Back to GetFilings.com
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
For the fiscal year ended July 31, 1997 Commission File Number 0-12927
NATIONAL HOME HEALTH CARE CORP.
(Exact name of Registrant as specified in its charter)
Delaware 22-2981141
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK 10583
- ------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 914-722-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share.
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of October 24, 1997, 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 $14,066,926, calculated on the basis of the average
closing bid and asked prices of such stock on the National Association of
Securities Dealers Automated Quotation System on that date, as reported by the
National Association of Securities Dealers, Inc.
The number of shares outstanding of the Registrant's Common Stock on October 24,
1997 was 5,098,821.
Portions of the Registrant's Proxy Statement for its 1997 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 on July 27, 1983 under the name of Family
Treatment Centers of America, Inc. Effective December 14, 1984, the Company
changed its name to National HMO Corp. and effective December 20, 1991, the
Company changed its name to National Home Health Care Corp. The Company
completed its initial public offering in December 1983. The Company is a
provider of home health care services throughout the New York City metropolitan
area and Long Island in the State of New York and in both Fairfield and New
Haven Counties in the State of Connecticut.
The Company has three operating subsidiaries:
* Health Acquisition Corp., formerly Allen Health Care Services,
Inc., a New York corporation, of which Allen Health Care
Services ("Allen Health Care") is the sole operating division.
* New England Home Care, Inc., a Connecticut corporation ("New
England"), which conducts business in the State of
Connecticut.
* Nurse Care, Inc., a Connecticut corporation ("Nurse Care"),
which conducts business in the State of Connecticut.
In January 1996, the outpatient medical service business of the
Company, formerly known as Brevard Medical Center, Inc. and First Health, Inc.,
was reorganized as SunStar Healthcare, Inc. ("SunStar") a newly-formed,
wholly-owned subsidiary of the Company. On May 21, 1996, the initial public
offering of common stock by SunStar was consummated, thus reducing the Company's
ownership percentage of SunStar to approximately 37.6%. As a result, SunStar is
no longer consolidated with the Company for accounting purposes and the Company
accounts for its investment in SunStar using the equity method of accounting.
Health Acquisition Corp.
- ------------------------
d/b/a Allen Health Care Services
- --------------------------------
Allen Health Care is a provider of personal home health care
services. Services are provided by registered nurses, personal care aides, home
health aides and homemakers. The Company is licensed by the Public Health
Council of the State of New York Department of Health. Allen Health Care
maintains its principal administrative office in Jamaica, New York and has
satellite offices in Manhattan, Farmingdale, Islandia and Hempstead, New York.
Services are provided in the following counties in the State of New York:
Nassau, Suffolk, Queens, Kings, New York and the Bronx.
-2-
All home health care personnel are licensed or are agency certified
under a New York State approved program and can be engaged on a full-time,
part-time or live-in basis. In May 1996, Allen Health Care was resurveyed by the
Joint Commission of Accreditation of Health Care Organizations (JCAHO), the
accrediting body for all 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 resurvey resulted in Allen Health Care extending their accredited
status through the year 1999.
Reimbursement for the company's services is primarily provided by
Certified Home Health Care Agencies ("CHHAs"), and long-term health care
provider programs that subcontract their patients to Allen Health Care, as well
as from private payors and both the Nassau and Suffolk Counties Department 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 the company'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 the records of service which are completed by the home
health aide and personal care aides daily. These records are maintained by Allen
Health Care. In addition, the home care coordinator ensures that appropriate
coverage is maintained for all patients and acts as the liaison among family
members, aides and the professional staff.
Allen Health Care was acquired by the Company in October 1986.
Subsequent to the acquisition, the agency has grown its home care business by
securing contracts with CHHAs, expanding its services and geographical presence
and through acquisitions.
In March 1997, Allen Health Care completed the acquisition of certain
assets of C.J. Home Care, Inc. d/b/a Garden City Home Care, a New York licensed
home health care agency that provides home health aide services in Nassau
County, New York. Annual revenues for Garden City Home Care approximated
$2,000,000 in 1996. 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 provide home health aide services in
both Nassau and Suffolk County, New York. The two companies collectively had
revenues of approximately $3,400,000 in 1996. The latter acquisition gives the
Company an entree into the Shared Aide Program in Nassau County. The Shared Aide
Program is a relatively new program for Medicaid patients that brings a group of
home health aides together to care for patients in one geographic area, thus
increasing operating efficiencies and reducing costs.
To a large extent, Allen Health Care's continued growth depends on
its ability to recruit and maintain qualified personnel. The company's training
programs for home health aides and personal care aides have been approved by the
State of New York Department of Health. The company
-3-
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
- ---------------------
On August 4, 1995, the Company consummated the acquisition of 100% of
the capital stock of Nurse Care, the parent company of New England for
$3,150,000 in cash. In addition, one of the two former shareholders of Nurse
Care entered into a one-year employment contract as the Administrator of New
England with a base salary of $125,000. Although such contract has expired, the
shareholder continues to be employed by Nurse Care. The other former shareholder
entered into a one-year consulting agreement to provide certain consulting
services with respect to the operations of New England in consideration of
$20,000 in consulting fees. During the fiscal year ended July 31, 1996, Nurse
Care transferred all of the outstanding shares of New England to National Home
Health Care Corp., whereby New England as well as Nurse Care, became a direct,
wholly-owned subsidiary of the Company.
New England is a Medicare certified and licensed home health care
company in the State of Connecticut. In December 1995, New England received
JCAHO accreditation through the year 1998. New England provides services
throughout Fairfield and New Haven Counties as well as the southern portions of
Litchfield, Hartford and Middlesex Counties, in the State of Connecticut.
Services include skilled nursing, physical therapy, occupational therapy, speech
therapy, medical social services and home health aide services. In addition, New
England offers specialty programs consisting of mental health and wellness,
perinatal/high risk pregnancy, pediatrics and disease management. New England
provides full-service home health care twenty-fours 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.
New England maintains its principal administrative office in Milford,
Connecticut and has branch offices in Norwalk, Hamden and Waterbury, and
satellite offices in Danbury and Seymour. Reimbursement for New England's
services is primarily provided by the Federal Medicare Program and the State of
Connecticut Medicaid Program. Additional sources of revenues are from managed
care programs, commercial insurance carriers and private payors.
Nurse Care
- ----------
Nurse Care is a licensed home health care company providing home
health aide services throughout Fairfield and New Haven Counties, Connecticut.
In December 1995, Nurse Care received JCAHO accreditation through the year 1998.
Similar to the operations of New England, Nurse Care maintains its principal
administrative office in Milford, Connecticut and has satellite offices in
Norwalk, Hamden, Waterbury, Danbury and Seymour. Reimbursement for Nurse Care's
services is primarily provided by New England, which subcontracts all of its
home health aide services to Nurse Care, and from hospices and other certified
home care agencies.
-4-
Insurance
- ---------
The Company and its subsidiaries maintain professional malpractice
liability coverage on professionals employed in the rendering of health care
services providing coverage in an amount of up to $1,000,000 per occurrence and
up to $6,000,000 in the aggregate and coverage for the customary risks inherent
in the operation of business in general. Recent market conditions with respect
to liability insurances have caused wide fluctuations in the cost and
availability of coverage. The Company carries directors and officers liability
with a limit of $2,000,000. While the Company believes its insurance policies
are adequate in the amount and coverage for its current operations, there can be
no assurance that coverage will continue to be available in adequate amounts or
at a reasonable cost.
Employees and Labor Relations
- -----------------------------
As of October 24, 1997, the Company had approximately 1,700 full and
part-time employees of whom 15 were employed in various management capacities
and 5 were employed in marketing capacities. None of the Company's employees is
represented by a labor organization. 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 the
appropriate authorities.
Competition
- -----------
The home health care field is highly competitive. The Company is
competing with numerous other licensed as well as certified home health care
agencies. 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.
The Company's ability to attract a staff of highly trained personnel
is a material element of its business. There currently is intense competition
for qualified personnel and there can be no assurance that the Company will be
successful in maintaining or in securing additional qualified personnel. The
Company recruits personnel principally through referral from existing personnel
and through newspaper advertisements.
Customers
- ---------
One or more customers have each accounted for more than 10% of the
Company's revenues. For the fiscal years ended July 31, 1997, 1996 and 1995, VNS
Home Care, a non-profit Medicare certified home health care agency, accounted
for 22%, 24% and 40%, respectively; the State of New York, Department of Social
Services personal care aide program for the counties of Suffolk and Nassau
accounted for 10%, 7%, and 13%, respectively, of the Company's consolidated net
patient revenues from continuing operations; and the Federal Medicare program
accounted for approximately
-5-
22%, 21% and 0%, respectively, of net patient revenue for the fiscal years ended
July 31, 1997, 1996 and 1995. The loss of any of the foregoing customers would
have a material adverse effect on the Company.
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 profitability will depend in
part upon the Company obtaining and maintaining all necessary licenses and other
approvals in compliance with applicable health care regulations.
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 the
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 the Department 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 the State of Connecticut.
Currently, Medicare Part A reimburses providers for certain costs for
certain home health care visits to eligible Medicare beneficiaries. There is no
limit to the number of home health visits a beneficiary may receive. Covered
services include intermittent skilled nursing care, physical, occupational or
speech therapy, medical social services, intermittent services of a home health
aide, and certain medical supplies.
Under current Medicare reimbursement, home health care providers,
including the Company, are reimbursed on a reasonable cost basis subject to
program-imposed cost per visit limitations applicable to each type of home
health service. Medicare reimbursement does not include a profit factor.
Medicare providers are subject to periodic audits of charges submitted for
reimbursement, which could result in recoupment of payments previously made to
the provider, or increases in payments due the Medicare provider.
The Balanced Budget Act of 1997 (the "Act"), which was signed into
law on August 5, 1997 contains many sweeping changes to Medicare home health
reimbursement and coverage. Under the Act, for cost reporting periods beginning
on or after October 1, 1997, Medicare providers will be reimbursed under an
interim payment system, which will remain in effect for a two year period prior
to the implementation of a prospective payment system. Under the interim payment
system, home
-6-
health care providers will be reimbursed the lower of (1) actual costs, (2) cost
per visit limits, or (3) an aggregate per beneficiary limit based on a blending
of agency-specific costs and a census region costs for cost reporting periods
ending during fiscal 1994, updated by the home health market basket index. The
prospective payment system calls for payments to Medicare providers for cost
reporting periods on or after October 1, 1999 in accordance with a prospective
payment system to be established by the Secretary. The Company cannot predict at
this time with any certainty what impact these changes will have on the
Company's business.
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. In July 1991, the federal government
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.
Over the past year, the home health industry has come under intense
government scrutiny regarding compliance with all applicable standards.
Operation Restore Trust, the government's Medicare anti-fraud program, is
expected to blanket all fifty states over the next five year period.
In September 1997, the Health Care Financing Administration ("HCFA")
announced a moratorium on the entry of new home health agencies into the
Medicare program. The moratorium includes new branches of existing home health
agencies. While the moratorium is in effect, HCFA will double the number of home
health agency audits, implement program safeguards included in the Act and work
on changes in requirements with which home health agencies must comply. An
immediate change being implemented by the HCFA is the requirement that home
health agencies disclose information about related businesses that they own.
Proposed regulations include the requirement that home health agencies re-enroll
in the Medicare program every three years and the posting of surety bonds to
establish financial stability.
Medicaid
- --------
Approximately 17%, 18% and 13% of net patient revenue for the fiscal
years ended July 31, 1997, 1996 and 1995, respectively, were derived under 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 the State of Connecticut and in both Nassau and
Suffolk County in the State
-7-
of New York. Medicaid reimbursement rates may be reduced in response to state
economic and budgetary constraints, as well as in response to changes in the
Medicare program.
ITEM 2. PROPERTIES.
The Company, directly or through certain subsidiaries, leases various
office facilities under lease agreements with various expiration dates through
the year 2004. The following sets forth the location, approximate square
footage, use of each office and expiration date of each lease:
Approximate Expiration Date
Location Square Feet Use of Lease
Scarsdale, NY 2,095 Corporate headquarters October 31, 1998
Queens, NY 7,500 Administrative office January 31, 1998
Farmingdale, NY 3,519 Satellite office May 31, 1998
Hempstead, NY 3,800 Satellite office September 30, 2004
Islandia, NY 2,100 Satellite office June 30, 2001
Manhattan, NY 1,265 Satellite office April 30, 1998
Milford, CT 9,600 Administrative office May 31, 1999
Norwalk, CT 2,772 Branch office May 31, 1999
Hamden, CT 2,605 Branch office July 31, 1998
Waterbury, CT 2,000 Branch office July 31, 2000
Seymour, CT 575 Satellite office May 31, 1998
Danbury, CT 1,200 Satellite office Month to Month
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 renew or find adequate replacement offices for
all leases which will expire in the current fiscal year.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company is subject, from time
to time, to claims and legal actions. No material actions are currently pending
against the Company.
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, 1997.
-8-
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, 1996
and July 31, 1997. 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, 1996
- ------------------------
1st Quarter............................ $4.38 $3.13
2nd Quarter............................ 7.13 3.88
3rd Quarter............................ 7.00 4.50
4th Quarter............................ 7.75 5.50
Year ended July 31, 1997
- ------------------------
1st Quarter............................ $7.38 $5.88
2nd Quarter............................ 6.88 5.38
3rd Quarter............................ 6.25 5.00
4th Quarter............................ 6.38 5.00
(B) Holders
There were approximately 149 holders of record of Common Stock as of
October 24, 1997 excluding shares held by depository companies for certain
beneficial owners.
(C) Dividends
The Company has not declared or paid any cash dividends on its shares
of 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 October 21, 1996, the
Board of Directors of the Company declared a 6% stock dividend payable December
4, 1996 to stockholders of record on November 8, 1996. On October 10, 1997, the
Board of Directors of the Company declared a 3% stock dividend payable December
8, 1997 to stockholders of record on November 6, 1997.
-9-
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
Consolidated Financial Statements of the Company, which have been audited by
Richard A. Eisner & Company, LLP, independent auditors.
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,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
DATA:
Revenues $ 35,070,000 $ 38,830,000 $ 24,556,000 $ 20,116,000 $ 18,059,000
Operating expenses 31,770,000 35,564,000 22,414,000 17,982,000 15,795,000
Income from operations 3,300,000 3,266,000 2,142,000 2,134,000 2,264,000
Other income (loss):
Gain resulting from
subsidiary's stock offering -- 1,548,000 -- -- --
Interest income 446,000 412,000 410,000 161,000 116,000
(Loss) from equity investee (612,000) (10,000) -- -- --
Income from continuing operations
before taxes 3,134,000 5,216,000 2,552,000 2,295,000 2,380,000
Provision for income taxes 1,278,000 1,859,000 1,126,000 1,077,000 1,071,000
Income from continuing operations 1,856,000 3,357,000 1,426,000 1,218,000 1,309,000
Discontinued operations -- -- -- (3,472,000) (461,000)
Net income (loss) 1,856,000 3,357,000 1,426,000 (2,254,000) 848,000
Net income (loss) per share of common stock:
Continuing operations 0.35 0.65 0.27 0.24 0.25
Discontinued operations -- -- -- (0.67) (0.09)
Net income (loss) 0.35 0.65 0.27 (0.43) 0.16
The above results include the operations of SunStar through April 30, 1996.
Subsequent thereto, the operations of SunStar are recorded on the equity method
and are reflected above as loss from equity investee.
-10-
BALANCE SHEET DATA:
Total Assets 25,224,000 24,421,000 18,865,000 17,926,000 20,309,000
Working capital 16,853,000 16,288,000 15,292,000 13,484,000 10,000,000
Retained earnings 5,842,000 4,789,000 3,307,000 1,881,000 4,135,000
Stockholders' equity 23,360,000 21,504,000 17,914,000 16,688,000 18,942,00
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.
This discussion contains forward looking statements that are subject
to a number of known and unknown risks that, in additional to general economic,
competitive and other business conditions, could cause actual results,
performance and achievements to differ materially from those described or
implied in the forward looking statements.
On March 25, 1997, Health Acquisition Corp. ("HAC"), a wholly-owned
subsidiary of the Company, acquired certain assets of C.J. Home Care, Inc. and
on May 29, 1997, HAC acquired certain assets of Home Health Aides, Inc. and
H.H.A. Aides, Inc. All acquisitions were from New York State licensed home
health care companies that provided home healthcare services in both Nassau and
Suffolk Counties, New York. The acquisitions have been accounted for utilizing
purchase accounting principles.
On May 21, 1996, the initial public offering of common stock by
SunStar was consummated. SunStar, then a wholly-owned subsidiary of the Company
had comprised the Company's Florida outpatient medical center operations. The
Company currently owns 900,000 shares, or approximately 37.6%, of SunStar. The
operations of SunStar prior to the offering are reflected in the Company's
financial statements as continuing operations. In the preparation of its
financial information, the Company has relied upon the financial statements of
SunStar, which financial statements have been audited by other auditors whose
report has been furnished to the Company.
On August 4, 1995, the Company completed the purchase of Nurse Care
and New England. During the fiscal year ended July 31, 1996 ("fiscal 1996"),
Nurse Care transferred all of the outstanding stock of New England to the
Company. New England is a Medicare-certified and licensed home health care
company providing a wide variety of skilled nursing services in Connecticut
while Nurse Care is a licensed home health care company providing home health
aide services in Connecticut.
-11-
RESULTS OF OPERATIONS
YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996
For the fiscal year ended July 31, 1997 ("fiscal 1997"), net patient
revenues were $35,070,000 as compared with $38,830,000 in fiscal 1996. This
decrease is primarily attributable to the absence of revenues from outpatient
medical services during fiscal 1997 as compared with the presence of such
revenues of $3,693,000 during fiscal 1996. Revenues from home health care
services decreased $67,000 or .2% from $35,137,000 in fiscal 1996. Revenues from
HAC, the subsidiary providing home health care services in the New York
metropolitan area, decreased $100,000 or .5% to $20,562,000 in fiscal 1997 from
$20,662,000 in fiscal 1996. This decrease is the result of increased competition
and price pressures from the certified home health care agencies with which it
contracts. Revenues from New England and Nurse Care, the subsidiaries providing
home health care services in Fairfield and New Haven Counties, Connecticut
increased $33,000 or .2% to $14,508,000 in fiscal 1997 from $14,475,000 in
fiscal 1996.
With the completion of the initial public offering of SunStar in
fiscal 1996, the Company is now focused solely on home health care services. The
Company is optimistic there will be increasing demand for home health care
services as health care payors seek to find cost-effective alternatives to the
rising costs of institutional care. The Company's acquisitions in both fiscal
years reflect its commitment to devoting significant resources to the expansion
of its home care services.
Gross profit margin percentage in fiscal 1997 was 35% as compared to
36% for fiscal 1996. Excluding outpatient medical center operations, the gross
profit margin was 35% in fiscal 1996.
General and administrative expenses decreased from 27% of revenues in
fiscal 1996 to 25% of revenues in fiscal 1997. This decrease is primarily
attributable to improved efficiencies implemented in the operations of New
England and Nurse Care.
Amortization of intangibles decreased from $294,000 in fiscal 1996 to
$245,000 in fiscal 1997 as a result of certain intangible assets from prior
acquisitions being fully amortized.
Interest income increased to $446,000 for fiscal 1997 from $412,000
in fiscal 1996. This increase of $34,000 or 8% is the result of the Company's
increased cash flow over fiscal 1996.
The Company recorded a loss from equity investee of $612,000 in
fiscal 1997 as compared to a loss of $10,000 in fiscal 1996, representing the
Company's share of the net loss reported by SunStar for the same periods. In
addition, in fiscal 1996, the Company recorded a one-time net gain on the
SunStar initial public offering in the amount of $1,024,000.
The Company's effective tax rate increased to 41% in fiscal 1997 as
compared to 36% in fiscal 1996. This increase is attributable to the Company
utilizing available state net operating loss deductions in fiscal 1996.
-12-
As a result of the foregoing, net income for fiscal 1997 decreased to
$1,856,000 from $3,357,000 for fiscal 1996.
YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995
Net patient revenues increased by approximately $14,274,000, or 58%,
from $24,556,000 for the fiscal year ended July 31, 1995 ("fiscal 1995") to
$38,830,000 for fiscal 1996. Net patient revenues from home health care services
increased approximately $15,709,000 or 81%. Approximately $14,475,000 or 92% of
this increase is attributable to the acquisition of Nurse Care and New England.
HAC, the licensed home health care company providing home health care services
in the New York metropolitan area, had revenues increase by $1,306,000 or 7%
from fiscal 1995. Net patient revenues recorded in fiscal 1996 from outpatient
medical operations decreased $1,435,000 or 28% from $5,128,000 in fiscal 1995.
This decrease is attributable to the Company recording only nine months of
revenues in fiscal 1996, due to the change in ownership in the fourth quarter
from 100% to approximately 37.6%.
Gross profit margin percentage in fiscal 1996 was 36% as compared to
39% in fiscal 1995. This decrease is attributable to the acquisition of New
England, which has a lower gross margin percentage as a result of revenue
generated from its Medicare patients being limited to cost reimbursement
principles.
General and administrative expenses decreased from 29% of revenues in
fiscal 1995 to 27% of revenues in fiscal 1996. This decrease is attributable to
the increase in revenues being absorbed by existing general and administrative
costs.
Amortization of intangibles increased $125,000 or 74% from $169,000
in fiscal 1995 to $294,000 in fiscal 1996. This increase is attributable to the
acquisition of Nurse Care and New England in August 1995.
In fiscal 1996, the Company recorded a one-time net gain on the
SunStar initial public offering in the amount of $1,024,000, adjusting its
investment in SunStar to reflect the book value of its approximate 37.6%
interest. The Company also recorded a loss from equity investee of $10,000,
representing its share of the SunStar loss for the quarter ended July 31, 1996.
Interest income increased a nominal $2,000 to $412,000 in fiscal 1996
from $410,000 in fiscal 1995. Cash equivalents at July 31, 1996 were $8,226,000
as compared to $8,422,000 at July 31, 1995.
The Company's effective tax rate decreased to 36% in fiscal 1996 as
compared to 44% in the previous fiscal year. This decrease is attributable to
the Company utilizing available state net operating loss deductions in the
current fiscal year.
-13-
As a result of the foregoing, net income for fiscal 1996 increased to
$3,357,000 from $1,426,000 for fiscal 1995.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1997, the Company had working capital of $16,853,000 as
compared to working capital of $16,288,000 at July 31, 1996. Cash and cash
equivalents at July 31, 1996 were $9,324,000 as compared with $8,929,000 at July
31, 1996.
Net cash provided by operating activities was $2,398,000 in fiscal
1997 as compared with $1,066,000 in fiscal 1996. This increase is primarily
attributable to decreases in accounts receivable and prepaid expenses and an
increase in accounts payable and accrued expenses as compared to fiscal 1996.
The Company expects to continue to generate sufficient cash flow from operation
to meet its working capital requirements.
Investing activities in fiscal 1997 used cash of $2,003,000 as
compared to cash used of $2,482,000 in fiscal 1996. The cash used in investing
activities primarily consisted of acquisitions in both fiscal 1997 and 1996.
The proceeds from the exercise of stock options offset by the
purchase of treasury shares provided no cash from financing activities in fiscal
1997. Cash provided from financing activities in fiscal 1996 was $1,108,000,
consisting of cash received on notes receivable and the proceeds from the
exercise of stock options, offset by the cash surrendered in the subsidiary
stock offering in fiscal 1996.
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 business and 30 to 45 days with respect to certain governmental
payors, such as Medicare and Medicaid programs. For fiscal 1997, accounts
receivable turnover for home health care services was 91 days as compared to 90
days for fiscal 1996.
The Company has available a $2,000,000 secured line of credit with
its bank. In addition, a subsidiary of the Company has a secured advised line of
credit. The maximum amount that can be borrowed under the secured advised line
of credit may not exceed the lesser of eligible accounts receivable or
$2,000,000. Both credit facilities bear interest at the alternate base
commercial lending rate of the bank and expire January 30, 1998. At July 31,
1997, there were no outstanding balances under either line of credit.
The Company intends to meet both its short and long term liquidity
needs with its current cash balances, cash flow and available lines of credit.
The Company believes that its current cash balances and available credit will
also allow it to continue to make acquisitions in the home health care field
without affecting its liquidity needs.
-14-
In July 1997, the Board of Directors authorized a stock repurchase
plan authorizing the Company to repurchase up to $1,000,000 of its Common Stock.
The buyback program will be financed out of existing cash balances.
Other than as set forth herein, the Company has no material
commitments for capital expenditures as of July 31, 1997.
In the opinion of management there will be no material impact on the
financial statements of the Company from any recently issued accounting
standards.
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-23.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
-15-
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 1997 Annual
Meeting of Stockholders to be held on December 8, 1997, and is incorporated
herein by reference. The Company intends to files such Proxy Statement with the
Securities and Exchange Commission not later than 120 days subsequent to July
31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following represents a listing of all financial statements,
financial statement schedules and exhibits filed as part of this Report.
(1) FINANCIAL STATEMENTS (see index to the consolidated financial
statements).
(2) FINANCIAL STATEMENT SCHEDULES (see index to the consolidated
financial statements).
(3) EXHIBITS
-16-
Exhibit
Number Document
- ------ --------
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment to Certificate of Incorporation (2)
3.3 By-laws (1)
10.1 1992 Stock Option Plan (3)
10.2 Incentive Stock Option Plan (3)
10.3 Agreement dated January 1, 1994 between Allen Health Care
Services and VNS Home Care (4)
10.4 Employment Agreement dated August 1993 between the
Registrant and Steven Fialkow (3)
10.5 First Amendment dated as of July 1, 1996 to Employment
Agreement dated August 1993 between the Registrant and
Steven Fialkow (8)
10.6 Employment Agreement dated as of July 1, 1996 between the
Registrant and Robert P. Heller (8)
10.7 Employment Agreement dated August 1993 between the
Registrant and Richard Garofalo (3)
10.8 First Amendment dated as of July 1, 1996 to Employment
Agreement dated August 1993 between the Registrant and
Richard Garofalo (8)
10.9 Employment Agreement dated August 1993 between the
Registrant and Thomas Smith (3)
10.10 First Amendment dated as of July 1, 1996 to Employment
Agreement dated August 1993 between the Registrant and
Thomas Smith (8)
10.11 Agreement between Division of Social Services of Suffolk
County and Health Acquisition Corp. (5)
10.12 Agreement between Nassau County Department of Social
Services and Allen Health Care Services (2)
10.13 Agreement dated January 1, 1994 between Catholic Medical
Center of Brooklyn and Queens, Inc. (4)
- -17-
Exhibit
Number Document
- ------ --------
10.14 Letter Agreement dated March 15, 1995 securing a line of
credit from the Bank of New York (7)
10.15 Letter dated June 1, 1992 from Public Health Council of the
State of New York Department of Health to Health
Acquisition Corp. d/b/a Allen Health Care Services (2)
10.16 Letter from Joint Commission on Accreditation of Healthcare
Organizations awarding accreditation to Allen Health Care,
dated September 20, 1993 (3)
10.17 1993 401(k) Plan, as amended on April 1, 1997.
10.18 Letter Agreement between National HMO (New York), Inc.
and Boro Medical, P.C. dated November 12, 1993 (3)
10.19 Asset Purchase Agreement among National HMO (New
York), Inc., National HMO Corp. of Elizabeth, Inc., Boro
Medical, P.C. and Boro Health Care of Union, P.C. dated
April 30, 1994 (4)
10.20 Agreement for the Purchase of the Stock of Nurse Care, Inc.
and Related Transactions (6)
10.21 Employment Agreement dated as of August 1, 1995 between
New England and Aileen O'Connell (6)
10.22 Letter Agreement dated February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to National Home Health Care Corp. (9)
10.23 Letter Agreement dated February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to New England Home Care, Inc. (9)
10.24 Asset Purchase Agreement dated December 24, 1996 by and
between Health Acquisition Corp. and C.J. Home Care, d/b/a
Garden City Home Care. (9)
10.25 Asset Purchase Agreement dated February 19, 1997 among
Home Health Aides, Inc., H.H.A. Aides, Inc., and Health
Acquisition Corp. d/b/a Allen Health Care Services. (10)
21.1 List of Subsidiaries
- -18-
Exhibit
Number Document
- ------ --------
23.1 Consent of Richard A. Eisner & Co., LLP
23.2 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 2-86643) filed September 20, 1983.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1992.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1993.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1994.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1991.
(6) Incorporated by reference to the Registrant's Report on Form 8-K dated
August 4, 1995.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1995.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1996.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 31, 1997.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997.
(b) Reports on Form 8-K. None have been filed during the last fiscal
quarter.
-19-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NATIONAL HOME HEALTH CARE CORP.
By: /s/ Robert P. Heller
-----------------------------
Robert P. Heller
Vice President of Finance and
Chief Financial Officer
Dated: October 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
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 &
- -------------------------- Chief Executive Officer
Frederick H. Fialkow
/s/ Steven Fialkow President, Chief Operating Officer,
- -------------------------- Director and Secretary
Steven Fialkow
/s/ Robert P. Heller Vice President of Finance and Chief Financial
- -------------------------- Officer (Principal Financial and Accounting
Robert P. Heller 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.
NATIONAL HOME HEALTH CARE CORP.
Index to Financial Statements and Schedules
Filed with the Annual Report of the Company on Form 10-K
Page
----
Part II Item 8
Independent Auditors' Report F-2
Consolidated Financial Statements
Balance sheets as of July 31, 1997 and 1996 F-3
Statements of operations for the years ended
July 31, 1997, 1996 and 1995 F-4
Statements of changes in stockholders' equity for
the years ended July 1997, 1996 and 1995 F-5
Statements of cash flows for the years ended
July 31, 1997, 1996 and 1995 F-6
Notes to financial statements F-7
Part IV Item 14
Independent Auditors' Report on Schedule F-22
Supplementary Information
Schedule II Valuation and Qualifying Accounts F-23
SCHEDULES OMITTED
Other schedules have been omitted as the conditions requiring their filing are
not present or the information required therein has been included in the notes
to consolidated financial statements.
F-1
NATIONAL HOME HEALTH CARE CORP.
INDEPENDENT AUDITORS' REPORT
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, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended July 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of SunStar Healthcare, Inc., (a corporation
in which the Company has a 37.6% interest), have been audited by other auditors
whose report has been furnished to us; insofar as our opinion on the 1997
consolidated financial statements relates to data included for SunStar
Healthcare, Inc., it is based solely on their report.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and, for 1997, the report of other
auditors, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of National Home Health
Care Corp. and subsidiaries at July 31, 1997 and 1996, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three-year period ended July 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
September 26, 1997
With respect to Note 1 - Stock Dividend
October 10, 1997
F-2
KMPG Peat Marwick LLP
Suite 2700, Independent Square
One Independent Drive
P.O. Box 190
Jacksonville, Fl 32201-0190
Independent Auditor's Report
----------------------------
To the Board of Directors
SunStar Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of SunStar
Healthcare, Inc. and Subsidiaries (the Company) as of July 31, 1996 and 1997,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the years in the two-year period ended July
31, 1997. 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. The accompanying
consolidated financial statements of SunStar Healthcare, Inc. for the year ended
July 31, 1995, were audited by other auditors whose report thereon dated October
6, 1995, expresses an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted accounting
principles. Those standards require that we plan and perform an 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 SunStar Healthcare,
Inc. as of July 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the years in the two-year period ended July 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KMPG Peat Marwick LLP
Jacksonville, Florida
September 16, 1997
F-2a
NATIONAL HOME HEALTH CARE CORP.
Consolidated Balance Sheets
July 31,
-------------------------
1997 1996
----------- -----------
ASSETS
Current assets:
Cash (including cash equivalents of $8,344,000 and $8,226,000) $ 9,324,000 $ 8,929,000
Investments - available for sale 508,000 528,000
Accounts receivable (less allowance for doubtful accounts of $327,000
and $414,000) 8,176,000 8,499,000
Income taxes receivable 203,000
Prepaid expenses and other assets 163,000 218,000
Deferred taxes 230,000 304,000
----------- -----------
Total current assets 18,401,000 18,681,000
Furniture, equipment and leasehold improvements, net 378,000 319,000
Excess of cost over fair value of net assets of businesses acquired 3,350,000 2,557,000
Other intangible assets 947,000 132,000
Deposits and other assets 138,000 110,000
Investment in unconsolidated investee 2,010,000 2,622,000
----------- -----------
$25,224,000 $24,421,000
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 1,331,000 $ 1,315,000
Income taxes payable 22,000
Estimated third-party payor settlements 195,000 1,078,000
----------- -----------
Total current liabilities 1,548,000 2,393,000
Deferred tax liability - noncurrent 316,000 524,000
----------- -----------
Total liabilities 1,864,000 2,917,000
----------- -----------
Commitments, contingencies and other matters
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized 20,000,000 shares,
issued 6,208,646 and 6,050,321 shares 6,000 6,000
Additional paid-in capital 18,476,000 17,660,000
Retained earnings 5,842,000 4,789,000
----------- -----------
24,324,000 22,455,000
Less treasury stock (957,500 and 955,000 shares) - at cost 964,000 951,000
----------- -----------
Total stockholders' equity 23,360,000 21,504,000
----------- -----------
$25,224,000 $24,421,000
=========== ===========
See notes to financial statements
F-3
NATIONAL HOME HEALTH CARE CORP.
Consolidated Statements of Operations
Year Ended July 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
Net patient revenue $ 35,070,000 $ 38,830,000 $ 24,556,000
------------ ------------ ------------
Operating expenses:
Cost of revenue 22,905,000 24,798,000 15,032,000
General and administrative 8,620,000 10,472,000 7,213,000
Amortization of intangibles 245,000 294,000 169,000
------------ ------------ ------------
Total operating expenses 31,770,000 35,564,000 22,414,000
------------ ------------ ------------
Income from operations 3,300,000 3,266,000 2,142,000
Other income:
Gain resulting from subsidiary's stock offering 1,548,000
Interest income 446,000 412,000 410,000
(Loss) from equity investee (612,000) (10,000)
------------ ------------ ------------
Income before income taxes 3,134,000 5,216,000 2,552,000
Provision for income taxes 1,278,000 1,859,000 1,126,000
------------ ------------ ------------
Net income $ 1,856,000 $ 3,357,000 $ 1,426,000
============ ============ ============
Net income per share of common stock $ .35 $ .65 $ .27
============ ============ ============
See notes to financial statements
F-4
NATIONAL HOME HEALTH CARE CORP.
Consolidated Statements of Changes in Stockholders' Equity
[PART 1 OF 2]
Common Stock
------------------------
Additional
Number of Paid-In
Shares Amount Capital
--------- ------------ ------------
BALANCE AT JULY 31, 1994 5,670,075 $ 6,000 $ 15,544,000
Net income
Acquisition of treasury shares, $3.25 per share
Exercise of common stock options 3,000 8,000
--------- ------------ ------------
BALANCE AT JULY 31, 1995 5,673,075 6,000 15,552,000
Net income
Stock dividend declared on October 21, 1996 288,414 1,875,000
Exercise of common stock options 88,832 233,000
--------- ------------ ------------
BALANCE AT JULY 31, 1996 6,050,321 6,000 17,660,000
Net income
Acquisition of treasury shares, $5.32 per share
Stock dividend declared on October 10, 1997 153,025 803,000
Exercise of common stock options 5,300 13,000
--------- ------------ ------------
BALANCE AT JULY 31, 1997 6,208,646 $ 6,000 $ 18,476,000
========= ============ ============
[PART 2 OF 2]
Treasury Stock
----------------------
Retained Number of
Earnings Shares Cost
------------ ------- ------------
BALANCE AT JULY 31, 1994 $ 1,881,000 891,000 $ (743,000)
Net income 1,426,000
Acquisition of treasury shares, $3.25 per share 64,000 (208,000)
Exercise of common stock options
------------ ------- ------------
BALANCE AT JULY 31, 1995 3,307,000 955,000 (951,000)
Net income 3,357,000
Stock dividend declared on October 21, 1996 (1,875,000)
Exercise of common stock options
------------ ------- ------------
BALANCE AT JULY 31, 1996 4,789,000 955,000 (951,000)
Net income 1,856,000
Acquisition of treasury shares, $5.32 per share 2,500 (13,000)
Stock dividend declared on October 10, 1997 (803,000)
Exercise of common stock options
------------ ------- ------------
BALANCE AT JULY 31, 1997 $ 5,842,000 957,500 $ (964,000)
============ ======= ============
See notes to financial statements
F-5
NATIONAL HOME HEALTH CARE CORP.
Consolidated Statements of Cash Flows
Year Ended July 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 1,856,000 $ 3,357,000 $ 1,426,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 355,000 454,000 329,000
Settlement for state income taxes (300,000)
Provision for doubtful accounts 123,000 173,000
Deferred tax (133,000) 410,000 120,000
Gain on subsidiary's stock offering (1,548,000)
Loss from equity investee 612,000 10,000
Changes in:
Accounts receivable 323,000 (544,000) (688,000)
Prepaid expenses and other assets 27,000 (65,000) (130,000)
Accounts payable, accrued expenses
and other liabilities 16,000 (337,000) 13,000
Income taxes receivable/payable 225,000 207,000 2,553,000
Estimated third-party payor settlements (883,000) (1,001,000)
----------- ----------- -----------
Net cash provided by operating activities 2,398,000 1,066,000 3,496,000
----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold
improvements (134,000) (172,000) (94,000)
Proceeds of investments 20,000 285,000 1,000,000
Purchase of assets of businesses (1,889,000) (225,000)
Purchase of Nurse Care, Inc., net of cash acquired (2,595,000)
----------- ----------- -----------
Net cash (used in) provided by investing activities (2,003,000) (2,482,000) 681,000
----------- ----------- -----------
Cash flows from financing activities:
Decrease in notes receivable 1,039,000 243,000
Purchase of treasury shares (13,000) (208,000)
Proceeds from exercise of stock options 13,000 233,000 8,000
Cash of subsidiary at date of stock offering (164,000)
----------- ----------- -----------
Net cash provided by financing activities - 0 - 1,108,000 43,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 395,000 (308,000) 4,220,000
Cash and cash equivalents - beginning of year 8,929,000 9,237,000 5,017,000
----------- ----------- -----------
Cash and cash equivalents - end of year $ 9,324,000 $ 8,929,000 $ 9,237,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 11,000 $ 14,000 $ 13,000
Taxes $ 1,584,000 $ 1,677,000 $ 618,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES - SEE
NOTES 5 AND 6.
See notes to financial statements
F-6
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ACQUISITION
NATURE OF BUSINESS:
National Home Health Care Corp. and subsidiaries (the "Company") is a provider
of home health care services, including nursing care, personal care and other
specialized therapies. Up until May 1996, the Company was also engaged as a
provider of outpatient medical services, see Note 5.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of National Home
Health Care Corp. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements. During the fourth quarter of fiscal 1996, the Company's
interest in its previously wholly owned subsidiary, which provided outpatient
medical services, was reduced to 37.6%. Accordingly, the Company began
accounting for this entity using the equity method.
REVENUE RECOGNITION:
Net patient revenue is recorded at the estimated net realizable amount from
third-party payors and patients.
Under Medicare and Medicaid cost reimbursement programs, the Company is
reimbursed for services rendered to covered patients. Revenues derived form
these programs are based in part, on cost reimbursement principles and are
subject to examination and retroactive adjustment. Management continuously
evaluates the outcome of these reimbursement examinations and provides
allowances for any potential adjustments. In the opinion of management,
retroactive adjustments, if any, would not be material to the financial position
or results of operations of the Company.
Approximately 39%, 39% and 13% of net patient revenue for the fiscal years ended
July 31, 1997, 1996 and 1995, respectively, were derived under federal and state
third-party reimbursement programs.
CASH EQUIVALENTS:
For the purposes of the statements of cash flows, the Company considers all
highly liquid investment instruments purchased with a maturity of three months
or less to be cash equivalents.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements are stated at cost. Depreciation
is being provided on the straight-line method over the estimated useful lives of
the assets (generally five to ten years). Amortization of leasehold improvements
is being provided on the straight-line method over the various lease terms or
estimated useful lives, if shorter.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESS ACQUIRED:
The excess of cost over the fair value of net assets acquired (goodwill) is
being amortized over a period of 20 to 40 years on a straight-line basis.
Goodwill is evaluated periodically and adjusted if necessary, if events and
circumstances indicate that a permanent decline in value below the current
unamortized historical cost has occurred.
F-7
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per common share are computed using the weighted average number
of common shares and dilutive common stock equivalents (options) outstanding
during each period after giving retroactive effect to the stock dividend
declared in October 1997. During the three years ended July 31, 1997, the
options were not materially dilutive. The number of shares used in the
calculation of earnings (loss) per share are 5,250,242 for the year ended July
31, 1997, 5,186,985 for the year ended July 31, 1996 and 5,202,144 for the year
ended July 31, 1995.
INVESTMENTS:
The Company's investments are accounted for in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" which requires that, except for debt securities
classified as "held-to-maturity securities", investments in debt and equity
securities be reported at fair value.
Investment securities available for sale at July 31, 1997 and 1996 are
summarized as follows:
1997 1996
Amortized
Cost (1)
-------- --------
Floating rate debentures issued by New York State,
maturing in one to five years $160,000 $160,000
Floating rate debentures issued by New York State,
maturing in five to ten years 160,000 170,000
Floating rate debentures issued by New York State,
maturing after ten years 170,000 180,000
Other 18,000 18,000
-------- --------
$508,000 $528,000
======== ========
(1) Amortized cost approximates market value. Accordingly, there is no
unrealized holding gain or loss.
F-8
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECLASSIFICATIONS:
Certain items in the 1995 and 1996 financial statements have been reclassified
to conform to the 1997 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount reported in the consolidated balance sheets for cash,
accounts receivable, accounts payable and accrued liabilities approximates fair
value because of the immediate or short-term maturity of the financial
instruments.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:
In March 1995 and October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long Lived Assets and for the Long Lived Assets to be
Disposed of", and Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation", respectively. The Company
adopted SFAS 121 and SFAS 123 in fiscal 1997. Adoption did not have a material
impact on its financial statements. The Company will continue to account for
employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" using intrinsic
values with appropriate disclosures in conformity with the fair values based
method of SFAS 123.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share". SFAS
128 is effective for financial statements issued for interim and annual periods
ending after December 15, 1997. Earlier application is not permitted. The
Company believes adoption of SFAS 128 will not have a material impact on its
financial statements.
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 goodwill, depreciable assets and valuation
reserves for accounts receivable and deferred tax assets.
F-9
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
WORKERS COMPENSATION:
The Company self-insures up to specified limits certain risks related to
workers' compensation liability. The estimated costs of existing and future
claims under the insurance program are accrued as incidents occur based upon
historical loss development trends and may be subsequently revised based on
developments relating to such claims.
STOCK DIVIDEND:
On October 21, 1996, the Company's Board of Directors declared a 6% stock
dividend payable on December 4, 1996 for shareholders of record as of November
8, 1996. A total of 288,414 shares of common stock were issued in connection
with the dividend. All stock related data in the consolidated financial
statements reflect the stock dividend for all periods presented.
On October 10, 1997, the Company's Board of Directors declared a 3% stock
dividend payable on December 8, 1997 for shareholders of record as of November
6, 1997. A total of 153,025 shares of common stock will be issued in connection
with the dividend. All stock related data in the consolidated financial
statements reflect the stock dividend for all periods presented.
F-10
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 2 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost and are
summarized as follows:
July 31,
---------------------
1997 1996
-------- --------
Equipment, furniture and fixtures $753,000 $614,000
Leasehold improvements 159,000 130,000
-------- --------
912,000 744,000
Less accumulated depreciation and amortization 534,000 425,000
-------- --------
Balance $378,000 $319,000
======== ========
The net book value of furniture and equipment held under capital leases was $-0-
and $20,000 at July 31, 1997 and July 31, 1996, respectively. Depreciation
expense includes depreciation on assets held under capital leases.
NOTE 3 - EXCESS OF COST OVER FAIR VALUE
Changes in the excess of cost over fair value of net assets of businesses
acquired during the three years ended July 31, 1997 are as follows:
Year Ended
July 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Balance - beginning of year $ 2,557,000 $ 1,036,000 $ 1,073,000
Consideration for acquisition 929,000 2,049,000
Reduction from subsidiary stock offering (Note 5) (392,000)
Amortization (136,000) (136,000) (37,000)
----------- ----------- -----------
Balance - end of year $ 3,350,000 $ 2,557,000 $ 1,036,000
=========== =========== ===========
F-11
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 4 - OTHER INTANGIBLE ASSETS
Other intangible assets are as follows:
July 31,
-----------------------
1997 1996
---------- ----------
Covenants not to compete $ 775,000 $ 400,000
Personnel files 678,000 478,000
Patient files 352,000 2,000
---------- ----------
1,805,000 880,000
Less accumulated amortization 858,000 748,000
---------- ----------
$ 947,000 $ 132,000
========== ==========
F-12
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 4 - OTHER INTANGIBLE ASSETS (CONTINUED)
Other intangible assets increased during fiscal 1997 as a result of certain
acquisitions and decreased during fiscal 1996 as a result of the subsidiary
stock offering. Other intangible assets are being amortized using the
straight-line method over a period of 3 to 10 years.
NOTE 5 - SUBSIDIARY STOCK OFFERING
In January 1996, the outpatient medical service business of the Company was
reorganized as SunStar Healthcare, Inc. ("SunStar"), a newly-formed, wholly
owned subsidiary of the Company. The Company reduced its ownership percentage of
SunStar to 37.6% through a public offering of 1,495,000 shares at a price of
$5.00 per share, aggregating approximately $6,083,000, net of expenses.
Subsequent to the offering, the Company is accounting for its investment in
SunStar using the equity method of accounting. In connection with SunStar's
public stock offering, the Company recorded a gain before tax of $1,548,000
representing the net increase in book value of the Company's investment in
SunStar at that date. Deferred income taxes of $524,000 have been provided on
the gain.
Summarized financial data of SunStar for the years ended July 31 are as follows:
1997 1996
----------- -----------
Total current assets $ 5,105,000 $ 6,403,000
Total assets 6,371,000 7,499,000
Total current liabilities 881,000 505,000
Total liabilities 989,000 522,000
Total revenues 4,729,000 5,080,000
Net (loss) (1,631,000) (222,000)
Market value of the Company's investment 4,500,000* 4,233,000*
- -------------
* The market value of the Company's investment is based on quoted market
prices and does not necessarily represent the amount that may be realized
upon disposition of the investment.
NOTE 6 - ACQUISITIONS
On March 25, 1997, the Company acquired certain assets of C.J. Home Care, Inc.,
d/b/a Garden City Home Care, for approximately $677,000, including acquisition
costs of $27,000. The assets purchased consisted of personnel files of $100,000,
patient files of $50,000, furniture and equipment of $10,000, covenants not to
compete of $200,000 and goodwill of $317,000.
On May 29, 1997, the Company acquired certain assets of Home Health Aides, Inc.
and H.H.A. Aides, Inc., for approximately $1,212,000, including acquisition
costs of $77,000. The assets purchased consisted of personnel files of $100,000,
patient files of $300,000, furniture and equipment of $25,000, covenant not to
compete of $175,000 and goodwill of $612,000.
The above acquisitions have been accounted for utilizing purchase accounting
principles. Accordingly, the results of these operations have been included in
the accompanying consolidated financial statements since the dates of
acquisition.
Had the operations of the above acquisitions been acquired on August 1, 1995,
there would have been no material effect on the consolidated operations of the
Company for the years ended July 31, 1997 and July 31, 1996.
F-13
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 6 - ACQUISITIONS - (CONTINUED)
On August 4, 1995, the Company acquired all of the outstanding common shares of
Nurse Care, Inc., the parent company of New England Home Care, Inc. ("New
England"). New England is a licensed and Medicare certified home health care
agency providing services in Fairfield and New Haven counties in the State of
Connecticut. The purchase price of $3,150,000 was generated from internal funds.
The acquisition was accounted for as a purchase and the excess of the purchase
price over the fair value of the assets acquired, $2,049,000, was allocated to
goodwill.
The following unaudited pro forma consolidated statement of operations
information gives effect to the acquisition described above as though it had
occurred on August 1, 1994, after giving effect to certain adjustments,
including amortization of goodwill of $102,000, decrease in interest income of
$189,000, elimination of former shareholder compensation of $250,000, benefit
from additional third-party reimbursement of $200,000 and income taxes of
$104,000. The unaudited pro forma financial information may not necessarily
reflect the results of operations that would have occurred had the acquisition
occurred on August 1, 1994:
Net patient revenue $ 40,547,000
Operating expenses (37,777,000)
Income from operations $ 2,770,000
============
Net income $ 1,632,000
============
Net income per share $ .34
========
In March 1995, the Company purchased certain assets of a company engaged in home
health care services for an aggregate purchase price of $250,000. The
acquisition was accounted for as a purchase; $25,000 was allocated to furniture
and equipment, $200,000 to a covenant not to compete and $25,000 to personnel
files. Had the operations of the company been acquired as of August 1, 1994,
there would have been no material effect on the consolidated operations of the
Company for the year ended July 31, 1995.
NOTE 7 - INCOME TAXES
The provision for income taxes is summarized as follows:
Year Ended
July 31,
----------------------------------------------
1997 1996 1995
----------- ----------- -----------
Current:
Federal $ 1,156,000 $ 1,340,000 $ 515,000
State and local 255,000 109,000 491,000
----------- ----------- -----------
1,411,000 1,449,000 1,006,000
Deferred (133,000) 410,000 120,000
----------- ----------- -----------
$ 1,278,000 $ 1,859,000 $ 1,126,000
=========== =========== ===========
F-14
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 7 - INCOME TAXES (CONTINUED)
Deferred income taxes reflect the tax impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The principal items making up
the deferred income tax expense (benefit) are as follows:
Year Ended
July 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
Loss from equity investee $(208,000)
State tax net operating loss carryforwards 75,000 $(114,000) $ 120,000
Tax on gain from sale of subsidiary stock 524,000
--------- --------- ---------
$(133,000) $ 410,000 $ 120,000
========= ========= =========
The deferred tax assets and liabilities are as follows:
July 31,
-----------------------------------------
1997 1996
------------------- -------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Accrued liability and reserves $191,000 -- $190,000 --
State net operating loss carryforwards 39,000 -- 114,000 --
Investment in unconsolidated investee -- $316,000 -- $524,000
-------- -------- -------- --------
230,000 316,000 304,000 524,000
Valuation allowance - 0 - -- - 0 - --
-------- -------- -------- --------
$230,000 $316,000 $304,000 $524,000
======== ======== ======== ========
One subsidiary of the Company has incurred losses which can be used to offset
state taxable income through 2012. At July 31, 1997 total net operating loss
carryforward as applicable to Connecticut amounted to approximately $550,000.
F-15
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 7 - INCOME TAXES (CONTINUED)
The reconciliation of the statutory tax rate to the effective tax rate for the
three years ended July 31, 1997 is as follows:
1997 1996 1995
---- ---- ----
Statutory rate 34% 34% 34%
State and local taxes (net of federal tax effect) 5 1 12
Federal tax credit (2) (5)
Other 4 1 3
--- --- ---
Effective rate 41% 36% 44%
=== === ===
NOTE 8 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Most of the Company's business is with customers who are in the health care
industry and with governmental agencies.
The Company provides temporary health care personnel to in-home patients in the
New York City metropolitan area and State of Connecticut. Credit losses relating
to customers historically have been minimal and within management's
expectations.
At July 31, 1997, the Company maintained approximately 49% 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 approximating $13,610,000, $15,211,000 and
$3,125,000 for the years ended July 31, 1997, July 31, 1996 and July 31, 1995,
respectively. The Company also received net patient revenues of approximately
$7,624,000, $9,275,000 and $9,933,000 for the years ended July 31, 1997, July
31, 1996 and July 31, 1995, respectively, from a private company. At July 31,
1997, the Company had an aggregate outstanding receivable from the federal and
state reimbursement programs of $2,206,000 and an outstanding receivable of
$1,989,000 from the private company.
NOTE 9 - STOCK OPTION PLAN
In 1992, the stockholders approved the 1992 Stock Option Plan (the "1992 Plan")
designed to provide an incentive to key employees (including directors and
officers who are key employees) and to Directors who are not employees of the
Company. The 1992 Plan authorizes the granting of both incentive and
nonqualified stock options to purchase up to 500,000 shares of the Company's
common stock.
The 1992 Plan is administered by the Compensation Committee which has the
authority to determine when options are granted, the term during which an option
may be exercised (provided no option has a term exceeding ten years), the
exercise price and the exercise period. The exercise price shall generally not
be less than the fair market value on the date of grant. No option may be
granted under the 1992 Plan after August 16, 2002.
During 1995, 283,502 options previously granted under another stock option plan
were cancelled upon termination of that plan and replaced with 283,502 options
granted under the 1992 Plan.
At July 31, 1997, 432,868 shares of the Company's common stock have been
reserved for future issuance pursuant to the 1992 Plan.
F-16
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 9 - STOCK OPTION PLAN (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for its stock
option grants. Had compensation cost for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of SFAS 123, the adjustment to the Company's net income and earnings
per share would not be material.
F-17
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 9 - STOCK OPTION PLAN (CONTINUED)
A summary of the status of the Company's stock options as of July 31, 1997, 1996
and 1995 and changes during the years ending on those dates is presented below:
1997 1996 1995
--------------------- ------------------- -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
--------- ------- ------- ------ ------- ------ ------
Outstanding at beginning of
year 203,982 $2.85(1) 295,502 $2.77 300,502 $3.22
Granted 12,000 $6.25 286,502 $2.69
Exercised (5,300) $2.47 (88,832) $2.63 (3,000) $2.63
Forfeited (26,234) $2.91 (288,502) $2.72
------- -------- --------
Outstanding at end of year 198,682 $2.86 192,436 $3.03 295,502 $2.77
Options exercisable at
year-end 198,682 $2.86 192,436 $3.03 295,502 $2.77
Weighted-average fair value
of options granted during
the year $2.53
(1) Adjusted for 6% stock dividend declared in October 1996.
The following table summarizes information about stock options outstanding at
July 31, 1997:
Options Outstanding and Exercisable
-----------------------------------
Shares Weighted- Weighted -
Outstanding Average Average
Range at Remaining Exercise
Exercise Prices July 31, 1997 Contractual Life Price
- --------------- ------------- ----------------- ------------
$2.47 - $2.71 175,362 2 years $2.58
$3.88 10,600 5 years $3.88
$5.88 12,720 9 years $5.88
--------- ------- -----
198,682 3 years $2.86
F-18
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
[a] Effective April 1, 1997 the Company amended and restated the Company's
Employee Savings and Stock Investment Plan organized under Section 401(k)
of the Internal Revenue Code. Under the new plan, employees may contribute
up to 15% of their salary into the plan, limited to the maximum amount
allowable under federal tax regulations. The Company will match 100% of
employees contributions; provided, that in no event shall the matching
contributions on behalf of any employee exceed 2.5% of each employee's
compensation. The Company may also make additional contributions at its
discretion. An employee may invest in Company stock and several mutual
funds. The Company's matching contributions for each of the years ended
July 31, 1997, July 31, 1996 and July 31, 1995 were $135,000,$122,000 and
$59,000, respectively.
[b] The Company has an employment agreement with an officer which expires in
April 1998. The aggregate commitment for future salary, excluding bonuses,
under the agreement is $213,750. The agreement also provides for increases
based on increases in the consumer price index and additional compensation
of up to $150,000 based on 5% of pre-tax income, as defined, in excess of
$3,000,000.
[c] The Company rents various office facilities through 2000 under the terms
of several lease agreements which include escalation clauses.
At July 31, 1997, minimum annual rental commitments under noncancellable
operating leases are as follows:
Year Ending
July 31,
--------
1998 $326,000
1999 156,000
2000 80,000
--------
$562,000
========
Rent expense for the years ended July 31, 1997, July 31, 1996 and July 31,
1995 was approximately $435,000, $655,000 and $584,000, respectively.
One lease is with a company controlled by the Company's Chief Executive
Officer. Rent expense under such lease approximates $123,000 per year.
[d] The Company has a line of credit with its bank totalling $2,000,000.
Advances against the line are to be collateralized by the assets of the
Company. In addition, a subsidiary of the Company has a secured line of
credit. The maximum amount that can be borrowed under the secured line of
credit shall not exceed the lesser of eligible accounts receivable or
$2,000,000. Both credit facilities bear interest at the alternate base
commercial lending rate of the bank and expire January 30, 1998 . At July
31, 1997, there were no outstanding balances under either line of credit.
NOTE 11 - SEGMENT INFORMATION
The Company's operations are in home health care services and, through May 1996,
outpatient medical services. Home health care services are performed in the New
York metropolitan area and in the State of Connecticut. Outpatient medical
services were performed in Brevard and Volusia County, Florida. Subsequent to
the Company's sale of its majority
F-19
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
ownership in SunStar Healthcare, Inc., during the fourth quarter of fiscal 1996,
such operations are not consolidated and, accordingly, are not included in the
following segment information.
F-20
NATIONAL HOME HEALTH CARE CORP.
NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995
NOTE 11 - SEGMENT INFORMATION (CONTINUED)
Revenue, operating expenses and income from operations pertaining to the
Company's operations are as follows:
Year Ended
July 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Net patient revenue:
Home health care services $35,070,000 $35,137,000 $19,428,000
Outpatient medical services 3,693,000 5,128,000
----------- ----------- -----------
35,070,000 38,830,000 24,556,000
----------- ----------- -----------
Operating expenses:
Home health care services 31,720,000 31,968,000 17,379,000
Outpatient medical services 3,596,000 5,035,000
----------- ----------- -----------
31,720,000 35,564,000 22,414,000
----------- ----------- -----------
Income from operations:
Home health care services 3,350,000 3,241,000 2,049,000
Outpatient medical services 25,000 93,000
----------- ----------- -----------
$ 3,350,000 $ 3,266,000 $ 2,142,000
=========== =========== ===========
F-21
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
Board of Directors and Stockholders
National Home Health Care Corp.
New York, New York
The audits referred to in our report dated September 26, 1997 on the
consolidated financial statements of National Home Health Care Corp. and
subsidiaries, which appears in Part II, also included Schedule II for each of
the years in the three-year period ended July 31, 1997. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. 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 regulation of the
Securities and Exchange Commission.
/s/ Richard A. Eisner & Company, LLP
New York, New York
September 26, 1997
F-22
NATIONAL HOME HEALTH CARE CORP.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
-------------------------
(1) (2)
Balance -------------------------
at Charged to Balance
beginning Charged to other at
of costs and accounts - Deductions - end of
period expenses describe describe period
- ----------------------------------------------------------------------------------------------------------------------------------
Description
Year ended July 31, 1997:
Reserve and allowance deducted from asset account
and allowance for uncollectible accounts $ 414,000 $ (87,000) (1) $ 327,000
========== =========== ========
Year ended July 31, 1996:
Reserve and allowance deducted from asset account
and allowance for uncollectible accounts $ 439,000 (2) $ 123,000 $ (148,000) (1) $ 414,000
========== ========= =========== ========
Year ended July 31, 1995:
Reserve and allowance deducted from asset account
and allowance for uncollectible accounts $ 84,000 $ 173,000 $ (158,000) (1) $ 99,000
========== ========= =========== =========
(1) Represents actual write-offs.
(2) Includes $340,000 acquired in acquisition of Nurse Care, Inc.
See accompanying notes to financial statements
F-23
Exhibit Page
Number Document Number
- ------ -------- ------
3.1 Certificate of Incorporation (1)
3.2 Certificate of Amendment to Certificate of Incorporation (2)
3.3 By-laws (1)
10.1 1992 Stock Option Plan (3)
10.2 Incentive Stock Option Plan (3)
10.3 Agreement dated January 1, 1994 between Allen Health Care
Services and VNS Home Care (4)
10.4 Employment Agreement dated August 1993 between the
Registrant and Steven Fialkow (3)
10.5 First Amendment dated as of July 1, 1996 to Employment
Agreement dated August 1993 between the Registrant and
Steven Fialkow (8)
10.6 Employment Agreement dated as of July 1, 1996 between the
Registrant and Robert P. Heller (8)
10.7 Employment Agreement dated August 1993 between the
Registrant and Richard Garofalo (3)
10.8 First Amendment dated as of July 1, 1996 to Employment
Agreement dated August 1993 between the Registrant and
Richard Garofalo (8)
10.9 Employment Agreement dated August 1993 between the
Registrant and Thomas Smith (3)
10.10 First Amendment dated as of July 1, 1996 to Employment
Agreement dated August 1993 between the Registrant and
Thomas Smith (8)
10.11 Agreement between Division of Social Services of Suffolk
County and Health Acquisition Corp. (5)
10.12 Agreement between Nassau County Department of Social
Services and Allen Health Care Services (2)
10.13 Agreement dated January 1, 1994 between Catholic Medical
Center of Brooklyn and Queens, Inc. (4)
Exhibit Page
Number Document Number
- ------ -------- ------
10.14 Letter Agreement dated March 15, 1995 securing a line of
credit from the Bank of New York (7)
10.15 Letter dated June 1, 1992 from Public Health Council of the
State of New York Department of Health to Health
Acquisition Corp. d/b/a Allen Health Care Services (2)
10.16 Letter from Joint Commission on Accreditation of Healthcare
Organizations awarding accreditation to Allen Health Care,
dated September 20, 1993 (3)
10.17 1993 401(k) Plan, as amended on April 1, 1997.
10.18 Letter Agreement between National HMO (New York),
Inc. and Boro Medical, P.C. dated November 12, 1993 (3)
10.19 Asset Purchase Agreement among National HMO (New
York), Inc., National HMO Corp. of Elizabeth, Inc., Boro
Medical, P.C. and Boro Health Care of Union, P.C. dated
April 30, 1994 (4)
10.20 Agreement for the Purchase of the Stock of Nurse Care, Inc.
and Related Transactions (6)
10.21 Employment Agreement dated as of August 1, 1995 between
New England and Aileen O'Connell (6)
10.22 Letter Agreement dated February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to National Home Health Care Corp. (9)
10.23 Letter Agreement dated February 20, 1997 providing a
Secured Advised Line of Credit from the Bank of New York
to New England Home Care, Inc. (9)
10.24 Asset Purchase Agreement dated December 24, 1996 by and
between Health Acquisition Corp. and C.J. Home Care, d/b/a
Garden City Home Care. (9)
10.25 Asset Purchase Agreement dated February 19, 1997 among
Home Health Aides, Inc., H.H.A. Aides, Inc., and Health
Acquisition Corp. d/b/a Allen Health Care Services. (10)
21.1 List of Subsidiaries
Exhibit Page
Number Document Number
- ------ -------- ------
23.1 Consent of Richard A. Eisner & Co., LLP
23.2 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (No. 2-86643) filed September 20, 1983.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1992.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1993.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1994.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1991.
(6) Incorporated by reference to the Registrant's Report on Form 8-K dated
August 4, 1995.
(7) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1995.
(8) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1996.
(9) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 31, 1997.
(10) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1997.