
receivable.
F-11
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
WORKER'S COMPENSATION The Company self-insures up to specified
limits certain risks related to workers'
compensation liability. The estimated
costs of existing and expected future
claims under the insurance program are
accrued based upon historical loss
development trends and may be subsequently
revised based on developments relating to
such claims.
INCOME TAXES The Company account for income taxes under
as asset and liability approach that
requires the recognition of deferred tax
assets and liabilities for the expected
future tax consequences of events that
have been recognized in the Company's
financial statements or tax returns. The
effect on deferred tax assets and
liabilities of changes in tax rates will
be recognized as income or expense in the
period that includes the enactment date.
The Company files a consolidated Federal
income tax return with its subsidiaries.
LONG-LIVED ASSETS Long-lived assets, such as goodwill and
property and equipment, are evaluated for
impairment when events or changes in
circumstances indicate that the carrying
amount of the assets may not be
recoverable through the estimated
undiscounted future cash flows from the
use of these assets. When any such
impairment exists, the related assets will
be written down to fair value.
RECLASSIFICATIONS Certain reclassifications have been made
in prior years' financial statements to
conform to classifications used in the
current year.
F-12
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
NEW ACCOUNTING In June 2001, the Financial Accounting
PRONOUNCEMENTS Standards Board finalized the FASB
Statements No. 141, Business Combinations
(SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS
141 requires the use of the purchase
method of accounting and prohibits the use
of the pooling-of-interests method of
accounting for business combinations
initiated after June 30, 2001. SFAS 141
also requires that the Company recognize
acquired intangible assets apart from
goodwill if the acquired intangible assets
meet certain criteria. SFAS 141 applies to
all business combinations initiated after
June 30, 2001 and for purchase business
combinations completed on or after July 1,
2001. It also requires, upon adoption of
SFAS 142, that the Company reclassify the
carrying amounts of intangible assets and
goodwill based on the criteria in SFAS
141.
SFAS 142 requires, among other things,
that companies no longer amortize
goodwill, but instead test goodwill for
impairment at least annually. In addition,
SFAS 142 requires that the Company
identify reporting units for the purposes
of assessing potential future impairments
of goodwill, reassess the useful lives of
other existing recognized intangible
assets, and cease amortization of
intangible assets with an indefinite
useful life. An intangible asset with an
indefinite useful life should be tested
for impairment in accordance with the
guidance in SFAS 142. SFAS 142 is required
to be applied in fiscal years beginning
after December 15, 2001 to all goodwill
and other intangible assets recognized at
that date, regardless of when those assets
were initially recognized. SFAS 142
requires the Company to complete a
transitional goodwill impairment test six
months from the date of adoption. The
Company is also required to reassess the
useful lives of other intangible assets
within the first interim quarter after
adoption of SFAS 142.
F-13
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
The Company's previous business
combinations were accounted for using the
purchase method. As of July 31, 2001, the
net carrying amount of goodwill is
$7,166,000 and other intangible assets is
$1,817,000. Amortization expense during
the year ended July 31, 2001 was $956,000.
Currently the Company is assessing but has
not yet determined how the adoption of
SFAS 141 and SFAS 142 will impact its
financial position and results of
operations.
F-14
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. FURNITURE, EQUIPMENT Furniture, equipment and leasehold improvements are stated at cost and are
AND LEASEHOLD summarized as follows:
IMPROVEMENTS summarized as follows:
JULY 31, 2001 2000
----------------------------------------- ------------------- ----------------
Furniture and equipment $1,776,000 $1,539,000
Leasehold improvements 369,000 212,000
----------------------------------------- ------------------- ----------------
2,145,000 1,751,000
Less accumulated depreciation and
amortization 1,206,000 991,000
----------------------------------------- ------------------- ----------------
$ 939,000 $ 760,000
----------------------------------------- ------------------- ----------------
2. EXCESS OF COST OVER Changes in the excess of cost over fair value of net assets acquired during
FAIR VALUE OF NET the two years ended July 31, 2001 and 2000 are as follows:
ASSETS ACQUIRED
JULY 31, 2001 2000
----------------------------------------- ------------------- ----------------
Balance, beginning of year $6,945,000 $5,334,000
Additions 722,000 1,978,000
Amortization for year (501,000) (367,000)
----------------------------------------- ------------------- ----------------
Balance, end of year $7,166,000 $6,945,000
----------------------------------------- ------------------- ----------------
3. OTHER INTANGIBLE Other intangible assets are as follows:
ASSETS
JULY 31, 2001 2000
----------------------------------------- ------------------- ----------------
Covenants not to compete $1,275,000 $ 975,000
Personnel files 1,519,000 1,119,000
Patient files 1,192,000 792,000
----------------------------------------- ------------------- ----------------
3,986,000 2,886,000
Less accumulated amortization 2,169,000 1,629,000
----------------------------------------- ------------------- ----------------
Balance, end of year $1,817,000 $1,257,000
----------------------------------------- ------------------- ----------------
Other intangible assets are being amortized using the straight-line
method over a period of three to ten years.
F-15
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
4. Accounts Payable and
Accrued Expenses Accounts payable and accrued expenses are as follows:
JULY 31, 2001 2000
----------------------------------------- ------------------- ----------------
Trade accounts payable $ 857,000 $ 276,000
Employee compensation and
benefits 2,070,000 1,826,000
Other 341,000 101,000
----------------------------------------- ------------------- ----------------
$3,268,000 $2,203,000
----------------------------------------- ------------------- ----------------
5. INVESTMENT IN During fiscal 1996, following an initial
SUNSTAR public offering and change in management,
HEALTHCARE, INC. the Company held a 37.6% investment in
SunStar Healthcare, Inc. ("SunStar"),
which was accounted for under the equity
method of accounting.
In fiscal 1998, the Company's ownership
percentage of SunStar was reduced to 30.5%
as a result of SunStar issuing additional
shares of its common stock pursuant to a
private placement in which it received
$1,318,000, net of expenses. In connection
therewith, the Company recorded a gain
before tax of $302,000 representing the
net increase in book value of the
Company's investment. Also in fiscal 1998,
the Company sold 10,000 shares of SunStar
for $37,000 and recorded a gain of
$29,000.
During the fiscal year ended July 31,
2000, the Company sold 259,510 shares of
SunStar for $1,602,000, resulting in a
gain of $1,602,000.
In February 2000, SunStar's sole operating
subsidiary effectively discontinued
operations. As of July 31, 2001, the
Company's ownership percentage of SunStar
was 21.6% and the Company's value of its
investment in SunStar is $0.
F-16
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
6. ACQUISITIONS On November 1, 1999, the Company acquired
certain assets of Optimum Care Services of
Connecticut Inc., Optimum Home Health of
Connecticut, Inc. and Optimum Home Care of
Connecticut, Inc. The assets were acquired
from a court-appointed Chapter 7 Trustee
for a purchase price of $4,490,000 in
cash, including acquisition costs of
$90,000. The final purchase price was
determined through an auction process
conducted at the United States Bankruptcy
Court for the District of Massachusetts.
The assets acquired included certain, but
not all, machinery, equipment, intangibles
and accounts receivable and was allocated
as follows: $2,307,000 to accounts
receivable, $205,000 to furniture and
equipment and $1,978,000 to excess of cost
over fair value of net assets acquired.
On April 14, 2000, the Company acquired
certain assets of Connecticut operations
of U.S. Home Care Corp. for $311,000 in
cash, including acquisition costs of
$11,000. The assets purchased consisted of
patient files of $156,000 and employee
files of $155,000.
On August 25, 2000, the Company acquired
certain assets of Health Force Owned, Ltd.
and its affiliates for $1,822,000 in cash,
including acquisition costs of $42,000.
The assets purchased consisted of patients
files of $400,000, employee files of
$400,000, covenant not to compete of
$300,000 and excess of cost over fair
value of net assets acquired of $722,000.
On August 10, 1998, the Company acquired
certain assets of Bryan Employment Agency,
Inc., d/b/a Bryan Home Care, for
approximately $1,943,000, including
acquisition costs of $8,000. The assets
purchased consisted of personnel files of
$285,000, patient files of $285,000,
furniture and equipment of $30,000, a
covenant not to compete of $200,000 and
excess of cost over fair value of net
assets acquired of $1,143,000.
F-17
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
6. ACUISITIONS On October 30, 1998, the Company acquired
(CONTINUED) all of the outstanding common shares of
Accredited Health Services, Inc.
("Accredited"). Accredited is a licensed
home health care company that provides
home health aide services in various
counties in New Jersey. The purchase of
$1,946,000 was generated from internal
funds. The acquisition was accounted for
as a purchase. The purchase price was
allocated as follows: $1,117,000 to total
current assets, $58,000 to furniture and
equipment, $40,000 to other assets,
$550,000 to total current liabilities,
$4,000 to other liabilities and excess of
cost over fair value of net assets
acquired of $1,285,000.
The above acquisitions have been recorded
using purchase accounting principles.
Accordingly, the results of these
operations have been included in the
accompanying consolidated financial
statements since the dates of acquisition.
The following unaudited pro forma
consolidated results of operations for the
year ended July 31, 1999 assumes the
business acquisitions occurred as of
August 1, 1998:
July 31, 1999
--------------------------- --------------
Revenues, net $ 39,849,000
Net income 1,181,000
--------------------------- --------------
Net income per common share:
Basic $ .22
Diluted $ .22
--------------------------- --------------
The effects of the above acquisitions on
the 2001 and 2000 consolidated results of
operations were not significant.
7. INCOME TAXES The Company files a consolidated U.S.
federal income tax return. State tax
returns are filed on a combined or
separate basis depending on the applicable
laws.
F-18
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
7. INCOME TAXES The provision for income taxes is
(CONTINUED) summarized as follows:
Years ended July 31, 2001 2000 1999
--------------------------------- -------------- --------------- ---------------
Current:
Federal $2,275,000 $1,504,000 $ 718,000
State 735,000 641,000 283,000
--------------------------------- -------------- --------------- ---------------
3,010,000 2,145,000 1,001,000
Dferred (306,000) (87,000) -
-------------------------------- -------------- --------------- ---------------
$2,704,000 $2,058,000 $1,001,000
-------------------------------- -------------- --------------- ---------------
Deferred income taxes reflect the tax
impact of temporary differences between
the amounts of assets and liabilities for
financial reporting purposes and such
amounts as measured by tax regulations.
The deferred tax asset is as follows:
Years ended July 31, 2001 2000
--------------------------------------------------------------
Accrued liabilities and reserves $510,000 $ 248,000
Amortization of intangible
assets 288,000 210,000
State net operating loss
carryforwards 12,000 46,000
--------------------------------------------------------------
$810,000 $504,000
--------------------------------------------------------------
In the opinion of management, there will be no material impact on the
financial statements of the Company from any recently issued accounting
standards.
F-19
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
7. INCOME TAXES The reconciliation of the statutory tax
(CONTINUED) rate to the effective tax rate for the
three years ended July 31, 2001 is as
follows:
Years ended July 31, 2001 2000 1999
-------------------------------------- ------------- ------------- -------------
Statutory rate 34% 34% 34%
State and local taxes
(net of federal tax effect) 6 10 11
Federal tax credit (2) (2) (4)
Permanent differences 1 1 8
Change in valuation allowance - (5) -
Adjustments to prior years tax
liabilities - (2) -
Other - (3) (2)
-------------------------------------- ------------- ------------- -------------
Effective rate 39% 33% 47%
-------------------------------------- ------------- ------------- -------------
8. CONCENTRATIONS OF The Company's business is with customers
CREDIT RISK AND who are in the healthcare industry or with
MAJOR CUSTOMERS governmental agencies.
The Company provides temporary health care
personnel to in-home patients and
facilities in the New York City
metropolitan area, the State of
Connecticut and the State of New Jersey.
Credit losses relating to customers
historically have been minimal and within
management's expectations.
At July 31, 2001, the Company maintains
approximately 39% of its cash and cash
equivalents with one financial
institution.
Under certain federal and state
third-party reimbursement programs, the
Company received net patient revenues of
approximately $37,788,000, $19,955,000 and
$13,281,000 for the years ended July 31,
2001, 2000 and 1999, respectively. The
Company also received net patient revenues
of approximately $4,610,000, $5,663,000
and $6,095,000 for the years ended July
31, 2001, 2000 and 1999, respectively,
from a private company. At July 31, 2001,
the Company had an aggregate outstanding
receivable from federal and state agencies
of $5,058,000 and an outstanding
receivable of $1,142,000 from the private
company.
F-20
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
9. STOCK OPTION PLAN Option Plan In 1999, the stockholders
approved the 1999 Stock Option Plan (the
"1999 Plan") designed to provide
incentives to key employees (including
directors and officers who are key
employees) and to non-employee directors
of the Company. The 1999 Plan authorizes
the granting of both incentive and
non-qualified stock options to purchase up
to 525,000 shares of the Company's common
stock.
At July 31, 2001, 515,600 shares of the
Company's common stock have been reserved
for future issuance pursuant to the 1999
Plan.
The Company has a Stock Option Plan (the
"1992 Plan") designed to provide
incentives to key employees (including
directors and officers who are key
employees) and to non-employee Directors
of the Company. The 1992 Plan authorizes
the granting of both incentive and
nonqualified stock options to purchase up
to 500,000 shares of the Company's common
stock.
At July 31, 2001, 433,350 shares of the
Company's common stock have been reserved
for future issuance pursuant to the 1992
Plan.
The following is a summary of the status
of the Company's stock options.
2001 2000 1999
------------------------ ------------------------- ---------------------------
Weighted Average Weighted Average Weighted Average
------------------------ ------------------------- ---------------------------
Exercise Exercise Exercise
------------------------ ------------------------- ---------------------------
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------------------------------------
Outstanding, beginning of
year 500,277 $ 4.06 272,534 $3.98 253,846 $3.13
Granted - - 258,300 4.15 189,947 3.73
Exercised (16,500) 4.17 - - - -
Forfeited - - (30,557) 4.09 (171,259) 2.44
------------ ------------- ------------
Outstanding, end of year 483,777 4.05 500,277 4.06 272,534 3.98
-------- -------- -------
Options exercisable at
year-end 483,777 4.05 500,277 4.06 272,534 3.98
------------ ------------- ------------
Weighted average fair
value of options
granted during the year $ - $2.36 $1.87
-------- -------- -------
F-21
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
9. STOCK OPTION PLAN The following table summarizes information
(CONTINUED) about stock options outstanding at July
31, 2001:
Options Outstanding and Exercisable
--------------------------------------------------------------------------------
Shares Weighted Average Weighted Average
Outstanding at Remaining
July 31, 2001 Contractual Life Exercise Price
------------------ --- ---------------- ----------------- -----------------
$3.45 - $3.79 159,497 7.75 years $3.62
$3.86 - $4.04 165,950 8.19 years $4.02
$4.33 - $4.57 151,450 7.47 years $4.49
$5.42 6,880 4.71 years $5.42
------------------ --- ---------------- -- ----------------- -- -----------------
The fair value of options at date of grant
was estimated using the Black-Scholes
option pricing model utilizing the
following assumptions as of July 31, 2000
and 1999:
Years ended July 31, 2000 1999
--------------------------------- -------------- ---------------
Dividend yield 0.00% 0.00%
Volatility 35.00% 33.00%
Risk-free interest rate 6.20% 5.50%
Expected life 10 years 10 years
--------------------------------- -------------- ---------------
The Black-Scholes option valuation model
was developed for use in estimating the
fair value of traded options which have no
vesting restrictions and are fully
transferable. In addition, option
valuation models require the input of
highly subjective assumptions including
the expected stock price volatility.
Because the Company's stock options have
characteristics significantly different
from those of traded options, and because
changes in the subjective input
assumptions can materially affect the fair
value estimate, in management's opinion,
the existing models do not necessarily
provide a reliable single measure of the
fair value of its stock options.
F-22
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
9. STOCK OPTION PLAN Since the Company applies APB Opinion 25
(CONTINUED) and related interpretations in accounting
for its options, no compensation cost has
been recognized for its stock option
grants. The effect of applying SFAS No.
123 on pro forma net income is not
necessarily representative of the effects
on reported net income for future years
due to, among other things, (1) the
vesting period of stock options and (2)
the fair value of additional stock options
in future years. Had the Company elected
to recognize compensation cost based on
the fair value of the options at the date
of grant as prescribed by SFAS 123, net
income for the years ended July 31, 2000
and 1999 would have been as follows:
Years ended July 31, 2000 1999
---------------------------------- ------------- -------------
Proforma net income $3,843,000 $1,085,000
Proforma net income per common share:
Basic $ .76 $ .18
Diluted $ .76 $ .17
---------------------------------- ------------- -------------
10. COMMITMENTS, a) Effective January 1, 1999, the Company
CONTINGENCIES AND amended and restated its Employee Savings
OTHER MATTERS and Stock Investment Plan organized under
Section 401(k) of the Internal Revenue
Code. Under the amended plan, employees
may contribute up to 15% of their salary,
limited to the maximum amount allowable
under federal tax regulations. The Company
will match an amount equal to 100% of the
first 3% of employees' contributions and
50% of the next 2% of employees'
contributions, provided that in no event
shall the matching contributions on behalf
of any employee exceed 4% of employees'
compensation. The Company may also make
additional contributions at its
discretion. An employee may invest in
Company stock and several mutual funds.
The Company's matching contributions for
each of the years ended July 31, 2001,
2000 and 1999 were $495,000, $226,000, and
$143,000, respectively.
F-23
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS, b) The Company has employment agreements
CONTINGENCIES AND with five officers, which 10. Commitments,
OTHER MATTERS expire through November 30, 2003. The
aggregate commitment for Contingencies and
Other future salary, excluding bonuses,
under the agreements is Matters
$1,655,000. One agreement also provides
for increases based on increases in the
consumer price index and additional annual
compensation based on 4% of pre-tax
income, as defined, in excess of
$3,000,000. Two other agreements provide
for additional compensation based on 4%
and 1% of income from operations, as
defined, in excess of $3,300,000.
c) The Company rents various office
facilities through 2006 under the terms of
several lease agreements that include
escalation clauses.
At July 31, 2001, minimum annual rental
commitments under noncancellable operating
leases are as follows:
Years ended July 31,
--------------------------------------
2002 $ 774,000
2003 598,000
2004 391,000
2005 340,000
2006 12,000
--------------------------------------
$2,115,000
--------------------------------------
Rent expense for the years ended July 31,
2001, 2000 and 1999 was approximately
$858,000, $636,000, and $594,000,
respectively.
One lease is with a company controlled by
the Company's Chairman of the Board. Rent
expense under such lease approximates
$226,000 per year.
F-24
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
10. COMMITMENTS, d) The Company and certain of its officers
CONTINGENCIES AND and directors have been named as
OTHER MATTERS defendants in a consolidated class action
(CONTINUED) brought on behalf of certain shareholders
of SunStar Healthcare, Inc. ("SunStar").
The lawsuit asserts alleged acts or
omissions, which resulted in
misrepresentations or omissions of
material information concerning the
financial condition of SunStar. In
February 2001, the Court dismissed the
complaint and granted the Plaintiffs leave
to amend. In addition, the lawsuit alleges
that the Company and certain directors
exercised control over SunStar. In October
2001, the Court granted the defendants'
motion to dismiss the Complaint with
prejudice. The Company is not aware as to
whether the Plaintiffs will exercise their
right to appeal this decision.
In a related action, the director
defendants are named in a case brought by
the Department of Insurance of the State
of Florida. The allegations in this action
are similar to those alleged in the class
action lawsuit, which was subsequently
dismissed. Although the Company is not
named in this action, the Company intends
to indemnify the director defendants to
the fullest extent permitted under its
by-laws. On May 7, 2001, the Court granted
the director defendants' motion to dismiss
and granted the plaintiff leave to serve a
further amended complaint. On July 24,
2001, the plaintiff served an amended
complaint. On September 24, 2001 the
director defendants filed a motion to
dismiss the amended complaint. The
defendants have not received a response to
their motion to dismiss. The defendants'
believe that the complaints are without
merit and intend to vigorously defend
them. At this time, any possible liability
to the Company cannot be determined.
F-25
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
11. STOCK DIVIDEND The Board announced on March 13, 2001 the
declaration of a 5% stock dividend payable
on March 23, 2001 to shareholders of
record on March 16, 2001. The basic and
diluted weighted average number of shares
outstanding and net income per share
information for all prior reporting
periods have been restated to reflect the
effects of the stock dividend.
12. SUMMARIZED Presented below is a summary of the
QUARTERLY DATA unaudited consolidated quarterly financial
(UNAUDITED) information for the years ended July 31,
2001 and 2000 (in thousands, except per
share data):
2001
---------------------------------------------------------------------------------
Quarter First Second Third Fourth
---------------------------- ------------ ------------ ------------- ------------
Net patient revenue $17,518 $18,479 $18,944 $19,551
Income from operations 1,484 1,632 1,741 1,831
Net income 872 959 1,065 1,304
Net income per
common share:
Basic .17 .19 .21 .25
Diluted .16 .18 .20 .24
---------------------------- ------- ------- ------- -------
2000
---------------------------------------------------------------------------------
Quarter First Second Third Fourth
---------------------------- ------------ ------------ ------------- ------------
Net patient revenue $9,494 $15,041 $15,245 $15,794
Income from operations 631 1,303 1,334 1,059
Gain resulting from sale
of stock of equity
investee (a) 943 659 - -
Net income 1,091 1,459 776 765
Net income per common share
Basic .20 .28 .15 .15
Diluted .20 .27 .15 .15
---------------------------- ------- ------- ------- -------
(a) The Company sold 259,510 shares of SunStar resulting in a financial
statement gain of $1,602,000.
F-26
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
13. EVENT SUBSEQUENT TO On October 24, 2001, the Company closed on
AUDITORS' OPINION a new revolving line of credit facility
("credit facility") with its bank. The
credit facility provides for the Company
to borrow up to the lesser of $7,500,000
or 80% of eligible accounts receivable
that are aged less than 120 days at the
banks prime rate or LIBOR plus 2.5%. The
credit facility expires on October 23,
2003 and requires the Company to meet
certain financial covenants and ratios.
F-27
SUPPLEMENTAL MATERIAL
Independent Auditors' Report
on Supplemental Material
The audit referred to in our report dated September 28, 2001 on the consolidated
financial statements of National Home Health Care Corp. and Subsidiaries, which
appears in Part II, also included Schedule II for the year ended July 31, 2001.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein, in compliance with the applicable
accounting regulations of the Securities and Exchange Commission.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
Valhalla, New York
September 28, 2001
F-29
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The audits referred to in our report dated October 3, 2000 on the consolidated
financial statements of National Home Health Care Corp. and Subsidiaries, which
appears in Part II, also included Schedule II for the years ended July 31, 2000
and 1999. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein, in compliance with the applicable
accounting regulations of the Securities and Exchange Commission.
/s/ Holtz Rubenstein & Co., LLP
-------------------------------
Holtz Rubenstein & Co., LLP
Melville, New York
October 3, 2000
F-30
Column A Column B Column C Column D Column E
------------------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------------
Description Balance, Charged to Charged to
beginning costs and other accounts Deductions Balance,
of period expenses describe describe end of period
------------------------------------------------------------------------------------------------------------------------------------
Year ended July 31, 2001:
Allowance deducted from asset account
Allowance for doubtful accounts $673,000 $670,000 $ - $478,000(a) $865,000
------------------------------------------------------------------------------------------------------------------------------------
Year ended July 31, 2000:
Allowance deducted from asset account
Allowance for doubtful accounts $392,000 $595,000 $ - $314,000(a) $673,000
------------------------------------------------------------------------------------------------------------------------------------
Year ended July 31, 1999:
Allowance deducted from asset account
Allowance for doubtful accounts $295,000 $ - $196,500 (b) $ 99,500(a) $392,000
------------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING INDEPENDENT ACCOUNTANTS' COMPILATION REPORT
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) REPRESENTS ACTUAL WRITE-OFFS.
(b) REPRESENTS ALLOWANCE ACQUIRED IN ACQUISITION OF ACCREDITED HEALTH SERVICES,
INC.
F-31
(3) Exhibits
EXHIBIT DOCUMENT
NUMBER --------
------
3.1 Certificate of Incorporation. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (No. 2-86643)
filed September 20, 1983 (the "1983 Form S-1").
3.2 Certificate of Amendment to Certificate of Incorporation.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1992.
3.3 By-laws. Incorporated by reference to the 1983 Form S-1.
10.1 1992 Stock Option Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993 (the "1993 Form 10-K").
10.2 Incentive Stock Option Plan. Incorporated by reference to the
1993 Form 10-K.
10.3 1999 Stock Option Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 2000 (the "2000 Form 10-K").
10.4* Fourth Amendment, dated as of August 1, 2001, to Employment
Agreement between the Registrant and Steven Fialkow.
10.5 Third Amendment, dated as of August 1, 2000, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the 2000 Form 10-K.
10.6 Second Amendment, dated as of October 7, 1999, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 31, 1999 (the "October 31,
1999 Form 10-Q").
10.7 First Amendment, dated as of December 1, 1998, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended January 31, 1999 (the "January 31,
1999 Form 10-Q").
10.8 Employment Agreement dated as of November 1, 1997 between the
Registrant and Steven Fialkow. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1998 (the "January 31, 1998 Form 10-Q").
10.9* Third Amendment, dated as of August 1, 2001, to Amended and
Restated Employment Agreement between the Registrant and
Frederick H. Fialkow.
10.10 Second Amendment, dated as of August 1, 2000, to Amended and
Restated Employment Agreement between the Registrant and
Frederick H. Fialkow. Incorporated by reference to the 2000 Form
10-K.
10.11 First Amendment, dated as of December 1, 1998, to Amended and
Restated Employment Agreement between the Registrant and
Frederick H. Fialkow. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1999.
27
EXHIBIT DOCUMENT
NUMBER --------
------
10.12 Amended and Restated Employment Agreement dated as of December 1,
1998 between the Registrant and Frederick H. Fialkow.
Incorporated by reference to the January 31, 1999 Form 10-Q.
10.13 Second Amendment, dated as of August 1, 2000, to Employment
Agreement between the Registrant and Robert P. Heller.
Incorporated by reference to the 2000 Form 10-K.
10.14 First Amendment, dated as of December 1, 1998, to Employment
Agreement between the Registrant and Robert P. Heller.
Incorporated by reference to the January 31, 1999 Form 10-Q.
10.15 Employment Agreement dated as of November 1, 1997 between the
Registrant and Robert P. Heller. Incorporated by reference to the
January 31, 1998 Form 10-Q.
10.16 Second Amendment, dated as of August 1, 2000, to Employment
Agreement between the Registrant and Richard Garofalo.
Incorporated by reference to the 2000 Form 10-K.
10.17 First Amendment, dated as of December 1, 1998, to Employment
Agreement between the Registrant and Richard Garofalo.
Incorporated by reference to the January 31, 1999 Form 10-Q.
10.18 Employment Agreement dated as of November 1, 1997 between the
Registrant and Richard Garofalo. Incorporated by reference to the
January 31, 1998 Form 10-Q.
28
EXHIBIT DOCUMENT
NUMBER --------
------
10.19 Amended and Restated Asset Purchase Agreement dated October 15,
1999 among Charles L. Glerum as Trustee for Optimum Care Services
of Connecticut, Inc., Optimum Home Health of Connecticut, Inc.,
Optimum Home Care of Connecticut, Inc., New England Home Care,
Inc., Connecticut Staffing Works Corp. and the Registrant.
Incorporated by reference to the Registrant's Current Report on
Form 8-K dated November 11, 1999.
10.20 The Registrant's Employee Savings and Stock Investment Plan under
Section 401(k) of the Internal Revenue Code, effective as of
January 1, 1999. Incorporated by reference to the October 31,
1999 Form 10-Q.
10.21 Letter Agreement dated February 20, 2000 providing a Secured
Advised Line of Credit from the Bank of New York to National Home
Health Care Corp. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
January 31, 2000 (the "January 31, 2000 Form 10-Q").
10.22 Letter Agreement dated February 20, 2000 providing a Secured
Advised Line of Credit from the Bank of New York to New England
Home Care, Inc. Incorporated by reference to the January 31, 2000
Form 10-Q.
21.1* List of Subsidiaries.
23.1* Consent of Holtz Rubenstein & Co., LLP.
23.2* Consent of BDO Seidman, LLP.
----------
* Filed herewith
(b) Reports on Form 8-K.
-------------------
Form 8-K, Item 4. Changes in Registrant's Certifying Accountant, dated
June 22, 2001.
29
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL HOME HEALTH CARE CORP.
/s/ Robert P. Heller
------------------------------------
By: Robert P. Heller
Vice President of Finance
and Chief Financial Officer
Dated: October 29, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed on the above date by the following persons
on behalf of the Registrant and in the capacities indicated.
/s/ Frederick H. Fialkow Chairman of the Board of Directors
------------------------
Frederick H. Fialkow
/s/ Steven Fialkow President, Chief Executive Officer,
---------------------------- Secretary and Director
Steven Fialkow
/s/ Robert P. Heller Vice President of Finance and Chief
---------------------------- Financial Officer (principal financial
Robert P. Heller and accounting officer)
/s/ Ira Greifer Director
----------------------------
Ira Greifer, M.D.
/s/ Bernard Levine Director
----------------------------
Bernard Levine, M.D.
/s/ Robert Pordy Director
----------------------------
Robert Pordy, M.D.
Commission File No. 0-12927
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, FOR THE
FISCAL YEAR ENDED JULY 31, 2001
NATIONAL HOME HEALTH CARE CORP.
EXHIBIT DOCUMENT
NUMBER --------
------
3.1 Certificate of Incorporation. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (No. 2-86643)
filed September 20, 1983 (the "1983 Form S-1").
3.2 Certificate of Amendment to Certificate of Incorporation.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1992.
3.3 By-laws. Incorporated by reference to the 1983 Form S-1.
10.1 1992 Stock Option Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993 (the "1993 Form 10-K").
10.2 Incentive Stock Option Plan. Incorporated by reference to the
1993 Form 10-K.
10.3 1999 Stock Option Plan. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 2000 (the "2000 Form 10-K").
10.4* Fourth Amendment, dated as of August 1, 2001, to Employment
Agreement between the Registrant and Steven Fialkow.
10.5 Third Amendment, dated as of August 1, 2000, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the 2000 Form 10-K.
10.6 Second Amendment, dated as of October 7, 1999, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 31, 1999 (the "October 31,
1999 Form 10-Q").
10.7 First Amendment, dated as of December 1, 1998, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended January 31, 1999 (the "January 31,
1999 Form 10-Q").
10.8 Employment Agreement dated as of November 1, 1997 between the
Registrant and Steven Fialkow. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
EXHIBIT DOCUMENT
NUMBER --------
------
ended January 31, 1998 (the "January 31, 1998 Form 10-Q").
10.9* Third Amendment, dated as of August 1, 2001, to Amended and
Restated Employment Agreement between the Registrant and
Frederick H. Fialkow.
10.10 Second Amendment, dated as of August 1, 2000, to Amended and
Restated Employment Agreement between the Registrant and
Frederick H. Fialkow. Incorporated by reference to the 2000 Form
10-K.
10.11 First Amendment, dated as of December 1, 1998, to Amended and
Restated Employment Agreement between the Registrant and
Frederick H. Fialkow. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1999.
10.12 Amended and Restated Employment Agreement dated as of December 1,
1998 between the Registrant and Frederick H. Fialkow.
Incorporated by reference to the January 31, 1999 Form 10-Q.
10.13 Second Amendment, dated as of August 1, 2000, to Employment
Agreement between the Registrant and Robert P. Heller.
Incorporated by reference to the 2000 Form 10-K.
10.14 First Amendment, dated as of December 1, 1998, to Employment
Agreement between the Registrant and Robert P. Heller.
Incorporated by reference to the January 31, 1999 Form 10-Q.
10.15 Employment Agreement dated as of November 1, 1997 between the
Registrant and Robert P. Heller. Incorporated by reference to the
January 31, 1998 Form 10-Q.
10.16 Second Amendment, dated as of August 1, 2000, to Employment
Agreement between the Registrant and Richard Garofalo.
Incorporated by reference to the 2000 Form 10-K.
10.17 First Amendment, dated as of December 1, 1998, to Employment
Agreement between the Registrant and Richard Garofalo.
Incorporated by reference to the January 31, 1999 Form 10-Q.
10.18 Employment Agreement dated as of November 1, 1997 between the
Registrant and Richard Garofalo. Incorporated by reference to the
January 31, 1998 Form 10-Q.
EXHIBIT DOCUMENT
NUMBER --------
------
10.19 Amended and Restated Asset Purchase Agreement dated October 15,
1999 among Charles L. Glerum as Trustee for Optimum Care Services
of Connecticut, Inc., Optimum Home Health of Connecticut, Inc.,
Optimum Home Care of Connecticut, Inc., New England Home Care,
Inc., Connecticut Staffing Works Corp. and the Registrant.
Incorporated by reference to the Registrant's Current Report on
Form 8-K dated November 11, 1999.
10.20 The Registrant's Employee Savings and Stock Investment Plan under
Section 401(k) of the Internal Revenue Code, effective as of
January 1, 1999. Incorporated by reference to the October 31,
1999 Form 10-Q.
10.21 Letter Agreement dated February 20, 2000 providing a Secured
Advised Line of Credit from the Bank of New York to National Home
Health Care Corp. Incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
January 31, 2000 (the "January 31, 2000 Form 10-Q").
10.22 Letter Agreement dated February 20, 2000 providing a Secured
Advised Line of Credit from the Bank of New York to New England
Home Care, Inc. Incorporated by reference to the January 31, 2000
Form 10-Q.
21.1* List of Subsidiaries.
23.1* Consent of Holtz Rubenstein & Co., LLP.
23.2* Consent of BDO Seidman, LLP.
----------
* Filed herewith