- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: ____________ to ____________ .
Commission File No. 1-12451
NEW YORK HEALTH CARE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
New York 11-2636089
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 McDonald Avenue, Brooklyn, New York 11223
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (718) 375-6700
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities under
a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,712,730
- --------------------------------------------------------------------------------
NEW YORK HEALTH CARE, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
JUNE 30, 2002
(UNAUDITED)
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31, 2001 June 30, 2002
------------------- ---------------
(Note 1) (Unaudited)
Current assets:
Cash and cash equivalents $ 1,007,444 $ 2,410,381
Due from lending institution 14,968
Accounts receivable, net of allowance for uncollectible amounts of
$290,000 at December 31, 2001 and $331,000 at June 30, 2002 5,442,229 5,326,695
Unbilled services 60,828 99,461
Prepaid expenses 74,324 104,105
Deferred tax asset 116,000 132,000
------------------- ---------------
Total current assets 6,700,825 8,087,610
Property and equipment, net 292,059 304,245
Deferred tax assets 117,000 130,000
Goodwill, net 1,222,400 1,222,400
Intangibles, net 55,466 153,059
Deposits 55,851 53,376
------------------- ---------------
Total assets $ 8,443,601 $ 9,950,690
=================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll $ 2,779,297 $ 3,282,588
Line of credit 130,472
Current portion of lease obligations payable 16,654 18,500
Accounts payable and accrued expenses 854,283 1,115,979
Income taxes payable 160,000 91,400
Due to HRA 268,859 1,030,963
------------------- ---------------
Total current liabilities 4,209,565 5,539,430
------------------- ---------------
Lease obligations payable, less current portion 18,281 8,789
------------------- ---------------
Commitments, contingencies and other comments
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized;
590,375 shares issued 5,904 5,904
Common stock, $.01 par value, 50,000,000 shares authorized;
3,750,000 shares issued; 3,696,730 outstanding at December
31, 2001 and 3,712,730 outstanding at June 30, 2002 37,500 37,500
Additional paid-in capital 4,737,640 4,733,131
Deficit (516,698) (342,581)
------------------- ---------------
4,264,346 4,433,954
Less: Treasury stock (53,270 and 37,270 common shares at
cost as of December 31, 2001 and June 30, 2002, respectively) (48,591) (31,483)
------------------- ---------------
Total shareholders' equity 4,215,755 4,402,471
------------------- ---------------
Total liabilities and shareholders' equity $ 8,443,601 $ 9,950,690
=================== ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-1
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The Three Months Ended For The Six Months Ended
June 30, June 30,
------------------------------- -----------------------------
2001 2002 2001 2002
--------------- -------------- ------------- --------------
Net patient service revenue $ 8,349,910 $ 9,820,612 $ 16,186,542 $ 19,057,740
--------------- -------------- ------------- --------------
Expenses:
Professional care of patients 6,243,250 7,565,407 12,148,400 14,767,910
General and administrative 1,737,676 2,060,413 3,450,441 3,906,667
Bad debts expense 170,628 17,035 215,628 62,035
Depreciation and amortization 51,469 48,354 102,539 77,770
--------------- -------------- ------------- --------------
Total operating expenses 8,203,023 9,691,209 15,917,008 18,814,382
--------------- -------------- ------------- --------------
Income from operations 146,887 129,403 269,534 243,358
--------------- -------------- ------------- --------------
Nonoperating income (expenses):
Interest income 1,200 7,538 2,420 11,355
Interest expense (41,237) (2,877) (107,700) (4,596)
--------------- -------------- ------------- --------------
Nonoperating (expenses) income, net (40,037) 4,661 (105,280) 6,759
--------------- -------------- ------------- --------------
Income before provision (benefit)
for income taxes 106,850 134,064 164,254 250,117
--------------- -------------- ------------- --------------
Provision (benefit) for income taxes:
Current 19,490 54,600 41,000 105,000
Deferred 26,000 (12,000) 13,000 (29,000)
--------------- -------------- ------------- --------------
45,490 42,600 54,000 76,000
--------------- -------------- ------------- --------------
Net income $ 61,360 $ 91,464 $ 110,254 $ 174,117
=============== ============== ============= ==============
Basic earnings per share $ .02 $ .02 $ .03 $ .05
=============== ============== ============= ==============
Diluted earnings per share $ .01 $ .02 $ .02 $ .03
=============== ============== ============= ==============
Weighted average shares outstanding 3,668,730 3,705,774 3,668,730 3,701,321
=============== ============== ============= ==============
Diluted weighted average shares
outstanding 5,279,665 5,447,122 5,175,605 5,442,285
=============== ============== ============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
Preferred Treasury
Common Stock Stock Additional Stock
-------------------- ------------------ Paid-In -------------------
Shares Amount Shares Amount Capital Shares Amount Deficit Total
---------- -------- -------- ------- ----------- -------- --------- ---------- ----------
Balance at January 1, 2002 3,750,000 $ 37,500 590,375 $ 5,904 $4,737,640 53,270 $(48,591) $(516,698) $4,215,755
Exercise of options through
the issuance of treasury
stock (during March through
May) (at an average exercise
price of $.79 per share) (4,509) (16,000) 17,108 12,599
Net income 174,117 174,117
---------- -------- -------- ------- ----------- -------- --------- ---------- ----------
Balance at June 30, 2002 3,750,000 $ 37,500 590,375 $ 5,904 $4,733,131 37,270 $(31,483) $(342,581) $4,402,471
========== ======== ======== ======= =========== ======== ========= ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Six Months Ended
June 30,
-----------------------------
2001 2002
------------- --------------
Cash flows from operating activities:
Net income $ 110,254 $ 174,117
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 102,539 77,770
Bad debt expense 215,628 62,035
Deferred tax expense (credit) 13,000 (29,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable and
unbilled services 56,914 14,866
Decrease (increase) in prepaid expenses 2,273 (29,781)
Increase in due from lending institution (14,968)
Increase in prepaid income taxes and
income tax receivable (11,000)
(Increase) decrease in deposits (2,423) 2,475
Increase in accrued payroll 435,070 503,291
Decrease in income tax payable (68,600)
(Decrease) increase in accounts payable and
accrued expenses (39,291) 261,696
Increase in due to HRA 177,034 762,104
------------- --------------
Net cash provided by operating activities 1,059,998 1,716,005
------------- --------------
Cash flows from investing activities:
Acquisition of fixed assets (17,253) (77,549)
Payment for the purchase of intangible assets
in connection with acquisition (110,000)
------------- --------------
Net cash used in investing activities (17,253) (187,549)
------------- --------------
Cash flows from financing activities:
Repayment of line of credit (130,472)
Repayments of notes payable (104,216)
Repayment of long-term debt (1,015,447) (7,646)
Bank overdraft 76,918
Exercise of options 12,599
------------- --------------
Net cash used in financing activities (1,042,745) (125,519)
------------- --------------
Net increase in cash and cash equivalents 0 1,402,937
Cash and cash equivalents at beginning of period 0 1,007,444
------------- --------------
Cash and cash equivalents at end of period $ 0 $ 2,410,381
============= ==============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited financial statements, which are for an interim
period, do not include all disclosures provided in the annual financial
statements. The December 31, 2001 balance sheet data was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles. These unaudited financial statements should be
read in conjunction with the financial statements and the footnotes thereto
contained in the Annual Report on Form 10-KSB for the year ended December 31,
2001 of New York Healthcare, Inc. and Subsidiary (the "Corporation"), as filed
with the Securities and Exchange Commission.
In the opinion of the Corporation, the accompanying unaudited financial
statements contain all adjustments (including normal recurring adjustments)
necessary for a fair presentation of the financial statements. The results of
operations for the six months ended June 30, 2002 are not necessarily indicative
of the results to be expected for the full year.
Recently Issued Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets". SFAS 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS 142 requires that goodwill and certain intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment. SFAS 142 is effective for fiscal years beginning after December
15, 2001 and was adopted by the Corporation effective January 1, 2002. As of
June 30, 2002, the Corporation had unamortized goodwill of approximately
$1,222,400, subject to the provisions of SFAS 142. The Corporation has
completed transitional impairment tests required by SFAS 142, which did not
result in an impairment charge.
F-5
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As noted above, the Corporation ceased amortizing goodwill effective January 1,
2002. Following are pro forma results assuming goodwill had not been amortized
prior to January 1, 2002:
For The Three For The
Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Reported net income $ 61,360 $ 91,464 $ 110,254 $ 174,117
Add back: goodwill amortization, net of tax 12,813 25,533
------------ ------------ ------------ ------------
Adjusted net income $ 74,173 $ 91,464 $ 135,787 $ 174,117
============ ============ ============ ============
Basic earnings per share:
As reported 0.02 0.02 $ .03 $ .05
============ ============ ============ ============
As adjusted for nonamortization of goodwill 0.02 0.02 $ .04 $ .05
============ ============ ============ ============
Diluted earnings per share:
As reported 0.01 0.02 $ .02 $ .03
============ ============ ============ ============
As adjusted for nonamortization of goodwill 0.01 0.02 $ .03 $ .03
============ ============ ============ ============
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which requires the recognition of a liability for an asset
retirement obligation in the period in which it is incurred. When the liability
is initially recorded, the carrying amount of the related long-lived asset is
correspondingly increased. Over time, the liability is accreted to its present
value and the related capitalized charge is depreciated over the useful life of
the asset. SFAS 143 is effective for fiscal years beginning after June 15,
2002. In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" which is effective for fiscal periods beginning after December 15, 2001
and interim periods within those fiscal years. SFAS 144 establishes an
accounting model for impairment or disposal of certain long-lived assets. The
Corporation is currently evaluating the impact of SFAS 143 and 144.
Acquisition:
On April 10, 2002, the Corporation acquired the assets of Adult Care Services,
Inc., a home healthcare office in Whiting, NJ. The Company does not consider
this to be a significant acquisition.
F-6
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - EARNINGS PER SHARE:
Basic earnings per share excludes dilution and is computed by dividing earnings
available to common shareholders by the weighted average number of common shares
outstanding for the period.
Diluted earnings per share is computed by dividing earnings available to common
shareholders by the weighted average number of common shares outstanding for the
period, adjusted to reflect potentially dilutive securities including the
presumed conversion of the Preferred Stock from the date of issuance. During
the three and six months ended June 30, 2001 and 2002, options and warrants were
included in the computation of diluted earnings per share because the exercise
price was less than the average market price of the Corporation's common stock
during that period. Common shares issuable as a result of the assumed
conversion of the Corporation's preferred stock were also included in the
computation of diluted earnings per share during the three and six months ended
June 30, 2001 and 2002.
NOTE 3 - STOCK OPTIONS:
During the six months ended June 30, 2002, employees exercised 16,000 options at
prices ranging from $.59 to $1.625 per share. At December 31, 2001 and June 30,
2002, the Corporation has 1,482,500 shares of common stock reserved for issuance
for these options and for options and warrants granted previously.
NOTE 4 - LINE OF CREDIT:
The Corporation has a $4,000,000 line of credit with a lending institution that
expires November 28, 2002. At June 30, 2002, the total amount of the line of
credit was available to the Corporation. The availability is based on a formula
which allows the Corporation to borrow 85% of eligible receivables. All
property and assets of the Corporation collateralize the line of credit. The
agreement contains various restrictive covenants, which among other things,
requires that certain ratios be maintained. Borrowings under the agreement bear
interest at prime plus 2 1/2 % (7.25% at December 31, 2001 and June 30, 2002).
At December 31, 2001, $130,472 was outstanding.
At June 30, 2002, there was an amount due from the lending institution of
$14,968. This is due to a lockbox being used by the Corporation, therefore, all
cash is deposited with the lending institution and then transferred to the bank.
F-7
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - TREASURY STOCK:
The Corporation issued treasury stock for the exercise of options that occurred
during March through May 2002. The Corporation assigned a cost of the treasury
stock based on the first-in-first-out method.
NOTE 6 - RELATED PARTY TRANSACTIONS:
Rent expense for the six months ended June 30, 2001 includes approximately
$22,000 relating to one of the Corporation's offices leased from an affiliated
company. The lease expired on April 30, 2001.
Two of the Corporation's directors provide consulting services on an as needed
basis. Consulting expenses to the directors amounted to $12,000 for the six
months ended June 30, 2002. One director provided consulting services for the
six months ended June 30, 2001 which amounted to $6,000.
NOTE 7 - SUPPLEMENTAL CASH FLOW DISCLOSURES:
Six Months Ended
June 30,
---------------------
2001 2002
-------- --------
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $107,700 $ 4,596
======== ========
Income taxes $ 55,262 $171,635
======== ========
Supplemental disclosure of noncash financing activities:
During March through May 2002, the Corporation issued
16,000 shares of treasury stock in connection with the
exercise of stock options which reduced additional
paid-in capital by $4,509.
F-8
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 - INTANGIBLES:
Intangibles consist of the following:
December 31, 2001
-----------------------------------------------------------
Estimated
Gross Carrying Accumulated Net Carrying Useful Life
Amount Amortization Amount (Years)
--------------- ------------- ------------- ------------
Goodwill $ 1,396,712 $ 174,312 $ 1,222,400 Indefinite
--------------- ------------- -------------
Contract value 60,217 24,804 35,413 10
Customer list 38,470 18,417 20,053 10
--------------- ------------- -------------
98,687 43,221 55,466
--------------- ------------- -------------
Total $ 1,495,399 $ 217,533 $ 1,277,866
=============== ============= =============
June 30, 2002 (Unaudited)
-----------------------------------------------------------
Estimated
Gross Carrying Accumulated Net Carrying Useful Life
Amount Amortization Amount (Years)
--------------- ------------- ------------- ------------
Goodwill $ 1,396,712 $ 174,312 $ 1,222,400 Indefinite
--------------- ------------- -------------
Contract value 110,217 32,410 77,807 3-10
Customer list 98,470 23,218 75,252 3-10
--------------- ------------- -------------
208,687 55,628 153,059
--------------- ------------- -------------
Total $ 1,605,399 $ 229,940 $ 1,375,459
=============== ============= =============
NOTE 9 - INCOME TAXES:
The temporary differences that give rise to deferred tax assets are impairment
of intangible assets for book purposes over tax purposes, the direct write-off
method for receivables, using accelerated methods of amortization and
depreciation for property and equipment for tax purposes, and using statutory
lives for intangibles for tax purposes. At December 31, 2001 and June 30, 2002,
the Corporation has computed a deferred tax asset in the amount of approximately
$547,000 and $548,000, respectively, and has provided a valuation allowance of
$314,000 and $286,000, respectively (all related to impairment of goodwill), on
the deferred tax asset due to the uncertainty regarding the realization of the
future tax benefits. Upon the continued profitability during the six months
ended June 30, 2002, the valuation allowance was decreased by $28,000 to reflect
a reduction in the uncertainty regarding realization. Such amount was reflected
as a reduction of the provision for deferred taxes during the six months ended
June 30, 2002.
F-9
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10 - EARNINGS PER SHARE:
Earnings per share are computed as follows:
For The Three Months Ended For The Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2001 2002 2001 2002
-------------- ------------- -------------- ------------
Basic and diluted earnings
per share:
Earnings:
Net income applicable
to common stock $ 61,360 $ 91,464 $ 110,254 $ 174,117
============== ============= ============== ============
Shares:
Weighted average number of
common shares outstanding - basic 3,668,730 3,705,774 3,668,730 3,701,321
Effect of dilutive options 1,020,560 1,150,973 916,500 1,150,589
Effect of dilutive convertible
preferred stock 590,375 590,375 590,375 590,375
-------------- ------------- -------------- ------------
Diluted weighted average shares
outstanding 5,279,665 5,447,122 5,175,605 5,442,285
============== ============= ============== ============
Basic earnings per share $ .02 $ .02 $ .03 $ .05
============== ============= ============== ============
Diluted earnings per share $ .01 $ .02 $ .02 $ .03
============== ============= ============== ============
NOTE 11 - PROPOSED ACQUISITION:
On October 11, 2001 (as amended on February 13, 2002 and July 10, 2002), the
Corporation entered into a Stock for Stock Exchange Agreement (the "Agreement")
with The Bio Balance Corp. ("Bio Balance"). Bio Balance is engaged in the
research and development, manufacturing and marketing of probiotic agents for
therapy of gastrointestinal diseases. A probiotic is a live microorganism or
microbial mixture administered to beneficially affect the host by improving its
microbial balance. Bio Balance is a company in the development stage.
F-10
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Agreement provides for Bio Balance's shareholders exchanging at least 90% of
their shares and 100% of their options for common stock and options of the
Corporation in a share for share transaction. Just prior to the proposed
closing presently scheduled for August 2002, Bio Balance is expected to have
approximately 21,350,000 shares of common stock issued and outstanding and the
Corporation is expected to have approximately 4,000,000 issued and outstanding
shares of common stock, options and warrants (after a 1 to 1.5 share reverse
split). On July 10, 2002, the agreement was amended to allow the closing to
occur if Bio Balance has approximately 18,000,000 shares of common stock. After
the proposed closing, the shareholders of Bio Balance are expected to own
approximately 90% of the common stock of the Corporation.
The Agreement is subject to the approval of the Corporation's shareholders at a
meeting and compliance with various federal and state regulatory requirements,
as more fully described in the Corporation's Form 8-K/A report of the events of
October 11, 2001 filed with the SEC on November 6, 2001 and the Form S-4 filed
on March 27, 2002, with an amended S-4 filed on July 19, 2002.
F-11
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001.
RESULTS OF OPERATIONS
Revenues for the six months ended June 30, 2002 increased 17.7% to approximately
$19,058,000 from approximately $16,187,000 for the six months ended June 30,
2001. The increase is the result of the New York City (HRA) contract's increased
caseload and an increase in our New Jersey caseload. The New York City's
contract calls for a new reimbursement methodology, which limits the future
revenue and profitability of this contract. Its awarding of contracts to new
vendors creates the risk of flat or even decreased sales from this contract.
Cost of professional care of patients for the six months ended June 30, 2002
increased 21.6% to approximately $14,768,000 from approximately $12,148,000 for
the six months ended June 30, 2001. The increase resulted from hiring additional
home health care personnel to service the increased business. The cost of
professional care of patients as a percentage of revenues increased 2.5% to
approximately 77.5% for the six months ended June 30, 2002 from approximately
75.0% for six months ended June 30, 2001. The increase resulted primarily from
a change in the reimbursement methodology of the city contract. New guidelines
set a fixed reimbursement rate for SG&A per client. Our cost of professional
care fees remain unchanged as we continue to be reimbursed and pay on an hourly
basis.
Selling, general and administrative expenses for the six months ended June 30,
2002 increased 13.2% to approximately $3,907,000 from approximately $3,450,000
for the six months ended June 30, 2001. The increase in expenses is the result
of administrative personnel increases and other costs associated with increased
revenue selling, general and administrative expenses as a percentage of revenue
decreased to 20.5% from 21.3%. The decrease was due to not increasing the
expenses proportionately to the increase in revenue.
Interest expense for the six months ended June 30, 2002 decreased to
approximately $5,000 as compared to approximately $108,000 for the six months
ended June 30, 2001, primarily as a result of decreased borrowing. While the
Company has cash on hand and no outstanding use of the line of credit, there can
be no assurance that this will continue.
The provision of approximately $54,000 and $76,000 for federal, state and local
taxes is the result of income for the six months ended June 30, 2001 and June
30, 2002, respectively.
In view of the foregoing, income for the six months ended June 30, 2002 amounted
to approximately $174,000 as compared to approximately $110,000 in net income
for the six months ended June 30, 2001. The $174,000 would have been
approximately $148,000 had the Company not initiated SFAS 142, which became
effective for the Company January 1, 2002 and requires that goodwill and certain
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment. The Company has performed its impairment test
during the second quarter ended June 30, 2002 and believes that the fair value
of the reporting units exceeds the carrying value as of January 1, 2002 and that
goodwill has not been impaired. Cash and due from lending institution at June
30, 2002 increased approximately $1,400,000 from December 31, 2001. The increase
is the result of a more aggressive collection effort and a rate increase in our
City contract. During the same period of time the amount due to HRA increased
approximately by $760,000. The increase resulted from a change in the
reimbursement methodology of the City contract. New guidelines set a fixed rate
for SG&A per client. While we continue to be reimbursed at the full contract
rate, any amounts over these limits must be paid back to the City.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $4,000,000 line of credit with a lending institution that
expires November 28, 2002. The availability of the line of credit is based on a
formula, which is 85% of eligible accounts receivable. As of June 30, 2002, the
amount available to borrow based on the formula was $4,000,000. The only
restrictive covenant is that the Company has a net worth greater than $500,000.
For the six months ended June 30, 2002, net cash provided by operations was
approximately $1,716,000 as compared to net cash provided by operations of
approximately $1,060,000 during the six months ended June 30, 2001, an increase
of $656,000. The $1,716,000 provided by operations for the six months ended June
30, 2002, was principally due to an increase in accounts payable and accrued
expenses, an increase in accrued payroll, an increase in due to HRA and a net
income for the period.
Net cash used in investing activities for the six months ended June 30, 2002 was
approximately $187,000, for the acquisition of fixed assets and intangible
assets. Net cash used by financing activities for the six months ended June 30,
2002 totaled approximately $126,000, resulting from repayment of the credit line
of $130,000, repayment of long term debt of $8,000 offset by an increase in
stock options of $12,000.
As of June 30, 2002, approximately $5,426,000 (approximately 55%) of the
Company's total assets consisted of accounts receivable from clients who are
reimbursed by third-party payors, as compared to $6,349,000 (approximately 76%)
as of June 30, 2001, a decrease of 21%, as a result of substantial increase in
collections. Such payors generally require substantial documentation in order
to process claims.
Days Sales Outstanding ("DSO") is a measure of the average number of days taken
by the Company to collect its accounts receivable, calculated from the date
services are billed. For the six months ended June 30, 2002, the Company's DSO
was 55, compared to 71 days for the six months ended June 30, 2001. The
improvement of 16 days in DSO is mainly due to improved collections and DSO's in
all divisions.
POTENTIAL REGULATORY CHANGES
There has been recent news reports concerning federal budget negotiations
regarding potential changes in the way the Government will reimburse home health
care companies in the future, including the possibility of capitation. While the
Company is not currently a Medicare-Certified Home Health Agency subject to
these changes, most of the Company's referral sources are and they may be
negatively impacted by this legislation which was adopted to control home health
care costs. While it is still premature to discern what impact, if any, the
potential changes may have on the Company's operations, there can be no
assurance that future legislation will not result in reduced reimbursement rates
from referral sources.
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.
August 14, 2002
NEW YORK HEALTH CARE, INC.
By: /s/ Jacob Rosenberg
----------------------------------------
Jacob Rosenberg
Vice President, Chief Operating Officer,
Chief Financial and Accounting Officer,
Secretary, Director