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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: September 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
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NEW YORK HEALTH CARE, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
(UNAUDITED)
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
A S S E T S
December 31, 2001 September 30, 2002
------------------- --------------------
(Note 1) (Unaudited)
Current assets:
Cash and cash equivalents $ 1,007,444 $ 3,019,530
Due from lending institution 96,769
Accounts receivable, net of allowance for uncollectible
amounts of $290,000 at December 31, 2001 and $307,000 at
September 30, 2002 5,442,229 5,292,704
Unbilled services 60,828 90,592
Prepaid expenses 74,324 206,452
Deferred tax asset 116,000 123,000
------------------- --------------------
Total current assets 6,700,825 8,829,047
Property and equipment, net 292,059 264,244
Deferred tax assets 117,000 137,000
Goodwill, net 1,222,400 1,222,400
Intangibles, net 55,466 141,300
Deposits 55,851 53,376
------------------- --------------------
Total assets $ 8,443,601 $ 10,647,367
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll $ 2,779,297 $ 3,263,759
Line of credit 130,472
Current portion of lease obligations payable 16,654 18,989
Accounts payable and accrued expenses 854,283 1,393,058
Income taxes payable 160,000 89,000
Due to HRA 268,859 1,343,289
------------------- --------------------
Total current liabilities 4,209,565 6,108,095
------------------- --------------------
Lease obligations payable, less current portion 18,281 3,855
------------------- --------------------
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 September 30, 2002 37,500 37,500
Additional paid-in capital 4,737,640 4,733,131
Deficit (516,698) (209,635)
------------------- --------------------
4,264,346 4,566,900
Less: Treasury stock (53,270 and 37,270 common shares at cost as of
December 31, 2001 and September 30, 2002, respectively) (48,591) (31,483)
------------------- --------------------
Total shareholders' equity 4,215,755 4,535,417
------------------- --------------------
Total liabilities and shareholders' equity $ 8,443,601 $ 10,647,367
=================== ====================
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 Nine Months Ended
September 30, September 30,
------------------------ --------------------------
2001 2002 2001 2002
----------- ----------- ------------ ------------
Net patient service revenue $8,912,849 $9,824,500 $25,099,391 $28,882,290
----------- ----------- ------------ ------------
Expenses:
Professional care of patients 6,622,163 7,579,044 18,770,563 22,346,954
General and administrative 1,748,440 1,973,804 5,198,881 5,880,472
Bad debts expense 240,345 12,965 455,973 75,000
Depreciation and amortization 44,471 51,761 147,010 129,530
----------- ----------- ------------ ------------
Total operating expenses 8,655,419 9,617,574 24,572,427 28,431,956
----------- ----------- ------------ ------------
Income from operations 257,430 206,926 526,964 450,334
----------- ----------- ------------ ------------
Nonoperating income (expenses):
Interest income 1,100 10,096 3,520 21,451
Interest expense (23,077) (2,126) (130,777) (6,722)
----------- ----------- ------------ ------------
Nonoperating (expenses) income, net (21,977) 7,970 (127,257) 14,729
----------- ----------- ------------ ------------
Income before provision
for income taxes 235,453 214,896 399,707 465,063
----------- ----------- ------------ ------------
Provision (benefit) for income taxes:
Current 231,000 80,000 272,000 185,000
Deferred (123,000) 2,000 (110,000) (27,000)
----------- ----------- ------------ ------------
108,000 82,000 162,000 158,000
----------- ----------- ------------ ------------
Net income $ 127,453 $ 132,896 $ 237,707 $ 307,063
=========== =========== ============ ============
Basic earnings per share $ .03 $ .04 $ .06 $ .08
=========== =========== ============ ============
Diluted earnings per share $ .02 $ .02 $ .05 $ .06
=========== =========== ============ ============
Weighted average shares outstanding 3,691,975 3,712,730 3,676,563 3,705,166
=========== =========== ============ ============
Diluted weighted average shares
outstanding 5,108,346 5,435,329 5,153,270 5,440,008
=========== =========== ============ ============
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 NINE MONTHS ENDED SEPTEMBER 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 307,063 307,063
--------- ------- ------- ------- ----------- -------- --------- ---------- ----------
Balance at September 30,
2002 3,750,000 $37,500 590,375 $ 5,904 $4,733,131 37,270 $(31,483) $(209,635) $4,535,417
========= ======= ======= ======= =========== ======== ========= ========== ==========
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 Nine Months Ended
September 30,
-------------------------
2001 2002
------------ -----------
Cash flows from operating activities:
Net income $ 237,707 $ 307,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 147,010 129,530
Bad debt expense 455,973 75,000
Deferred tax credit (110,000) (27,000)
Changes in operating assets and liabilities:
Decrease in accounts receivable and unbilled services 422,674 44,761
Increase in prepaid expenses (10,588) (132,128)
Increase in due to/from lending institution (351,507) (96,769)
(Increase) decrease in deposits (7,339) 2,475
Increase in accrued payroll 480,715 484,462
Decrease (increase) in accounts payable and accrued expenses (6,098) 538,775
Increase (decrease) in income taxes payable 210,000 (71,000)
Increase in due to HRA 165,034 1,074,430
------------ -----------
Net cash provided by operating activities 1,633,581 2,329,599
------------ -----------
Cash flows from investing activities:
Acquisition of fixed assets (20,252) (77,549)
Payment for the purchase of intangible assets in connection
with acquisition - (110,000)
------------ -----------
Net cash used in investing activities (20,252) (187,549)
------------ -----------
Cash flows from financing activities:
Repayments of line of credit (1,889,392) (130,472)
Repayment of long-term debt (115,282) (12,091)
Exercise of options 20,039 12,599
Increase in bank overdraft 371,306 -
------------ -----------
Net cash used in financing activities (1,613,329) (129,964)
------------ -----------
Net increase in cash and cash equivalents -0- 2,012,086
Cash and cash equivalents at beginning of period -0- 1,007,444
------------ -----------
Cash and cash equivalents at end of period $ -0- $3,019,530
============ ===========
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 nine months ended September 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
September 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 For The
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Reported net income $ 127,453 $ 132,896 $ 237,707 $ 307,063
Add back: goodwill amortization, net of tax 12,813 38,346
------------ ------------ ------------ ------------
Adjusted net income $ 140,266 $ 132,896 $ 276,053 $ 307,063
============ ============ ============ ============
Basic earnings per share:
As reported $ .03 $ .04 $ .06 $ .08
============ ============ ============ ============
As adjusted for nonamortization of goodwill $ .04 $ .04 $ .08 $ .08
============ ============ ============ ============
Diluted earnings per share:
As reported $ .02 $ .02 $ .05 $ .06
============ ============ ============ ============
As adjusted for nonamortization of goodwill $ .03 $ .02 $ .05 $ .06
============ ============ ============ ============
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.
F-6
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections ("SFAS 145"). SFAS 145, which is effective for
fiscal years beginning after May 15, 2002, provides guidance for income
statement classification of gains and losses on extinguishment of debt and
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. The Corporation does not believe that
the adoption of this statement will impact its financial position, results of
operations, or cash flows.
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs
associated with Exit or Disposal Activities." SFAS 146 nullifies the guidance
of the Emerging Issues Task Force (EITF) Issues No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a
liability for a cost that is associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS 146 also establishes that fair
value is the objective for the initial measurement of the liability. The
provisions of SFAS 146 are required for exit or disposal activities that are
initiated after December 31, 2002. The provisions of SFAS 146 are not expected
to have material impact on the Corporation's consolidated financial statements.
Acquisition:
On April 10, 2002, the Corporation acquired the assets of Adult Care Services,
Inc., a home healthcare office in Whiting, NJ. The Corporation does not
consider this to be a significant acquisition.
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.
F-7
NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 nine months ended September 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 nine months
ended September 30, 2001 and 2002.
NOTE 3 - STOCK OPTIONS:
During the nine months ended September 30, 2002, employees exercised 16,000
options at prices ranging from $.59 to $1.625 per share. At December 31, 2001
and September 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 September 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 September 30,
2002). At December 31, 2001, $130,472 was outstanding.
At September 30, 2002, there was an amount due from the lending institution of
$96,769. 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-8
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 nine months ended September 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.
Prior to June 30, 2002, two of the Corporation's non-employee directors provided
consulting services on an as needed basis. Consulting expenses to the directors
amounted to $12,000 for the nine months ended September 30, 2002. Subsequent to
June 30, 2002, the non-employee directors received $6,000 as directors fees. One
non-employee director provided consulting services for the nine months ended
September 30, 2001 which amounted to $9,000.
NOTE 7 - SUPPLEMENTAL CASH FLOW DISCLOSURES:
Nine Months Ended
September 30,
------------------
2001 2002
-------- --------
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $130,777 $ 6,722
======== ========
Income taxes $ 79,899 $264,667
======== ========
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-9
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
=============== ============= =============
September 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 37,046 73,171 3-10
Customer list 98,470 29,784 68,686 3-10
--------------- ------------- -------------
208,687 66,830 141,857
--------------- ------------- -------------
Total $ 1,605,399 $ 241,142 $ 1,364,257
=============== ============= =============
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 September 30,
2002, the Corporation has computed a deferred tax asset in the amount of
approximately $547,000 and $524,000, respectively, and has provided a valuation
allowance of $314,000 and $264,000, 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 nine months ended September 30, 2002, the valuation allowance was decreased
by $50,000 to reflect a reduction in the uncertainty regarding realization.
Such amount was reflected as a reduction of the provision for deferred taxes
during the nine months ended September 30, 2002.
F-10
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 Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2001 2002 2001 2002
-------------- ------------- ------------- -------------
Basic and diluted earnings
per share:
Earnings:
Net income applicable
to common stock $ 127,453 $ 132,896 $ 237,707 $ 307,063
============== ============= ============= =============
Shares:
Weighted average number of
common shares outstanding - basic 3,691,975 3,712,730 3,676,563 3,705,166
Effect of dilutive options 825,996 1,132,224 886,332 1,144,467
Effect of dilutive convertible
preferred stock 590,375 590,375 590,375 590,375
-------------- ------------- ------------- -------------
Diluted weighted average shares
outstanding 5,108,346 5,435,329 5,153,270 5,440,008
============== ============= ============= =============
Basic earnings per share $ .03 $ .04 $ .06 $ .08
============== ============= ============= =============
Diluted earnings per share $ .02 $ .02 $ .05 $ .06
============== ============= ============= =============
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-11
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 January 2003, 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 to be held on December 10, 2002, and compliance with various federal and
state regulatory requirements, as more fully described in the Corporation's Form
S-4 Registration which was declared effective by the SEC on November 1, 2002.
F-12
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2001.
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 2002 increased 15.1% to
approximately $28,882,000 from approximately $25,099,000 for the nine months
ended September 30, 2001. The increase is the result of the New York City (HRA)
contract's increased caseload offset by a new reimbursement methodology which
limits the future revenue and profitability of this contract, and an increase in
our New Jersey caseload.
Cost of professional care of patients for the nine months ended September 30,
2002 increased 19.1% to approximately $22,347,000 from approximately $18,771,000
for the nine months ended September 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 2.6%
to approximately 77.4% for the nine months ended September 30, 2002 from
approximately 74.8% for nine months ended September 30, 2001. The increase
resulted primarily from a change in the reimbursement methodology of the city
contract. New guidelines changed the reimbursement rate for SG&A from an hourly
amount to a fixed amount 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 nine months ended September
30, 2002 increased 13.1% to approximately $5,880,000 from approximately
$5,199,000 for the nine months ended September 30, 2001. The increase in
expenses is the result of administrative personnel increases, acquisition costs
relating to the pending Bio Balance merger transaction and other costs
associated with increased revenue. Selling, general and administrative expenses
as a percentage of revenue decreased to 20.4% from 20.7% The decrease was due to
not increasing the expenses proportionately to the increase in revenue.
Interest expense for the nine months ended September 30, 2002 decreased to
approximately $7,000 as compared to approximately $131,000 for the nine months
ended September 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 $162,000 and $158,000 for federal, state and
local taxes is the result of income for the nine months ended September 30, 2001
and September 30, 2002, respectively.
In view of the foregoing, income for the nine months ended September 30, 2002
amounted to approximately $307,000 as compared to approximately $238,000 in net
income for the nine months ended September 30, 2001. The $307,000 would have
been approximately $269,000 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 September 30, 2002 increased
approximately $2,100,000 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
$1,074,000. 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 Company expects this line of credit to be
renewed. The availability of the line of credit is based on a formula, which is
85% of eligible accounts receivable. As of September 30, 2002 the amount
available to borrow based on the formula was approximately $3,700,000. The only
restrictive covenant is that the Company has a net worth greater than $500,000.
For the nine months ended September 30, 2002, net cash provided by operations
was approximately $2,330,000 as compared to net cash provided by operations of
approximately $1,634,000 during the nine months ended September 30, 2001, an
increase of $696,000. The $2,330,000 provided by operations for the nine months
ended September 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 nine months ended September 30,
2002 was approximately $187,000, for the acquisition of fixed assets and
intangible assets. Net cash used by financing activities for the nine months
ended September 30, 2002 totaled approximately $130,000, resulting from
repayment of the credit line of $130,000, repayment of long tem debt of $12,000
off set by an increase in stock options of $12,000.
As of September 30, 2002, approximately $5,383,000 (approximately 51%) of the
Company's total assets consisted of accounts receivable from clients who are
reimbursed by third-party payors, as compared to $5,743,000 (approximately 70%)
as of September 30, 2001, a decrease of 19%, the result of a 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 nine months ended September 30, 2002, the
Company's DSO was 55, compared to 66 days for the nine months ended September
30, 2001. The improvement of 11 days in DSO is mainly due to improved
collections and DSO's in all divisions.
Pending Bio Balance Merger
On November 1, 2002, the Form S-4 Registration Statement relating to the pending
Acquisition of the Bio Balance Corp. ("Bio Balance") was declared effective by
the SEC. The Bio Balance merger remains contingent upon approval by the
Company's shareholders and the Bio Balance shareholders and satisfaction of
other closing conditions. Proxy materials have been mailed to the shareholders
of each company. The Company's shareholders will vote on the acquisition and
related matters at its annual shareholders meeting on Tuesday, December 10,
2002, at 10:00 a.m. E.S.T. at the Company's offices. Bio Balance shareholders
will vote on the acquisition and related matters at a special shareholders
meeting on Monday, December 9, 2002, at 10:00 a.m. E.S.T. at Bio Balance
offices. Assuming approval of the acquisition by the shareholders of both
companies and satisfaction of the other closing conditions, closing of the
acquisition is anticipated to occur effective January 1, 2003.
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.
November 13, 2002
NEW YORK HEALTH CARE, INC.
BY: /S/ JACOB ROSENBERG
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Jacob Rosenberg
Vice President, Chief Operating Officer,
Chief Financial and Accounting Officer,
Secretary, Director