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, 2002 Commission File Number 0-12927
NATIONAL HOME HEALTH CARE CORP.
(Exact name of Registrant as specified in its charter)
Delaware 22-2981141
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK 10583
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(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
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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 25, 2002, 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 $26,118,467, calculated on the basis of the average
of the 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 25,
2002 was 5,553,480.
Portions of the Registrant's Proxy Statement for its 2002 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 and staffing services in the
Northeast region.
The Company has seven 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.
o Impressive Staffing Corp. ("Impressive Staffing"), a New York corporation
that conducts healthcare staffing operations in New York.
o New Jersey Staffing Works Corp. ("New Jersey Staffing"), a New Jersey
corporation that conducts healthcare staffing operations in New Jersey.
o Medical Resources Home Health Corp. ("Medical Resources"), a Delaware
corporation that conducts home health care operations in Massachusetts.
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, 2002, the
Company's ownership percentage in SunStar was
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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.
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d/b/a Allen Health Care Services
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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"). Allen Health Care is licensed by the Public Health Council of the
State of New York Department of Health. Allen Health Care maintains its
principal administrative office 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.
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 March 2002, 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 2005.
Allen Health Care is reimbursed 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 by 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, a 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 or assets 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
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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 Allen Health Care and enabled it 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, among
other things, 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.
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In August 1995, the Company acquired New England. New England is a Medicare
certified and licensed home health care company in Connecticut. In November
2001, New England was re-surveyed by JCAHO, resulting in New England extending
its accredited status through 2004. New England provides services throughout
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, Hartford, Norwich
and Guilford, 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 through increased penetration of
market share in Connecticut and selected acquisitions of complementary assets in
its geographic region. In
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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 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, among other things, 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.
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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, among other things,
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.
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Accredited Health Services, Inc.
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In October 1998, the Company acquired 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 2002, 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 year. Reimbursement for
Accredited's services is primarily 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. The acquisition complemented the
Company's existing operations in New Jersey and also expanded its services to
include skilled nursing.
Accredited's growth depends on, among other things, 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.
Impressive Staffing Corp.
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Impressive Staffing was organized in January 2002 and commenced operations
in February 2002.
Impressive Staffing is a full service health care and clerical staffing
company. It provides temporary staffing to hospitals, nursing facilities and
radiological facilities. Staffing personnel include registered nurses, licensed
practical nurses, x-ray technicians, MRI technicians, operating room technicians
and clerical personnel. The company maintains its administrative office in
Hempstead, New York. Staffing services are provided twenty-four hours per day,
seven days per week. Staffing coordinators are available in the office Monday to
Friday 8:30 a.m. to 5:00 p.m. Weekends, holidays and after hours are supported
by on-call coordinators.
The company maintains a roster of quality professional personnel. The
growth of Impressive Staffing is dependent on, among other things, its ability
to increase and maintain a steady roster of per diem workers for meeting the
staffing requirements of its clients. The company believes it offers competitive
salaries and fringe benefits and has been able to keep its personnel working on
a steady basis.
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New Jersey Staffing Works Corp.
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New Jersey Staffing was organized in May 2002 and was licensed in August
2002 as a health care service firm by the Division of Consumer Affairs of the
Department of Law and Public Safety of the State of New Jersey.
New Jersey Staffing commenced operations in September 2002 and offers a
full complement of temporary nursing and paraprofessional services to hospitals,
nursing homes, clinics assisted living facilities, correctional facilities and
other institutions in northern and central New Jersey. New Jersey Staffing
personnel include registered nurses, licensed practical nurses and certified
nursing assistants. The company maintains its administrative office in
Hackensack, New Jersey. Staffing services are provided twenty-four hours per
day, seven days per week. New Jersey Staffing coordinators are in the office
from 7:00 a.m. to 5:30 p.m. Weekends, holidays and after hours are supported by
an on-call system.
The company maintains a roster of quality professional personnel that are
interviewed, screened and monitored for proper credentials under guidelines
established by leading accredited health care organizations. The success of New
Jersey Staffing is dependent on, among other things, its ability to maintain a
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.
Medical Resources Home Health Corp.
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On September 3, 2002, the Company, through a wholly-owned subsidiary,
acquired certain assets of Medical Resources, Inc. and related entities
(collectively, the "Medical Resources Entities") for cash consideration of
$2,623,000, including acquisition costs of $73,000. The Medical Resources
Entities provided home health care services in Massachusetts.
The Massachusetts State Home Care Program provides services to
approximately 33,000 frail, low income elders throughout the state. The funds
and services are managed through twenty-seven Aging Service Access Points
("ASAPs") that are not-for-profit organizations geographically dispersed
throughout the state. Services provided through this state program include
homemaking, personal care, chore, companion and shopping. Medical Resources has
contracts with seventeen of these ASAPs to provide homemaking and personal care
services and presently services approximately 3,100 clients with approximately
425 care givers. These services are provided seven days per week, including
weekends, holidays and after hours. In addition, Medical Resources provides
grocery shopping and delivery services to approximately 600 clients per month
through contracts with seven of the ASAPs.
Medical Resources maintains its principal administrative office in Newton,
Massachusetts and has satellite offices in Boston, Lynn, Framingham, North
Andover, Leominster, Worcester, Chicopee, Bellingham, North Dartmouth and
Easton, Massachusetts. Case coordinating of patients is performed in Newton and
the satellite offices. The satellite offices are also used as drop-off offices
for paperwork, recruitment, in services, training and orientation of new
personnel.
The growth of Medical Resources depends on, among other things, its ability
to recruit and retain staff and the expansion of its existing services through
the attainment of both Medicare and
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Medicaid certification. The company believes that it offers competitive salaries
and fringe benefits and has been able to keep its personnel working on a steady
basis.
Organization
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The Company's corporate headquarters are located in Scarsdale, New York,
where all senior corporate administrative functions are performed. The Company's
operations are conducted by its seven operating subsidiaries. Although the
Company maintains separate subsidiaries in its various jurisdictions of
operations, it reviews its operations primarily on an integrated rather than
geographic or separate-subsidiary basis. 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
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The Company and its subsidiaries maintain professional malpractice
liability coverage on professionals employed in the rendering of health care and
staffing services providing coverage per occurrence and in the aggregate and
coverage for the customary risks inherent in the operation of business in
general. The Company also carries directors and officers liability insurance.
While the Company believes its insurance policies are adequate, in the wake of
the terrorist events of September 11, 2001, the Company has experienced
substantial increases in the cost of its insurance coverage. As a result, there
can be no assurance that coverage will continue to be available in adequate
amounts or at a reasonable cost.
Employees and Labor Relations
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As of October 25, 2002, the Company had approximately 3,500 full and
part-time employees, of whom approximately 23 were employed in various
management capacities and five (5) were employed in marketing capacities.
Although the Company currently has no union contracts with any of its employees,
a majority of the employees of Allen Health Care voted in favor of the American
Federation State, County and Municipal Employees ("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. 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.
Risk Factors
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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."
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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 benefit costs have risen. The Company may be unable to continue
to increase the number of caregivers that it recruits, adversely affecting 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 salaries. 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 the terms of any collective bargaining agreement will not
materially increase labor-related costs or otherwise have a material adverse
affect on the Company, 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 also 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, compensation packages and benefits. 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 gain or retain market
share by reducing prices or increasing marketing expenditures, the Company could
lose market share or otherwise experience a material adverse effect. 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.
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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. As a Medicaid
provider, the Company also is subject to routine, unscheduled audits. The
extrapolative methodology, which applies to all applicable Medicaid revenues an
adjustment factor derived from a statistical sampling, used in such audits may
have an adverse impact on the Company's results of operations. Although the
audits to date have not resulted in any material adjustments, such audits were
based on significantly lesser Medicaid revenues.
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There can be no assurance at this time as to the impact on the Company of future
Medicaid rate changes or audits.
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 enactment 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
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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.
The Company is dependent on reimbursement by third-party payors
For the twelve months ended July 31, 2002, 2001 and 2000, the percentage of
the Company's revenues derived from Medicare and Medicaid was 50%, 51% and 36%,
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. In particular, although the
Company does not believe that any particular reimbursement rate change
materially affecting the Company has been implemented, quantified or formally
announced, the Company believes that certain Medicaid rates in Connecticut may
be reduced some time in 2003. Material such reductions 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, or of certain of their assets,
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
-12-
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
penetration 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
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 has
obtained indemnification rights 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 became
unable or unwilling to continue in his present positions, the Company's business
and financial results could be materially adversely affected.
Difficulties and risks resulting from continuing growth.
The Company has grown significantly over the last three years. This growth,
which has resulted primarily from acquisitions and which management intends to
continue to pursue, poses a number of difficulties and risks for the Company. As
the Company has grown and may continue to grow (as to which there can be no
assurance) in both revenue and geographical scope, such growth stretches the
various resources of the Company, including management, information systems,
regulatory compliance, logistics and other controls. There can be no assurance
that such resources will keep pace with such growth. If the Company does not
maintain such pace, then its prospects would be materially adversely affected.
-13-
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's competition for personnel comes from other industries as well. If and
to the extent that reimbursement rates and other factors constrain wages and
other benefits to caregivers, other industries offering more attractive
compensation and other benefits also may attract eligible home health care
personnel. The Company recruits personnel principally through newspaper
advertisements and through referrals from existing personnel.
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, 2002, 2001 and 2000,
Visiting Nurse Service of New York, a non-profit Medicare home health care
agency, accounted for 6%, 6% and 10%, 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 7%, 10% and
9%, respectively, of the Company's revenue; and the State of Connecticut
Department of Social Services medical assistance program accounted for 32%, 32%
and 17%, respectively, of the Company's revenue. The loss of or a significant
adverse change in the business terms with 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
-14-
Allen Health Care, in each of the last three years Allen Health Care has had its
contract with Visiting Nurse Service of New York renewed.
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.
The Health Insurance Portability and Accountability Act
- -------------------------------------------------------
The Health Insurance Portability and Accountability Act ("HIPAA") was
enacted by the Federal government on August 12, 1996, and requires organizations
to adhere to certain standards to protect data integrity, confidentiality and
availability. HIPAA also mandates, among other things, that the Department of
Health and Human Services adopt standards for the exchange of electronic health
information in an effort to encourage overall administrative simplification and
enhance the effectiveness and efficiency of the health care industry. The
Department of Health and Human Services must adopt standards for the following:
o Electronic transactions and code sets;
o Unique identifiers for providers, employers, health plans and
individuals;
o Security and electronic signatures;
o Privacy; and o Enforcement.
Although HIPAA was intended ultimately to reduce administrative expenses
and burdens faced within the health care industry, the Company believes the law
will initially bring about significant and, in some cases, costly changes. The
Department of Health and Human Services has released two rules to date mandating
the use of new standards with respect to certain health care transactions and
health information. The first rule establishes uniform standards for common
health care transactions, including:
o Health care claims information;
o Plan eligibility, referral certification and authorization;
o Claims status;
o Plan enrollment and disenrollment;
o Payment and remittance advice;
o Plan premium payments; and
o Coordination of benefits.
Second, the Department of Health and Human Services has released standards
relating to the privacy of individually identifiable health information. These
standards not only require compliance with rules governing the use and
disclosure of protected health information, but they
-15-
also require the Company to impose those rules, by contract, on any business
associate to whom we disclose protected information. The Department of Health
and Human Services has proposed rules governing the security of health
information, but has not yet issued these rules in final form. The Department of
Health and Human Services finalized the electronic transaction standards on
August 17, 2000. Payors are required to comply with the transaction standards by
October 16, 2002 or October 16 2003, depending on the size of the payor and
whether the payor requests a one-year waiver. Following compliance by its
payors, the Company must comply with the transaction standards, to the extent it
uses electronic data interchange. The Department of Health and Human Services
issued the privacy standards on December 28, 2000, and, after certain delays,
they became effective on April 14, 2001, with a compliance date of April 14,
2003. Once the Department of Health and Human Services has issued the security
regulations in final form, affected parties will have approximately two years to
be fully compliant. Sanctions for failing to comply with the HIPAA provisions
related to health information practices include criminal and civil penalties.
Management is in the process of evaluating the effect of HIPAA on the Company.
At this time, management anticipates that the Company will be able to fully
comply with those HIPAA requirements that have been adopted. However, management
cannot at this time estimate the cost of compliance, nor can it estimate the
cost of compliance with standards that have not yet been finalized by the
Department of Health and Human Services. Although the new and proposed health
information standards are likely to have a significant effect on the manner in
which the Company handles health data and communicates with payors, based on
current knowledge, the Company believes that the cost of our compliance will not
have a material adverse effect on its business, financial condition or results
of operations.
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 3%, 2% and 6% of revenue for the fiscal years ended July 31, 2002,
2001 and 2000, 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
-16-
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
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 47%, 48% and 30% of revenue for the fiscal years ended July
31, 2002, 2001 and 2000, 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. In July 2001, the Company received increases in
Medicaid reimbursement rates in Connecticut and New Jersey. The Company did not
receive any such increase in reimbursement rates in New York during fiscal 2002.
The Company also did not receive any similar increases in Medicaid reimbursement
rates in Connecticut and New Jersey in July 2002. Future 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.
-17-
ITEM 2. PROPERTIES.
The Company, directly or through certain subsidiaries, leases various
office facilities under lease agreements with various expiration dates through
fiscal 2006. 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 July 31, 2005
Lindenhurst, NY 1,250 Branch office July 31, 2003
Mount Vernon, NY 2,500 Branch office November 30, 2003
Hempstead, NY 3,800 Satellite office September 30, 2004
Brooklyn, NY 800 Satellite office October 31, 2001
Bronx, NY 648 Satellite office August 31, 2003
Milford, CT 15,036 Administrative office September 30, 2002
Cromwell, CT 14,419 Administrative office June 30, 2003
Norwalk, CT 1,400 Satellite office March 31, 2004
Hamden, CT 1,875 Satellite office July 31, 2003
Waterbury, CT 2,000 Satellite office October 31, 2003
Danbury, CT 780 Satellite office June 30, 2003
Norwich, CT 1,200 Satellite office April 30, 2003
Hartford, CT 989 Satellite office April 30, 2002
Waterbury, CT 1,200 Satellite office October 31, 2003
Guilford, CT 200 Satellite office December 31, 2003
Bridgeport, CT 588 Satellite office April 30, 2002
Hackensack, NJ 4,281 Administrative office September 30, 2005
Hackensack, NJ 852 Satellite office September 30, 2005
Verona, NJ 1,765 Branch office October 31, 2001
Newton, MA 2,496 Administrative office April 30, 2003
Bellingham, MA 260 Satellite office October 31, 2002
North Andover, MA 220 Satellite office July 31, 2003
Framingham, MA 525 Satellite office November 30, 2002
Boston, MA 795 Satellite office January 31, 2003
Lynn, MA 412 Satellite office August 31, 2003
North Dartmouth, MA 964 Satellite office January 31, 2003
Chicopee, MA 1,340 Satellite office September 30, 2002
North Easton, MA 550 Satellite office August 31, 2003
Leominster, MA 1,000 Satellite office August 31, 2003
Worcester, MA 1,365 Satellite office August 31, 2003
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
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.
-18-
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. Plaintiff's did not appeal from 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) (the
"Seminole County Action") in which the plaintiff as the receiver of Plan brings
claims purporting to arise out of some of the facts forming the basis of the
class action described in the paragraph above and other alleged matters relating
to the insolvency of Plan. An amended complaint relating to the Seminole County
Action was filed on November 17, 2000, and on February 12, 2001 the director
defendants filed motions to dismiss the Seminole County 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. In September 2002,
the director defendants (and certain other defendants) entered into a settlement
agreement with the plaintiff in the Seminole County Action to resolve that
action. The aforesaid settlement agreement is subject to court approval.
The Company intends to indemnify the director defendants to the fullest
extent permitted under its by-laws and applicable law in connection with the
actions described herein, subject to independent Board members' review and
action with respect to the final details of the proposed settlement and final
eligibility and entitlement for such indemnification.
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, 2002.
-19-
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, 2001
and 2002. 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, 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
Year ended July 31, 2002
- ------------------------
1st Quarter......................................... $19.85 $8.90
2nd Quarter......................................... 17.72 10.74
3rd Quarter......................................... 15.00 10.27
4th Quarter......................................... 16.65 9.34
(b) Holders
There were approximately 132 holders of record of the Company's common
stock as of October 25, 2002, 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. On April 25, 2002, the Board of
Directors of the Company declared a 5% stock dividend payable on May 17, 2002 to
stockholders of record on May 10, 2002.
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
-20-
Statements. The data set forth below should be read in conjunction with the
Consolidated Financial Statements in Item 8 of this Report.
Fiscal Years Ended July 31,
--------------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenue........................... $82,172,000 $74,492,000 $55,574,000 $38,518,000 $34,313,000
Operating expenses................ 73,792,000 67,804,000 51,247,000 36,090,000 31,394,000
Income from operations............ 8,380,000 6,688,000 4,327,000 2,428,000 2,919,000
Other income (loss):
Interest income.................. 227,000 216,000 220,000 385,000 547,000
Gain from sale of
subsidiary's stock............ --- --- 1,602,000 --- ---
Gain from subsidiary's stock
offering........................ --- --- --- --- 331,000
(Loss) from equity investee...... --- --- --- (674,000) (1,630,000)
Income before income taxes........ 8,607,000 6,904,000 6,149,000 2,139,000 2,167,000
Provision for income taxes........ 3,336,000 2,704,000 2,058,000 1,001,000 964,000
Net income........................ 5,271,000 4,200,000 4,091,000 1,138,000 1,203,000
Diluted net income per share of
common stock...................... $0.91 $0.75 $0.74 $0.20 $0.21
At July 31,
-----------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-----------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets...................... $43,512,000 $37,250,000 $30,856,000 $26,092,000 $25,503,000
Working capital................... 28,232,000 22,138,000 19,312,000 17,708,000 19,134,000
Retained earnings................. 15,839,000 14,784,000 12,274,000 8,183,000 7,045,000
Stockholders' equity.............. 38,679,000 32,584,000 28,486,000 25,013,000 24,281,000
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 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
-21-
control of the Company. These factors could cause future results to differ
materially from historical results.
The Balanced Budget Act was signed into law on August 5, 1997. Under the
Act, until October 1, 2000, Medicare certified home health agencies were
reimbursed under an IPS for a two-year period prior to the implementation of a
prospective payment system. Under IPS, 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 1994 costs adjusted for
inflation. Prior to the implementation of IPS, Medicare reimbursed providers on
a 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 Act, Medicare now reimburses providers a predetermined
base payment. The payment is adjusted for the health condition and care needs of
the beneficiary and is also adjusted for the geographic differences in wages
across the country. Medicare provides home health agencies with payments for
60-day "episodes of care". The final piece of the Act called for a 15% cut in
Medicare reimbursement effective October 1, 2002. To date, the change to the
prospective payment system has not had a material impact on reimbursement;
however, there can be no assurance that future reimbursement under the
prospective payment system will not result in reduced reimbursement rates.
The implementation of IPS resulted in a decrease in Medicare revenue from
the Company's Medicare certified agency. In addition, the Company's operations
in New York and New Jersey are dependent upon referrals, primarily from Medicare
certified home health care agencies, whose reimbursement had been adversely
affected. Under the prospective payment system, there can be no assurance that
the Company's future referrals will not result in reduced reimbursement rates or
reduced volume of business.
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 the Connecticut operations of U.S. HomeCare-Connecticut, a licensed and
Medicare certified home health care company in the state of Connecticut. The
acquisition was accounted for utilizing purchase accounting principles.
On November 1, 1999, the Company acquired, through wholly owned
subsidiaries in Connecticut, certain assets of the Optimum Entities. The assets
were acquired from a court-appointed Chapter 7 Trustee. The final purchase price
was determined through an auction process conducted at the United States
Bankruptcy Court for the District of Massachusetts. The Company is operating the
acquired assets under New England and a recently formed subsidiary, 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.
On October 30, 1998, the Company acquired all the outstanding common shares
of Accredited. Accredited is a licensed home health care
-22-
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.
SunStar was a publicly traded corporation since May 1996. 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, 2002,
the Company's value of its investment in SunStar is $0.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that effect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including, but not limited to, those estimates related to its
allowance for possible losses, asset impairments, income taxes, commitments and
contingencies and third payor liabilities. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions. The Company believes the accounting policies set forth in the
consolidated financial statements are those policies that are most important to
the presentation of its financial statements and such policies may require
subjective and complex judgments on the part of management.
RESULTS OF OPERATIONS
(% of net patient revenue) FISCAL YEAR ENDED JULY 31,
--------------------------
2002 2001 2000
---- ---- ----
Net patient revenue 100.0% 100.0% 100.0%
Cost of revenue 63.6 65.2 65.6
General and administrative 25.1 23.7 24.4
Allowance for possible losses .1 .8 1.0
Amortization of intangibles 1.0 1.3 1.2
------- ------ ------
Total operating expenses 89.8 91.0 92.2
-23-
Income from operations 10.2 9.0 7.8
Gain from sale of stock of equity investee --- --- 2.9
Interest income .3 .3 .4
------- ------ ------
Income before income taxes 10.5 9.3 11.1
Provision for income taxes 4.1 3.7 3.7
------- ------ ------
Net income 6.4% 5.6% 7.4%
======= ====== ======
YEAR ENDED JULY 31, 2002 COMPARED TO YEAR ENDED JULY 31, 2001
For the fiscal year ended July 31, 2002 ("fiscal 2002"), net patient
revenue increased $7,680,000, or 10.3%, to $82,172,000 from $74,492,000 for the
fiscal year ended July 31, 2001 ("fiscal 2001"). This increase is attributable
to the expansion of operations in Connecticut, in which net patient revenue
increased $5,235,000, and in New York, where net patient revenue increased
$1,472,000, partially attributable to Impressive Staffing Corp. ("Impressive"),
a newly formed subsidiary of Health Acquisition Corp. that is engaged in the
staffing and related personnel to hospitals, nursing homes and facilities.
Impressive commenced operations in February and had net patient revenue of
$497,000 for fiscal 2002. In addition, net patient revenue increased $973,000 in
New Jersey over fiscal 2001.
Gross profit margin increased to 36.4% for fiscal 2002 from 34.8% for
fiscal 2001. This increase is primarily attributable to increases in Medicaid
reimbursement rates in both Connecticut and New Jersey in July 2001. The Company
experienced no such increase in reimbursement rates in New York during fiscal
2002 nor in Connecticut and New Jersey in July 2002. Medicaid reimbursement,
like other third-party reimbursement, is subject to rate changes from time to
time that may affect the Company. For example, although as of the date hereof no
particular rate change materially affecting the Company has been implemented,
quantified or even formally announced, the Company believes that certain
Medicaid reimbursement rates in Connecticut may be reduced some time in 2003. As
a Medicaid provider, the Company also is subject to routine, unscheduled audits.
The extrapolative methodology, which applies to all applicable Medicaid revenues
an adjustment factor derived from a statistical sampling, used in such audits
may have an adverse impact on the Company's results of operations. Although the
audits to date have not resulted in any material adjustments, such audits were
based on significantly lesser Medicaid revenues. There can be no assurance at
this time that future Medicaid rate changes or audits will not have a material
impact on the Company.
General and administrative expenses increased $3,039,000, or 17.2% to
$20,667,000 from $17,628,000 in fiscal 2001. This increase is attributable to
additional administrative personnel, an increase in all insurance costs,
professional fees and occupancy related costs incurred in connection with the
expansion of operations in all service areas. The Company also incurred
additional general and administrative costs in connection with the startup of
Impressive and New Jersey Staffing Works Corp. ("New Jersey Staffing"), a newly
formed subsidiary of the
-24-
Company in New Jersey that is engaged in the staffing and related personnel to
hospitals, nursing homes and facilities. New Jersey Staffing commenced
operations in September 2002. As a percentage of net patient revenue, general
and administrative expenses increased to 25.2% in fiscal 2002 from 23.7% in
fiscal 2001. The increase in general and administrative expenses over the
periods includes the increase of $992,000 of such expenses over the respective
fourth quarters of such periods, which resulted from certain non-recurring
expenses during the recent fourth quarter, including as discussed above.
Amortization of intangibles decreased ($410,000), or (42.9%), to $546,000
in fiscal 2002 from $956,000 in fiscal 2001. This decrease is attributable to
the Company adopting SFAS No. 141 and 142 in fiscal 2002, thus requiring that
the Company no longer amortize goodwill, but instead test goodwill for
impairment at least annually.
The Company recorded an allowance for possible losses of $295,000 in fiscal
2002 as compared to $670,000 in fiscal 2001. The Company had reserved against
its accounts receivable in the previous year as a result of the Company entering
into contracts with many new payor sources over the past two years.
As a result of the foregoing, income from operations increased $1,692,000,
or 25.3% to $8,380,000 in fiscal 2002 from $6,688,000 in fiscal 2001.
Interest income increased slightly to $227,000 in fiscal 2002 from $216,000
in fiscal 2001. The increase is attributable to the higher cash balances in
fiscal 2002, offset by the continued decline in interest rates.
The Company's effective tax rate decreased slightly to 38.8% in fiscal 2002
as compared to 39.2% in fiscal 2001. This decrease is attributable to a decline
in state corporate income tax rates.
Net income increased $1,071,000, or 25.5% to $5,271,000, or $.91 per share
in fiscal 2002 from $4,200,000, or $.75 per share in fiscal 2001. This increase
and the increase in net patient revenue over the fiscal year, as well as over
other recent fiscal years, is attributable principally to the Company's
expansion of its operations through penetrations of markets vacated by
competitors and the successful integration of the Company's acquisitions over
the past three years. Such increases would not be expected to continue at the
same rate, if at all, in the absence of future such acquisitions or market
penetrations, as to which there can be no assurance.
YEAR ENDED JULY 31, 2001 COMPARED TO YEAR ENDED JULY 31, 2000
For the fiscal year ended July 31, 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 of certain assets in New Jersey of
Health Force in August 2000, the Company's net patient revenue increased
$3,538,000 over fiscal 2001. Further, the Company's net patient revenue in New
York
-25-
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.
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 an allowance for possible losses of $670,000 in fiscal
2001, as compared to $595,000 in fiscal 2000. As the Company has limited
experience with many of the new payor sources with which it now contracts as a
result of the Company's expansion into the new markets in both Connecticut and
New Jersey, the Company has established a reserve against its accounts
receivable. In addition, the Company has experienced increases in accounts
receivable with certain of the Medicare certified agencies with which it
contracts. Accordingly, the Company is reserving against accounts receivable in
the event that some of these accounts will have to be written off.
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 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 33.4% 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 $.75 per share in
fiscal 2001 from $4,091,000, or $.74 per share in fiscal 2000.
-26-
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
Current assets increased to $33,065,000 and current liabilities increased
$167,000 to $4,833,000 at July 31, 2002. This resulted in an increase in working
capital of $6,094,000 to $28,232,000 at July 31, 2002 from $22,138,000 at July
31, 2001. Cash and cash equivalents increased $6,259,000 to $15,341,000 at July
31, 2002 from $9,082,000 at July 31, 2001. This increase in cash and working
capital is primarily attributable to the net cash provided by operating
activities.
Net cash provided by operating activities was $6,498,000 in fiscal 2002 as
compared with $6,535,000 in fiscal 2001. The decrease in cash provided by
operating activities of ($37,000), or (1%), is attributable to an increase in
operating cash flow of $1,450,000, a decrease in operating assets of $625,000,
offset by a decrease in operating liabilities of ($2,112,000) over fiscal 2001.
On September 3, 2002, the Company, through Medical Resources, completed the
acquisition of certain assets of the Medical Resources Entities, for
approximately $2,623,000 in cash, including acquisition costs of $73,000.
Investing activities in fiscal 2002 used cash of ($586,000) as compared to
cash used of ($2,185,000) in fiscal 2001. The cash used in investing activities
in fiscal 2002 consisted of the purchase of equipment, purchase of assets of
businesses and other investing activities. 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 other investing activities.
Financing activities in fiscal 2002 provided cash of $347,000 as compared
to cash used of ($124,000) in fiscal 2001. The cash provided by financing
activities in fiscal 2002 consisted of the proceeds from the exercise of stock
options, offset by the purchase of treasury stock. The cash used in fiscal 2001
reflects the purchase of treasury shares offset by the proceeds from the
exercise of stock options.
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 8 to 45 days with respect to certain
governmental payors, such as Medicare and Medicaid programs. Accounts receivable
turnover was 75 days in fiscal 2002, down from 81 days in fiscal 2001.
On October 24, 2001, the Company closed on a $7,500,000 committed 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 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. At July 31, 2002 there was no outstanding balance under
the credit facility.
The Company intends to meet its short term and long term liquidity needs
with its current cash balances, cash flow from operations and its credit
facility.
-27-
In October 2002, 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 set forth herein, the Company has no material commitments for
capital expenditures.
In the opinion of management, there will be no material impact on the
financial statements of the Company from any recently issued accounting
standards.
INFLATION AND SEASONALITY
- -------------------------
The rate of inflation had no material effect on operations for fiscal 2002.
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.
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 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. 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 nor 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-33.
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.
-28-
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.
Holtz Rubenstein's report on the financial statements of the Company for
each of the two fiscal years prior to the resignation 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 2002 Annual
Meeting of Stockholders to be held on or about
-29-
December 5, 2002, 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, 2002.
ITEM 14. CONTROLS AND PROCEDURES
-----------------------
Item 14 has been omitted pursuant to the transition provisions of Exchange
Act Release No. 34-46427.
PART IV
ITEM 15. 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).
-30-
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL MATERIAL
YEARS ENDED JULY 31, 2002, 2001 AND 2000
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONTENTS
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
REPORT OF 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-13
Notes to consolidated financial statements F-14- F-29
SUPPLEMENTAL MATERIAL:
Report of Independent Certified Public Accountants on
supplemental material F-31
Report of Independent Certified Public Accountants on
supplemental material F-32
Schedule II Valuation and qualifying accounts F-33
F-2
REPORT OF BDO SEIDMAN, LLP, INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York
We have audited the accompanying consolidated balance sheets of National Home
Health Care Corp. and Subsidiaries as of July 31, 2002 and 2001 and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for the 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 conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the 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, 2002 and 2001, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO Seidman, LLP
- --------------------
BDO Seidman, LLP
Valhalla, New York
October 2, 2002
F-3
REPORT OF HOLTZ RUBENSTEIN & CO., LLP, INDEPENDENT
AUDITORS
Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York
We have audited the accompanying consolidated statements of earnings, changes in
stockholders' equity and cash flows of National Home Health Care Corp. and
Subsidiaries for the year ended July 31, 2000. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations of
National Home Health Care Corp. and Subsidiaries and their consolidated cash
flows for the year ended July 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
/s/ HOLTZ RUBENSTEIN & CO., LLP
- -------------------------------
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
October 3, 2000
F-4
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, 2002 2001
--------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT:
Cash, (including cash equivalents of $13,481,000 and $7,150,000,
respectively) (Note 8) $15,341,000 $ 9,082,000
Investments 35,000 18,000
Accounts receivable, less allowance for possible losses of $691,000
and $865,000, respectively (Note 8) 16,382,000 15,983,000
Prepaid expenses and other 778,000 1,199,000
Income taxes receivable 234,000 -
Deferred income taxes (Note 7) 295,000 522,000
--------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 33,065,000 26,804,000
--------------------------------------------------------------------------------------------------------------------
Furniture, equipment and leasehold improvements, net (Note 1) 857,000 939,000
Goodwill (Note 2) 7,366,000 7,166,000
Other intangible assets, net (Note 3) 1,406,000 1,817,000
Deferred income taxes (Note 7) 515,000 288,000
Deposits and other assets 303,000 236,000
--------------------------------------------------------------------------------------------------------------------
$43,512,000 $37,250,000
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 4) $ 3,581,000 $ 3,268,000
Estimated third-party payor settlements 912,000 1,090,000
Deferred revenue 340,000 282,000
Income taxes payable - 26,000
--------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,833,000 4,666,000
--------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY (NOTE 9):
Common stock, $.001 par value, shares authorized - 20,000,000;
issued shares- 6,902,819 and 6,491,229, respectively 7,000 6,000
Additional paid-in capital 25,552,000 20,306,000
Retained earnings 15,839,000 14,784,000
--------------------------------------------------------------------------------------------------------------------
41,398,000 35,096,000
Less treasury stock (1,329,979 and 1,310,679 shares)- at cost 2,719,000 2,512,000
--------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 38,679,000 32,584,000
--------------------------------------------------------------------------------------------------------------------
$43,512,000 $37,250,000
====================================================================================================================
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, 2002 2001 2000
----------------------------------------------------------------------------------------------------------------------
NET PATIENT REVENUE (NOTE 8) $82,172,000 $74,492,000 $55,574,000
----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Cost of revenue 52,284,000 48,550,000 36,455,000
General and administrative 20,667,000 17,628,000 13,537,000
Amortization of intangibles 546,000 956,000 660,000
Allowance for possible losses 295,000 670,000 595,000
----------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 73,792,000 67,804,000 51,247,000
----------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 8,380,000 6,688,000 4,327,000
----------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Interest 227,000 216,000 220,000
Gain from sale of stock of equity investee (Note 5) - - 1,602,000
----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 227,000 216,000 1,822,000
----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 8,607,000 6,904,000 6,149,000
PROVISION FOR INCOME TAXES (NOTE 7) 3,336,000 2,704,000 2,058,000
----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 5,271,000 $ 4,200,000 $ 4,091,000
======================================================================================================================
NET INCOME PER COMMON SHARE:
Basic $ .96 $ .77 $ .74
Diluted $ .91 $ .75 $ .74
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 5,516,689 5,444,035 5,538,426
Diluted 5,791,911 5,615,414 5,551,556
======================================================================================================================
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 Treasury Stock
---------------------- -------------------------------
Additional Retained
Shares Amount Paid-in Capital Earnings Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
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 shares - - - - 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 shares - - - - 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)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income - - - 5,271,000 - -
Stock divided declared April 17, 2002 264,211 1,000 4,216,000 (4,216,000) - -
Exercise of stock options 147,379 - 554,000 - - -
Tax benefit of stock option exercise - 476,000 - - -
Acquisition of treasury shares - - - - 19,300 (207,000)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 2002 6,902,819 $7,000 $25,552,000 $15,839,000 1,329,979 $(2,719,000)
===================================================================================================================================
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-7
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31, 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,271,000 $ 4,200,000 $ 4,091,000
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 813,000 1,194,000 881,000
Gain from sale of stock of equity investee - - (1,602,000)
Allowance for possible losses, net of write-offs 174,000 192,000 281,000
Deferred income taxes - (306,000) (87,000)
Unrealized loss on investments 49,000 - -
Loss on sale of assets - 31,000 2,000
Tax expense realized from the exercise of stock options
by employees 476,000 22,000 -
Changes in assets and liabilities:
Accounts receivable (573,000) (328,000) (3,099,000)
Prepaid expenses and other 354,000 (634,000) (431,000)
Income taxes receivable (259,000) (141,000) 277,000
Accounts payable and accrued expenses 313,000 1,065,000 1,124,000
Estimated third-party payor settlements (178,000) 958,000 (132,000)
Deferred revenue 58,000 282,000 -
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,498,000 6,535,000 1,305,000
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (185,000) (470,000) (257,000)
Purchase of assets of businesses (335,000) (1,737,000) (4,801,000)
Proceeds from sale of stock of equity investee - - 1,602,000
Others (66,000) 22,000 183,000
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (586,000) (2,185,000) (3,273,000)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (207,000) (193,000) (618,000)
Proceeds from exercise of stock options 554,000 69,000 -
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 347,000 (124,000) (618,000)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,259,000 4,226,000 (2,586,000)
Cash and cash equivalents, beginning of year 9,082,000 4,856,000 7,442,000
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 15,341,000 $ 9,082,000 $ 4,856,000
======================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 13,000 $ 1,000 $ 16,000
Income taxes $ 3,119,000 $ 3,129,000 $ 1,870,000
======================================================================================================================
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,
supplemental staffing and other specialized health
services in the North Eastern part of the United
States.
PRINCIPLES OF The consolidated financial statements include the
CONSOLIDATION 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 revenues are recorded at estimated net
ALLOWANCE FOR POSSIBLE realizable amounts from patients, third-party
LOSSES payors and others for services rendered and
includes estimated retroactive revenue adjustments
relating to future audits, reviews and
investigations. Estimated adjustments are recorded
as reviews are completed. An allowance for
possible losses 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.
Under Medicaid, Medicare and other reimbursement
programs, the Company is reimbursed for services
rendered to covered program patients as determined
by reimbursement formulas and regulations. To
date, the Company has not had any material
adjustments to previously recorded amounts. Laws
and regulations governing these programs are
complex and subject to interpretation. As a
result, it is possible that recorded estimates
will change.
Approximately 50%, 51% and 36% of net patient
revenue for the fiscal years ended July 31, 2002,
2001 and 2000, respectively, were derived under
federal and state third-party reimbursement
programs.
F-9
CASH AND CASH For the purposes of the statements of cash flows,
EQUIVALENTS 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 improvements
AND LEASEHOLD are stated at cost. Depreciation is being provided
IMPROVEMENTS 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.
GOODWILL In August 2001, the Company elected to adopt
SFAS No. 141, "Business Combinations" and No. 142,
"Goodwill and Intangible Assets." SFAS No. 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 No. 141 also requires that the Company
recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet
certain criteria. It also requires, upon adoption
of SFAS No. 142, that the Company reclassify, if
necessary, the carrying amounts of intangible
assets and goodwill based on the criteria of SFAS
No. 141.
SFAS No. 142 requires, among other things, that
companies no longer amortize goodwill, but instead
test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company
identify reporting units for the purpose 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. No adjustments for
impairment losses were required.
F-10
GOODWILL (CONTINUED) The Company's previous business combinations were
accounted for by using the purchase method and, as
of August 2001, the net carrying amount of
goodwill from prior purchase transactions was
approximately $7.2 million. Annual amortization of
this amount, which ceased effective August 1, 2001
amounted to approximately $0.4 million in the year
ended July 31, 2001.
The effect of adoption of SFAS No. 142 on the 2001
and 2000 consolidated results of operations were
as follows:
2001 2000
---------------------------------------------------------------------------------
Reported net income $4,200,000 $4,091,000
Add back: Amortization of goodwill 417,000 367,000
---------------------------------------------------------------------------------
Net income, as adjusted $4,617,000 $4,458,000
---------------------------------------------------------------------------------
Basic earnings per share:
Reported net income $.77 $.74
Amortization of goodwill .08 .07
---------------------------------------------------------------------------------
Basic earnings per share, as adjusted $.85 $.81
---------------------------------------------------------------------------------
Diluted earnings per share:
Reported net income $.75 $.74
Add back: Amortization of goodwill .07 .07
---------------------------------------------------------------------------------
Diluted earnings, per share, as adjusted $.82 $.81
=================================================================================
RECENT ACCOUNTING SFAS 143 addresses financial reporting and
PRONOUNCEMENTS reporting for obligations associated with
retirement of tangible long-lived assets and the
associated retirement cost. SFAS 143 is effective
for the fiscal years beginning after June 15,
2002. The Company will adopt SFAS 143 effective
August 1, 2002.
SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of
long-lived assets. SFAS 144 is effective for the
fiscal years beginning after December 15, 2001.
The Company will adopt SFAS effective August 1,
2002.
Currently, the Company does not believe that the
adoption of SFAS 143 and SFAS 144 will have a
material impact on its financial position and
results of operations.
F-11
NET INCOME PER COMMON Basic net income per share is computed by dividing
SHARE 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.
The reconciliation for the years ended July 31,
2002, 2001 and 2000 are as follows:
Years ended July 31, 2002 2001 2000
-----------------------------------------------------------------------------------
Average number of shares outstanding 5,516,689 5,444,035 5,538,426
-----------------------------------------------------------------------------------
Effect of dilutive securities - 275,222 171,379 13,130
Common stock options
-----------------------------------------------------------------------------------
Diluted Shares outstanding 5,791,911 5,615,414 5,551,556
===================================================================================
FAIR VALUE OF FINANCIAL The carrying amount reported in the consolidated
INSTRUMENTS balance sheets for cash, accounts receivable,
accounts payable and accrued expenses approximate
fair value because of the immediate or short-term
maturity of the financial instruments.
ACCOUNTING FOR STOCK The Company accounts for employee stock-based
OPTIONS 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 of
Statement of Financial Standard No. 123 (SFAS
123).
ESTIMATED THIRD-PARTY The amount represents overpayments from certain
PAYOR SETTLEMENT third-party payors. The Company anticipates that
the third-party payor will recoup these funds in
subsequent periods.
F-12
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.
WORKERS' 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 trends and
may be subsequently revised based on developments
relating to such claims.
INCOME TAXES The Company accounts for income taxes under an
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 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 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.
F-13
RECLASSIFICATIONS Certain reclassifications have been made in prior
years' financial statements to conform to
classifications used in the current year.
F-14
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. FURNITURE, EQUIPMENT Furniture, equipment and leasehold improvements
AND LEASEHOLD are stated at cost and are summarized as follows:
IMPROVEMENTS
July 31, 2002 2001
---------------------------------------------------------------------------------
Furniture and equipment $1,924,000 $1,776,000
Leasehold improvements 406,000 369,000
---------------------------------------------------------------------------------
2,330,000 2,145,000
Less accumulated depreciation and
amortization 1,473,000 1,206,000
---------------------------------------------------------------------------------
$ 857,000 $ 939,000
=================================================================================
2. GOODWILL Changes in net goodwill are as follows:
July 31, 2002 2001
---------------------------------------------------------------------------------
Balance, beginning of year $7,166,000 $6,861,000
Additions 200,000 722,000
Amortization for year - (417,000)
---------------------------------------------------------------------------------
Balance, end of year $7,366,000 $7,166,000
=================================================================================
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
3. OTHER INTANGIBLE Other intangible assets are as follows:
ASSETS
July 31, 2002 2001
---------------------------------------------------------------------------------
GROSS CARRYING AMOUNT:
Covenants not to compete $1,325,000 $1,275,000
Personnel files 1,562,000 1,519,000
Patient files 1,234,000 1,192,000
---------------------------------------------------------------------------------
4,121,000 3,986,000
---------------------------------------------------------------------------------
ACCUMULATED AMORTIZATION:
Covenants not to compete (1,049,000) (893,000)
Personnel files (1,137,000) (930,000)
Patient files (529,000) (346,000)
---------------------------------------------------------------------------------
(2,715,000) (2,169,000)
---------------------------------------------------------------------------------
Balance, end of year $1,406,000 $1,817,000
=================================================================================
F-15
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
3. OTHER INTANGIBLE The aggregate amortization expense for the years
ASSETS (CONTINUED) ended July 31, 2002, 2001 and 2000 was $546,000,
$956,000 and $660,000, respectively.
Estimated amortization expense is as follows:
Years ended July 31,
-------------------------------------------------
2003 $ 470,000
2004 377,000
2005 355,000
2006 109,000
2007 57,000
-------------------------------------------------
$1,368,000
-------------------------------------------------
The remaining weighted-average amortization period
is as follows:
Year ended July 31, 2002
-------------------------------------------
Covenants not to compete 3.28 YEARS
Personnel files 2.42 YEARS
Patient files 3.82 YEARS
-------------------------------------------
3.16 YEARS
-------------------------------------------
Other intangible assets are being amortized using
the straight-line method over a period of three to
ten years.
4. ACCOUNTS PAYABLE AND Accounts payable and accrued expenses are as
ACCRUED EXPENSES follows:
July 31, 2002 2001
---------------------------------------------------------------------------------
Trade accounts payable $ 730,000 $ 857,000
Accrued employee compensation and
benefits 2,461,000 2,070,000
Other 390,000 341,000
---------------------------------------------------------------------------------
$3,581,000 $3,268,000
=================================================================================
F-16
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
5. INVESTMENT IN During fiscal 1996, following an initial public
SUNSTAR offering and change in management, the Company
HEALTHCARE, INC. equity method of accounting. held a 37.6%
investment in SunStar Healthcare, Inc.
("SunStar"), which was accounted for under the
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. At
July 31, 2002, the Company's ownership percentage
of SunStar was 21.6% and the Company's value of
its investment in SunStar was $0. The Company and
certain of its officers and directors have been
named in a class action brought on behalf of
certain shareholders of SunStar (See Note 10d)).
6. ACQUISITIONS Asset 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 goodwill.
On April 14, 2000, the Company acquired certain
assets of the 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.
F-17
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
6. ACQUISITIONS On August 25, 2000, the Company acquired certain
(CONTINUED) 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 goodwill of $722,000.
The above acquisitions have been recorded using,
the purchase method of accounting. Accordingly,
the results of these operations have been included
in the accompanying consolidated financial
statements since the dates of acquisition.
The effects of the above acquisitions on the 2001
and 2000 consolidated results of operations were
not significant.
F-18
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
The provision for income taxes is summarized as
follows:
Years ended July 31, 2002 2001 2000
----------------------------------------------------------------------------
Current:
Federal $2,500,000 $2,275,000 $1,504,000
State 836,000 735,000 641,000
----------------------------------------------------------------------------
3,336,000 3,010,000 2,145,000
Deferred - (306,000) (87,000)
----------------------------------------------------------------------------
$3,336,000 $2,704,000 $2,058,000
===========================================================================-
The deferred tax asset consists of the following:
July 31, 2002 2001
------------------------------------------------------------------
Current:
Accrued liabilities and reserves $295,000 $510,000
State net operating
loss carryforwards - 12,000
------------------------------------------------------------------
295,000 522,000
Long term:
Amortization of intangible
assets 515,000 288,000
------------------------------------------------------------------
$810,000 $810,000
==================================================================
The reconciliation of the statutory tax rate to the effective tax rate is
as follows:
Years ended July 31, 2002 2001 2000
----------------------------------------------------------------------------
Statutory rate 34% 34% 34%
State and local taxes
(net of federal tax effect) 6 6 10
Federal tax credit (1) (2) (2)
Permanent differences - 1 1
Change in valuation allowance - - (5)
Adjustments to prior years tax
liabilities - - (2)
Other - - (3)
----------------------------------------------------------------------------
Effective rate 39% 39% 33%
============================================================================
F-19
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
8. CONCENTRATIONS OF The Company's business is with customers who are
CREDIT RISK AND in the healthcare industry or with governmental
MAJOR CUSTOMERS 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, 2002, the Company maintained
approximately 32% 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 $41,253,000,
$37,788,000 and $19,955,000 for the years ended
July 31, 2002, 2001 and 2000, respectively. The
Company also received net patient revenues of
approximately $4,547,000, $4,610,000 and
$5,663,000 for the years ended July 31, 2002, 2001
and 2000, respectively, from a private company. At
July 31, 2002 and 2001, the Company had an
aggregate outstanding receivable from federal and
state agencies of $4,621,000 and $5,058,000 and an
outstanding receivable of $1,150,000 and
$1,142,000, from the private company,
respectively.
F-20
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
9. OPTIONS In 1992, the Company adopted an Employee Stock
Option Plan (the "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 Plan
authorizes the granting of both incentive and
non-qualified stock options to purchase up to
500,000 shares of the Company's common stock. As
of July 31, 2002, 318,139 shares of the Company's
common stock have been reserved for future
issuance upon the exercise of options designated
at either (i) options intended to constitute
incentive stock options ("ISOs") under the
Internal Revenue Code of 1986, as amended, or (ii)
nonqualified options. The Plan expired on July of
2002. Options granted under the Plan expire not
more than ten years from the date of grant and
vest immediately.
In 1999, the Company adopted a second Employee
Stock Plan (the "1999 Plan"). The 1999 Plan was
adopted in anticipation of expiration of the Plan.
The 1999 Plan was also designed to provide
incentives to key employees (including directors
and officers who are key employees) and to
non-employee directors of the Company. The Plan
authorizes the granting of both incentive and
non-qualified stock options to purchase up to
551,250 shares of the Company's common stock. As
of July 31, 2002, 530,880 shares of the Company's
common stock have been reserved for future
issuance. The provisions of the 1999 Plan are
consistent with the Plan. Unless sooner
terminated, the 1999 Plan will expire in October
2009. Options granted under the 1999 Plan expire
not more than ten years from the date of grant and
vest immediately.
All stock options have been granted to employees
and non-employees at exercise prices equal to or
in excess of the market value on the date of the
grant.
F-21
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
9. OPTIONS The Company applies APB Opinion 25, "Accounting
(CONTINUED) for Stock Issued to Employees," and related
Interpretations in accounting for its stock option
plan by recording as compensation expense the
excess of the fair market value over the exercise
price per share as of the date of grant. Because
the exercise price of the Company's employee stock
options equals the market price of the underlying
stock on the date of grant, no compensation was
recognized.
SFAS No. 123 requires the Company to provide pro
forma information regarding net income and net
income per share as if compensation cost for the
Company's stock option plan had been determined in
accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates
the fair value of each stock option at the grant
date by using the Black-Scholes option-pricing
model with the following weighted average
assumptions used for grants since 1992:
Years ended July 31, 2002 2001 2000
-------------------------------------------------
ASSUMPTIONS
Dividend Yield 0.00% - 0.00%
Volatility 66.00% - 35.00%
Risk free interest
rate 5.04% - 6.20%
Expected lives 10 YEARS - 10 years
==================================================
F-22
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
9. OPTIONS Under the accounting provisions of FASB Statement
(CONTINUED) 123, the Company's net income and net income per
share would have been adjusted to the pro forma
amounts indicated below:
Years ended July 31, 2002 2001 2000
--------------------------------------------------------------------------------
PRO FORMA RESULTS Net income:
As reported $5,271,000 $4,200,000 $4,091,000
Pro forma 5,050,000 (a) 3,843,000
Income per common share-basic:
As reported 0.96 0.77 0.74
Pro forma 0.92 (a) 0.69
Income per common share-diluted:
As reported 0.91 0.75 0.74
Pro forma 0.87 (a) 0.69
=================================================================================
(a) No pro forma since options were not granted.
F-23
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
9. OPTIONS A summary of the status of the Company's stock
(CONTINUED) option plan as of July 31, 2002, 2001 and 2000 and
changes for the years ending on those dates is
presented below:
Weighted
average
Number of Expiration exercise
shares date price
----------------------------------------------------------------------------------
Options outstanding at July 31, 1999 286,161 2007-2009 $ 3.78
Options granted 271,215 2007-2009 3.94
Options forfeited (32,085) - 3.89
----------------------------------------------------------------------------------
Options outstanding at July 31, 2000 525,291 2007-2009 3.86
Options exercised (17,325) - 3.96
----------------------------------------------------------------------------------
Options outstanding at July 31, 2001 507,966 2007-2009 3.85
Options exercised (153,445) - 3.61
Options forfeited (5,513) - 3.65
Options granted 183,750 2007-2011 13.31
----------------------------------------------------------------------------------
Options outstanding at July 31, 2002 532,758 - $13.97
==================================================================================
The Plan options are exercisable at various
prices, none of which were in excess of 110% of
the fair market value of the Company's common
stock at the date of grant.
Data summarizing year-end options exercisable and
weighted average fair value of options granted
during the years ended July 31, 2002, 2001 and
2000 is shown below:
Options Exercisable 2002 2001 2000
----------------------------------------------------------------------------------
Options exercisable at year end 532,758 507,966 525,291
Weighted average exercise price $ 13.97 $ 3.85 $ 3.86
Weighted average fair value of
options granted during the year 9.61 - 4.09
Weighted average remaining
contractual life 7.07 YEARS 6.98 years 7.98 years
==================================================================================
F-24
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. COMMITMENTS, a) Effective January 1, 1999, the Company amended
CONTINGENCIES AND and restated its Employee Savings and Stock
OTHER MATTERS 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 100% of the first 3% of employees'
contributions and 50% of the next 2% of employees'
contributions, provided that the matching
contributions on behalf of any employee does not
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 the years ended July
31, 2002, 2001 and 2000 were $617,000, $495,000,
and $226,000, respectively.
b) The Company has employment agreements with five
officers, which expire through October 31, 2006.
The aggregate commitment for future salary,
excluding bonuses, is $4,507,500. 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.
F-25
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. COMMITMENTS, d) Effective January 1, 1999, the Company amended
CONTINGENCIES AND and restated its Employee Savings and Stock
OTHER MATTERS Investment Plan organized under Section 401(k) of
(CONTINUED) 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 100% of the first 3% of employees'
contributions and 50% of the next 2% of employees'
contributions, provided that the matching
contributions on behalf of any employee does not
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 the years ended July
31, 2002, 2001 and 2000 were $617,000, $495,000,
and $226,000, respectively.
e) The Company has employment agreements with five
officers, which expire through October 31, 2006.
The aggregate commitment for future salary,
excluding bonuses, is $4,507,500. 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.
f) The Company rents various office facilities
through 2006 under the terms of several lease
agreements that include escalation clauses.
F-26
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. COMMITMENTS, At July 31, 2002, minimum annual rental
CONTINGENCIES AND commitments under non-cancellable operating leases
OTHER MATTERS are as follows: Years ended July 31,
(CONTINUED)
--------------------------------------------------
2003 $ 864,000
2004 444,000
2005 356,000
2006 15,000
--------------------------------------------------
$1,679,000
==================================================
Rent expense for the years ended July 31, 2002,
2001 and 2000 was approximately $853,000,
$858,000, and $636,000, respectively.
One lease agreement is with a company controlled
by the Company's Chairman of the Board. Net rent
expense under such lease agreement approximates
$202,000 per year.
g) The Company and certain of its officers and
directors have been named as defendants in a
consolidated class action 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.
Plaintiff's did not appeal this decision.
F-27
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
10. COMMITMENTS, In a related action, the director defendants are
CONTINGENCIES AND named in a case brought by the Department of
OTHER MATTERS Insurance of the State of Florida. The allegations
(CONTINUED) 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' 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.
h) The Company has 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 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 a .25% commitment fee on unused
amounts. At July 31, 2002 there was no outstanding
balance under the credit facility.
11. STOCK DIVIDENDS The Board announced on April 25, 2002 the
declaration of a 5% stock dividend payable May 17,
2002 to shareholders of record on May 10, 2002.
The Board also 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 dividends.
F-28
NATIONAL HOME HEALTH CARE CORP.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
12. SUMMARIZED QUARTERLY Presented below is a summary of the unaudited
DATA (UNAUDITED) consolidated quarterly financial information for
the years ended July 31, 2002 and 2001 (in
thousands, except per share data):
2002
---------------------------------------------------------------------------------
Quarter First Second Third Fourth
---------------------------------------------------------------------------------
Net patient revenue $20,274 $20,466 $20,620 $20,812
---------------------------------------------------------------------------------
Cost of Revenue 12,926 12,972 13,081 13,305
General and administrative
expenses 4,824 5,012 5,186 5,645
Amortization of intangibles 137 136 136 137
Provision for possible losses 115 65 65 50
---------------------------------------------------------------------------------
Total operating expenses 18,002 18,185 18,468 19,137
---------------------------------------------------------------------------------
Income from operations 2,272 2,281 2,152 1,675
Interest income 78 44 48 57
---------------------------------------------------------------------------------
Income before income taxes 2,350 2,325 2,200 1,732
Provision for income taxes 936 904 839 657
---------------------------------------------------------------------------------
Net income 1,414 1,421 1,361 1,075
---------------------------------------------------------------------------------
Net income per common share:
Basic .26 .26 .25 .19
Diluted .25 .24 .24 .18
=================================================================================
2001
-------------------------------------------------------------------------------
Quarter First Second Third Fourth
---------------------------------------------------------------------------------
Net patient revenue $17,518 $18,479 $18,944 $19,551
---------------------------------------------------------------------------------
Cost of Revenue 11,642 11,964 12,302 12,642
General and administrative
expenses 4,040 4,458 4,477 4,653
Amortization of intangibles 222 245 244 245
Provision for possible losses 130 180 180 180
---------------------------------------------------------------------------------
Total operating expenses 16,034 16,847 17,203 17,720
---------------------------------------------------------------------------------
Income from operations 1,484 1,632 1,741 1,831
Interest income 37 41 59 79
---------------------------------------------------------------------------------
Income before income taxes 1,521 1,673 1,800 1,910
Provision for income taxes 649 714 735 606
---------------------------------------------------------------------------------
Net income 872 959 1,065 1,304
---------------------------------------------------------------------------------
Net income per common share:
Basic .16 .18 .20 .23
Diluted .15 .17 .19 .24
=================================================================================
13. SUBSEQUENT EVENT On September 3, 2002, the Company, through a
newly-formed subsidiary in Massachusetts acquired
certain assets of Medical Resources, Inc. and
related entities ("Medical Resources"). Medical
Resources provides home health care services
throughout Massachusetts. The purchase of
$2,623,000, including acquisition costs of $73,000
was financed using internal funds. The acquisition
was accounted for as a purchase.
F-29
SUPPLEMENTAL MATERIAL
F-30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL MATERIAL
The audits referred to in our report dated October 2, 2002 relating to the
consolidated financial statements of National Home Health Care Corp. and
Subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit
of the financial statement schedule listed in the accompanying Schedule II for
the years ended July 31, 2002 and 2001. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
- ---------------------
BDO Seidman, LLP
Valhalla, New York
October 2, 2002
F-31
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
----------------------------------------
The audit 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 year
ended July 31, 2000. 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-32
Column A Column B Column C
- --------------------------------------------------------------------------------------------------------------
Additions
---------------------------------------------
Description Balance, beginning of Charged to costs and Charged to other
period expenses accounts describe
- --------------------------------------------------------------------------------------------------------------
Year ended July 31, 2002:
Allowance deducted from asset account
Allowance for possible losses $865,000 $295,000 $ -
- --------------------------------------------------------------------------------------------------------------
Year ended July 31, 2001:
Allowance deducted from asset account
Allowance for possible losses $673,000 $670,000 $ -
- --------------------------------------------------------------------------------------------------------------
Year ended July 31, 2000:
Allowance deducted from asset account
Allowance for possible losses $392,000 $595,000 $ -
- --------------------------------------------------------------------------------------------------------------
Column D Column E
- --------------------------------------------------------------------------------------------
Description Deductions describe Balance, end of period
- --------------------------------------------------------------------------------------------
Year ended July 31, 2002:
Allowance deducted from asset account
Allowance for possible losses $469,000(a) $691,000
- --------------------------------------------------------------------------------------------
Year ended July 31, 2001:
Allowance deducted from asset account
Allowance for possible losses $478,000(a) $865,000
- --------------------------------------------------------------------------------------------
Year ended July 31, 2000:
Allowance deducted from asset account
Allowance for possible losses $314,000(a) $673,000
- --------------------------------------------------------------------------------------------
See accompanying independent accountants'report
on supplemental material.
(a) Represents actual write-offs.
F-33
(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.
10.4 Third Amendment, dated as of August 1, 2001, 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, 2001 (the "2001 Form 10-K").
10.5 Amended and Restated Employment Agreement dated as of November 1,
2001 between the Registrant and Frederick H. Fialkow.
Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended January 31, 2002 (the
"January 31, 2002 Form 10-Q").
10.6 Fourth Amendment, dated as of August 1, 2001, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the 2001 Form 10-K.
10.7 Employment Agreement dated as of November 1, 2001 between the
Registrant and Steven Fialkow. Incorporated by reference to the
January 31, 2002 Form 10-Q.
10.8 Employment Agreement dated as of November 1, 2001 between the
Registrant and Robert P. Heller. Incorporated by reference to the
January 31, 2002 Form 10-Q.
10.9 Employment Agreement dated as of November 1, 2001 between the
Registrant and Richard Garofalo. Incorporated by reference to the
January 31, 2002 Form 10-Q.
-31-
EXHIBIT DOCUMENT
NUMBER --------
- ------
10.10 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.
10.11 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 Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
October 31, 1999.
10.12 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").
10.13 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.
99.1* Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2* Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------
* Filed herewith
(b) Reports on Form 8-K.
-------------------
None.
-32-
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, 2002
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 (principal
Steven Fialkow executive officer)
/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.
CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
I, Steven Fialkow, certify that:
1. I have reviewed this annual report on Form 10-K of National Home
Health Care Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
[Items 4, 5 and 6 omitted pursuant to the transition provisions of the 1934
Securities Exchange Act Release No. 34-46427.]
Date: October 29, 2002
/s/ Steven Fialkow
--------------------------------------
Steven Fialkow
President and Chief Executive Officer
(i)
CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
I, Robert P. Heller, certify that:
1. I have reviewed this annual report on Form 10-K of National Home
Health Care Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
[Items 4, 5 and 6 omitted pursuant to the transition provisions of the 1934
Securities Exchange Act Release No. 34-46427.]
Date: October 29, 2002
/s/ Robert P. Heller
--------------------------------------
Robert P. Heller
Vice President of Finance and Chief
Financial Officer
(ii)
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, 2002
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.
10.4 Third Amendment, dated as of August 1, 2001, 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, 2001 (the "2001 Form 10-K").
10.5 Amended and Restated Employment Agreement dated as of November 1,
2001 between the Registrant and Frederick H. Fialkow.
Incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended January 31, 2002 (the
"January 31, 2002 Form 10-Q").
10.6 Fourth Amendment, dated as of August 1, 2001, to Employment
Agreement between the Registrant and Steven Fialkow. Incorporated
by reference to the 2001 Form 10-K.
10.7 Employment Agreement dated as of November 1, 2001 between the
Registrant and Steven Fialkow. Incorporated by reference to the
January 31, 2002 Form 10-Q.
10.8 Employment Agreement dated as of November 1, 2001 between the
Registrant and Robert P. Heller. Incorporated by reference to the
January 31, 2002 Form 10-Q.
EXHIBIT DOCUMENT
NUMBER --------
- ------
10.9 Employment Agreement dated as of November 1, 2001 between the
Registrant and Richard Garofalo. Incorporated by reference to the
January 31, 2002 Form 10-Q.
10.10 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.
10.11 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 Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
October 31, 1999.
10.12 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").
10.13 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.
99.1* Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2* Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- ----------
* Filed herewith