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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED February 28, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 1-10751
STAR MULTI CARE SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
New York 11-1975534
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
33 Walt Whitman Road, Huntington Station, New York 11746
---------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (631) 423-6689
--------------
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 the Registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 18, 2003:
Class Number of Shares
------------------------------ ----------------
Common Stock, $0.001 par value 4,836,865
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STAR MULTI CARE SERVICES, INC.
INDEX
Page
PART I: FINANCIAL INFORMATION
Item 1
Consolidated Balance Sheets as of February 28, 2003 and May 31, 2002.......3
Consolidated Statements of Operations for the three months and
nine months ended February 28, 2003 and February 28, 2002..................4
Consolidated Statements of Cash Flows for the nine months ended
February 28, 2003 and February 28, 2002....................................5
Notes to Consolidated Financial Statements................................6-8
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................8-10
Item 4
Controls and Procedures...................................................10
PART II: OTHER INFORMATION
Item 5.
Other Information.........................................................11
Item 6
Exhibits and Reports on Form 8-K..........................................12
Signatures................................................................12
Index of Exhibits.........................................................15
2
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
February 28, May 31,
2003 2002
------------ ------------
ASSETS: Unaudited Audited
CURRENT ASSETS:
Cash and cash equivalents $ 211,116 $ 74,235
Accounts receivable, net of allowance for doubtful accounts
of $2,425,000 at February 28, 2003 and May 31, 2002 1,856,647 1,613,540
Prepaid expenses and other current assets 119,578 83,206
Deferred income taxes 206,000 206,000
------------ ------------
Total current assets 2,393,341 1,976,981
PROPERTY AND EQUIPMENT, net 352,572 572,859
GOODWILL 1,307,444 1,307,444
OTHER INTANGIBLE ASSETS, net 333,210 351,859
DEFERRED INCOME TAXES 404,000 1,404,000
OTHER ASSETS 19,449 50,647
------------ ------------
$ 4,810,016 $ 5,663,790
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accrued payroll and related expenses $ 444,986 $ 637,908
Accounts payable 224,249 586,629
Accrued expenses 678,823 758,368
Due Medicare 119,843 350,000
Note payable - related party 250,000 --
Due officer 320,000 125,000
------------ ------------
Total current liabilities 2,037,901 2,457,905
------------ ------------
LONG-TERM LIABILITIES:
Revolving credit line 1,618,290 990,254
------------ ------------
SHAREHOLDERS' EQUITY:
Convertible preferred stock-aggregate liquidation value
$469,000 and $325,000; $1.00 par value, 5,000,000 shares
authorized; 469 and 325 shares issued, respectively 469 325
Common stock, $.001 par value per share, 5,000,000 shares
authorized; 1,059,232 and 1,024,021 shares issued,
respectively 1,059 1,024
Additional paid-in capital 21,821,684 21,669,864
Deficit (20,278,696) (19,064,891)
Treasury stock, 26,367 common shares, at cost (390,691) (390,691)
------------ ------------
Total shareholders' equity 1,153,825 2,215,631
------------ ------------
$ 4,810,016 $ 5,663,790
============ ============
See accompanying notes to consolidated financial statements
3
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
REVENUE, net $ 2,687,633 $ 2,287,705 $ 7,639,196 $ 12,641,769
OPERATING EXPENSES:
Costs of revenue 1,715,305 1,403,566 4,721,424 8,341,438
Selling, general and administrative 831,177 1,382,770 2,704,536 5,225,653
Depreciation and amortization 77,475 71,036 232,429 422,619
Provision for doubtful accounts 49,844 135,296 77,518 229,523
------------ ------------ ------------ ------------
2,673,801 2,992,668 7,735,907 14,219,233
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 13,832 (704,963) (96,711) (1,577,464)
OTHER INCOME (EXPENSE):
Loss on sale of business -- -- -- (12,986)
Interest expense, net (30,534) (126,113) (93,194) (659,349)
------------ ------------ ------------ ------------
(30,534) (126,113) (93,194) (672,335)
------------ ------------ ------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (16,702) (831,076) (189,905) (2,249,799)
PROVISION (BENEFIT) FOR INCOME TAXES 1,000,000 -- 1,000,000 --
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,016,702) (831,076) (1,189,905) (2,249,799)
EXTRAORDINARY ITEM:
Gain on extinguishment of debt, net of
income taxes -- -- -- 1,607,824
------------ ------------ ------------ ------------
NET LOSS $ (1,016,702) $ (831,076) $ (1,189,905) $ (641,975)
============ ============ ============ ============
BASIC LOSS PER COMMON SHARE:
Loss before extraordinary item $ (0.99) $ (0.98) $ (1.18) $ (2.87)
Extraordinary item -- -- 2.03
------------ ------------ ------------ ------------
Net loss $ (0.99) $ (0.98) $ (1.18) $ (0.84)
============ ============ ============ ============
DILUTED LOSS PER COMMON SHARE:
Loss before extraordinary item $ (0.99) $ (0.98) $ (1.18) $ (2.87)
Extraordinary item -- -- 2.03
------------ ------------ ------------ ------------
Net loss $ (0.99) $ (0.98) $ (1.18) $ (0.84)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 1,032,865 858,954 1,025,669 790,291
============ ============ ============ ============
Diluted 1,032,865 858,954 1,025,669 790,291
============ ============ ============ ============
See accompanying notes to consolidated financial statements
4
STAR MULTI CARE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
February 28,
----------------------------
2003 2002
------------ ------------
Cash flow from operating activities:
Net loss $ (1,189,905) $ (641,975)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Extraordinary gain on extinguishment of debt -- (1,607,824)
Provision for doubtful accounts 77,518 229,523
Depreciation and amortization 232,429 422,619
Deferred income taxes 1,000,000 --
Loss on sale of business -- 12,986
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (320,625) 2,754,670
Prepaid expenses and other current assets (36,372) (118,016)
Other assets 31,198 26,266
Increase (decrease) in liabilities:
Accrued payroll and related expenses (192,922) (1,445,123)
Accounts payable and accrued expenses (313,827) (684,661)
Due Medicare (230,157) (500,000)
------------ ------------
Total adjustments 247,242 (909,560)
------------ ------------
Net cash used in operating activities (942,663) (1,551,535)
------------ ------------
Cash flow from investing activities:
Purchase of property and equipment -- (1,591)
Proceeds from sale of assets / business, net 6,508 3,458,000
Deposit on contract for sale of business -- 700,000
------------ ------------
Net cash provided by investing activities 6,508 4,156,409
------------ ------------
Cash flows from financing activities:
Proceeds from (repayment of) revolving credit line, net 628,036 (3,175,046)
Proceeds from notes payable 450,000 800,000
Repayment of notes payable (5,000) (300,000)
Exercise of stock options -- 62,646
------------ ------------
Net cash provided by (used in) financing activities 1,073,036 (2,612,400)
------------ ------------
Net increase (decrease) in cash and cash equivalents 136,881 (7,526)
Cash and cash equivalents at beginning of period 74,235 10,511
------------ ------------
Cash and cash equivalents at end of period $ 211,116 $ 2,985
============ ============
Supplemental disclosure:
Income taxes paid $ 6,000 $ --
============ ============
Interest paid $ 89,000 $ 659,349
============ ============
See accompanying notes to consolidated financial statements
5
STAR MULTI CARE SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the accompanying unaudited interim consolidated
financial statements of Star Multi Care Services, Inc. and its subsidiaries (the
"Company") contain all adjustments necessary to present fairly the Company's
financial position as of February 28, 2003, results of its operations for the
three month and nine month periods ended February 28, 2003 and February 28,
2002, and cash flows for the nine month periods ended February 28, 2003 and
February 28, 2002.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's consolidated financial statements included in its Annual Report on
Form 10-K for the fiscal year ended May 31, 2002, which is incorporated herein
by reference. Specific reference is made to this report for the notes to
consolidated financial statements included therein.
The results of operations for the three month and nine month periods ended
February 28, 2003 are not necessarily indicative of the results to be expected
for the full year.
NOTE 1: NET LOSS PER COMMON SHARE
Net loss per common share and per common and common equivalent share is based
upon weighted-average common and common equivalent shares outstanding during
each period. Common equivalent shares include the dilutive effect of stock
options if any.
Net income available to common shareholders was computed as follows:
Three Months Ended Nine Months Ended
February 28, February 28,
2003 2002 2003 2002
---- ---- ---- ----
Net loss $(1,016,702) $ (831,076) $(1,189,905) $ (641,975)
Dividends on preferred shares (8,005) (6,400) (23,900) (21,500)
----------- ----------- ----------- -----------
Net loss available to common shareholders $(1,024,707) $ (837,476) $(1,213,805) $ (663,475)
=========== =========== =========== ===========
NOTE 2: RECLASSIFICATIONS AND USE OF ACCOUNTING 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 and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenue and expenses during the
period. Such estimates primarily relate to accounts receivable valuation
allowances, recoverability of goodwill, realization of deferred tax assets, and
related valuation allowance and regulatory adjustments. Actual amounts may
differ from those estimates.
NOTE 3: GOODWILL AND INTANGIBLE ASSETS
In June 2002, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and
Intangible Assets." SFAS No. 141 requires the use of the purchase method of
accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS No. 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. It also
requires, upon adoption of SFAS No. 142, that the Company reclassify, if
necessary, the carrying amounts of intangible assets and goodwill based on the
criteria of SFAS No. 141.
6
NOTE 3: GOODWILL AND INTANGIBLE ASSETS (continued)
SFAS No. 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS No. 142 requires that the Company identify reporting units for
the purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets and cease
amortization of intangible assets with an indefinite useful life. No adjustments
for impairment losses were required.
The effect of adoption of SFAS No. 142 on the 2001 consolidated results of
operations was as follows:
Three Months Nine Months
Ended Ended
February 28, 2002 February 28, 2002
----------------- -----------------
Reported loss before extraordinary item $ (831,076) $ (2,249,799)
Add back: amortization of goodwill 11,050 136,330
------------ ------------
Loss before extraordinary item, as adjusted $ (820,026) $ (2,113,469)
============ ============
Basic earnings per share:
Reported loss before extraordinary item $ (0.98) $ (2.87)
Amortization of goodwill 0.01 0.17
------- -------
Basic loss per share, as adjusted $ (0.97) $ (2.70)
======= =======
Diluted earnings per share:
Reported loss before extraordinary item $ (0.98) $ (2.87)
Amortization of goodwill 0.01 0.17
------- -------
Diluted loss per share, as adjusted $ (0.97) $ (2.70)
======= =======
NOTE 4: CREDIT FACILITY
On August 31, 2001, the Company entered into a $2 million dollar credit facility
with Heller Healthcare Finance, Inc. The facility provides for the Company to
borrow up to 85% of eligible accounts receivable (as defined) that are aged less
than 150 days, at the lender's prime rate (4-1/4% at February 28, 2003) plus 1%.
The facility expires on August 31, 2004, and requires the Company to meet
certain financial ratios and covenants. All assets of the Company collateralize
the new credit facility.
On December 30, 2002, the Credit Facility was amended to allow the Company to
borrow up to an additional $176,000 in excess of eligible accounts receivable,
under substantially the same terms as the basic Credit Facility. This extension,
which expires on December 31, 2003, decreases each month by $41,667.
NOTE 5: INCOME TAXES
In October 2002, Stephen Sternbach ("Sternbach"), CEO of the Company, and
Matthew Solof ("Solof"), former director of the Company, purchased all of the
remaining issued and outstanding Series B 7% convertible preferred stock from
the Shaar Fund Ltd. The Series B preferred stock is convertible into the common
stock of the Company.
In March 2003, Sternbach and Solof converted a portion of the Series B preferred
stock into 3,800,000 shares of the Company's common stock. The conversion of the
preferred shares by Sternbach and Solof resulted in them attaining more than a
majority of the outstanding common stock in the Company, and will result in a
change of control of the Company for Federal income tax purposes.
7
NOTE 5: INCOME TAXES (continued)
As a result of the change in control, the tax net operating loss carryforward of
approximately $6,900,000, that the Company has available to offset future
taxable income as of May 31, 2002, is subject to Internal Revenue Code Section
382, which will result in a significant limitation on the utilization of the net
operating loss. As such, Management believes that the realization of any tax
benefit from this available net operating loss is no longer likely to be
realized, and the Company has recorded an increase of $1,000,000 in its
valuation allowance for the quarter ended February 28, 2003 against its deferred
tax assets because of the uncertainty that sufficient taxable income will be
realized during the carryforward period to utilize the deferred tax asset.
ITEM 2. 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 attached consolidated financial statements and
notes thereto, and with the Company's audited financial statements and notes
thereto for the fiscal year ended May 31, 2002.
The Company is subject to significant external factors that could have a
significant impact on its business, including changes in Medicare reimbursement,
government fraud and abuse initiatives and other such factors that are beyond
the control of the Company. These factors, as well as future changes in
reimbursement and changes in interpretations of regulations, could cause future
results to differ materially from historical trends.
RESULTS OF OPERATIONS
QUARTER ENDED FEBRUARY 28, 2003 COMPARED TO QUARTER ENDED FEBRUARY 28, 2002
Net revenue for the quarter ended February 28, 2003 increased $399,928 or 17.5%
to $2,687,633 from $2,287,705 for the quarter ended February 28, 2002. This
increase is primarily attributable to the aggressive marketing efforts of the
Company in securing new contracts and, to a lesser extent, rate increases on
certain of the Company's existing contracts.
Gross profit margin decreased to 36.2% for the quarter ended February 28, 2003,
from 38.6% for the quarter ended February 28, 2002. The decrease in the gross
profit margin is primarily attributable to the disproportionate growth in
unskilled services delivered by the Company, which yields a lower gross profit
than skilled services. Gross profit margin increased to $972,328 from $884,139
for the respective periods.
Selling, general and administrative expenses ("SG&A") for the quarter ended
February 28, 2003 decreased $551,593 (39.9%) to $831,177, from $1,382,770 for
the quarter ended February 28, 2002. The decrease in SG&A is primarily
attributable to the Company's restructuring efforts, following the sale of the
New Jersey and New York operations. As a percentage of revenue, SG&A decreased
from 60.4% to 30.9% for the quarters ended February 28, 2002 and 2003,
respectively.
Income from operations increased $718,795 to $13,832 for the quarter ended
February 28, 2003, from a loss of $(704,963) for the quarter ended February 28,
2002. This positive change is the result of the aforementioned increases in
revenue and gross margin, and decrease in selling, general and administrative
expenses.
Interest expense decreased to $30,534 for the quarter ended February 28, 2003,
from $126,113 for the quarter ended February 28, 2002. This decrease is the
result of a decrease in the borrowing rate and, to a lesser extent, lower
outstanding borrowings.
Provision for income taxes was $1,000,000 for the quarter ended February 28,
2003, as compared to $0 for the quarter ended February 28, 2002. The provision
represents a reversal of a portion of the deferred tax asset, and was triggered
by the change in control, as discussed in Note 5 to the financial statements.
8
NINE MONTHS ENDED FEBRUARY 28, 2003 COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
2002
Net revenue for the nine months ended February 28, 2003 decreased $5,002,573 or
39.6% to $7,639,196 from $12,641,769 for the nine months ended February 28,
2002. This decrease is primarily attributable to the sale of the New York and
New Jersey operations of the Company.
Gross profit margin increased to 38.2% for the nine months ended February 28,
2003, from 34.0% for the nine months ended February 28, 2002. The increase in
the gross profit margin is attributable to the elimination of certain lower
profit margin contracts resulting from the sale of the New York and New Jersey
operations of the Company, offset, in part, by the disproportionate growth
during the third quarter of fiscal 2003 in lower margin, unskilled services.
SG&A for the nine months ended February 28, 2003 decreased $2,521,117 (48.2%) to
$2,704,536, from $5,225,653 for the nine months ended February 28, 2002. The
decrease in SG&A is primarily attributable to the sale of the New Jersey and New
York operations, and subsequent restructuring efforts.
Loss from operations for the nine months ended February 28, 2003 decreased
$1,480,753 to $(96,711), from $(1,577,464) for the nine months ended February
28, 2002. The decrease is primarily attributable to the aforementioned decreases
in volume (net revenue), and restructuring efforts, which resulted in a more
substantial decline in SG&A expenses.
Interest expense decreased to $93,194 for the nine months ended February 28,
2003, from $659,349 for the nine months ended February 28, 2002. This decrease
is the result of lower outstanding borrowings commensurate with the decrease in
net revenue and, to a lesser extent, a decrease in the borrowing rate.
Provision for income taxes was $1,000,000 for the nine months ended February 28,
2003, as compared to $0 for the nine months ended February 28, 2002. The
provision represents a reversal of a portion of the deferred tax asset, and was
triggered by the change in control, as discussed in Note 5 to the financial
statements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The nature of the Company's business requires weekly payments to its personnel
at the time they render services, while it receives payment for these services
over an extended period of time (60 to 120 days or longer), particularly when
the payor is an insurance company or medical institution. Accounts receivable
represents a substantial portion of current and total assets at February 28,
2003 and May 31, 2002.
On August 31, 2001, the Company entered into a $2 million dollar credit facility
with Heller Healthcare Finance, Inc., which provides for the Company to borrow
up to 85% of eligible accounts receivable (as defined in the loan agreement)
that are aged less than 150 days, at the lender's prime rate plus 1%. The
facility expires on August 31, 2004. On December 30, 2002, the Credit Facility
was amended to allow the Company to borrow up to an additional $176,000 in
excess of eligible accounts receivable, under substantially the same terms as
the basic Credit Facility. This extension, which expires on December 31, 2003,
decreases each month by $14,667.
During the second and third quarters of the current fiscal year, growth in
patient services substantially increased the Company's borrowing base under its
Credit Facility. In addition, the Company borrowed an additional $325,000 from
an officer and a shareholder, to pay its past due obligations, and secure
adequate cash flow until it is able to collect its accounts receivable generated
by the increase in patient service revenue.
On July 11, 2001, the Company entered into a Settlement Agreement with United
States Department of Justice and the Office of Inspector General of the
Department of Health and Human Services. In order to avoid the delay,
uncertainty, inconvenience, and the expense of protracted litigation of the
claims, both parties mutually agreed upon a settlement amount of $1,000,000
payable by the Company, in installments (as amended), with the first payment of
$250,000 made on November 8, 2001.
9
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES (continued)
As of February 28, 2003, cash and cash equivalents were $211,116, as compared to
$74,235 at May 31, 2002. The Company strives to maintain minimal cash balances,
in its continued efforts to keep its outstanding borrowings under its credit
facility to a minimum; however, a cash reserve was established to meet the
Company's obligation under the aforementioned Settlement Agreement. The final
payment of $119,843 was made on March 28, 2003, in advance of its due date of
April 5, 2003.
Other than the matters described above, the Company does not anticipate any
extraordinary material commitments for capital expenditures for the Company's
current fiscal year. The Company also believes it has sufficient financing
sources, and will have sufficient working capital to meet its obligations for
the next twelve months.
FORWARD LOOKING STATEMENTS
Certain statements in this report on Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are typically identified by their inclusion of phrases
such as "the Company anticipates", "the Company believes" and other phrases of
similar meaning. These forward-looking statements are based on the Company's
current expectations. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The potential risks and uncertainties which could
cause actual results to differ materially from the Company's expectations
include the impact of further changes in the Medicare reimbursement system,
including any changes to the current IPS and/or the ultimate implementation of a
prospective payment system; government regulation; health care reform; pricing
pressures from third-party payors, including managed care organizations;
retroactive Medicare audit adjustments; and changes in laws and interpretations
of laws or regulations relating to the health care industry. This discussion
should be read in conjunction with: (i) the attached consolidated financial
statements and notes thereto, (ii) with the Company's audited financial
statements and notes thereto for the fiscal year ended May 31, 2002, and (iii)
with the section entitled Forward Looking Statements appearing in the Company's
Form 10-K which is hereby incorporated by reference.
ITEM 4. CONTROLS AND PROCEDURES.
a.) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act)
as of a date (the Evaluation Date) within 90 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the Evaluation Date, our disclosure
controls and procedures were effective in timely alerting them to the material
information relating to us (or our consolidated subsidiaries) required to be
included in our periodic SEC filings.
b.) Changes in internal controls.
There were no significant changes made in our internal controls during the
period covered by this report, or to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
10
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
In the fiscal year ended May 31, 2002, we were undertaking a major restructuring
to downsize our overhead at the same time arranging for the sale of our New York
and New Jersey operations. The principal element of the overhead restructuring
that was going to happen, was a decision to consolidate and move the Company's
Resource Center (our back office operation), from our existing remote location
in Miramar, Florida to our corporate office in Huntington Station, New York.
This included the billing department of the Company. The Company anticipated
reductions in personnel and loss of continuity. In addition, we were reaching
timely filing / re-filing limits with some payors, some of which we would no
longer be doing continuing business with after the sale of the New York and New
Jersey operations. These factors necessitated a reevaluation of the Company's
allowance for doubtful accounts on its related receivables. Accordingly, a
provision of $4.7 million was made in the fourth quarter of fiscal 2001.
Gross accounts receivable at May 31, 2001 was approximately $14.7 million, prior
to the fourth quarter adjustment, as compared to approximately $1.8 million at
May 31, 2002. The additional provision of $4.7 million represented approximately
36% of the change in gross accounts receivable for these respective periods; the
balance of the reduction resulting primarily from collections during the period.
[See table below]
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
Additions
------------------------
Balance Charged to Charged to Balance
Beginning of Costs and Other End of
Description Period Expenses Accounts Deduction Period
- ---------------------------------------------------------------------------------------------------------------------
Year ended May 31, 2002:
Allowance deducted from asset account
Allowance for uncollectible accounts $ 5,402,000 (19,229) -- (a) (5,182,771) $ 200,000
Year ended May 31, 2001:
Allowance deducted from asset account
Allowance for uncollectible accounts $ 1,378,000 5,531,259 -- (a) (1,507,259) $5,402,000
Year ended May 31, 2000:
Allowance deducted from asset account
Allowance for uncollectible accounts $ 2,640,000 545,315 -- (a) (1,807,315) $1,378,000
(a) Represents actual write-offs
11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits:
99.1 Chief Executive Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K.
A Current Report on Form 8-K dated January 25, 2003 reporting Item 1.
Changes in Control of Registrant was filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STAR MULTI CARE SERVICES, INC.
April 21, 2003 By: /s/ Stephen Sternbach
- -------------- -------------------------------------
Date Chairman of the Board, President
and Chief Executive Officer
April 21, 2003 By: /s/ David M. Schoenberg
- -------------- -------------------------------------
Date Director of Finance and Chief
Financial Officer
12
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
PURSUANT TO REGULATION ss.240.15D-14 AS PROMULAGATED
BY THE SECURITIES AND EXCHANGE COMMISSION
In connection with the Quarterly Report of Star Multi Care Services, Inc. (the
"Company") on Form 10-Q for the period ended February 28, 2003, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Stephen Sternbach, Chairman of the Board, President and Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 pursuant to Regulation
ss.240.15d-14 as promulgated by the Securities and Exchange Commission, that:
(1) I have reviewed the Report being filed;
(2) Based on my knowledge, the Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by the Report;
(3) Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the Report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (as such term
is defined in paragraph (c) of this section) for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to them by others within those entities,
particularly during the period in which the periodic Reports are being
prepared;
(ii) Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
Report ("Evaluation Date"); and
(iii) Presented in the Report their conclusions about the effectiveness of
the disclosure controls and procedures based on their evaluation as of the
Evaluation Date;
(5) I and the other certifying officers have disclosed, based on their most
recent evaluation, to the issuer's auditors and the audit committee of the board
of directors (or persons fulfilling the equivalent function):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and Report financial data and have identified for the
issuer's auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in the
Report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ Stephen Sternbach
-------------------------------
Stephen Sternbach
Chairman of the Board, President and
Chief Executive Officer
13
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
PURSUANT TO REGULATION ss.240.15D-14 AS PROMULAGATED
BY THE SECURITIES AND EXCHANGE COMMISSION
In connection with the Quarterly Report of Star Multi Care Services, Inc. (the
"Company") on Form 10-Q for the period ended February 28, 2003, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
David Schoenberg, Director of Finance, Secretary and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 pursuant to Regulation
ss.240.15d-14 as promulgated by the Securities and Exchange Commission, that:
(1) I have reviewed the Report being filed;
(2) Based on my knowledge, the Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by the Report;
(3) Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the Report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (as such term
is defined in paragraph (c) of this section) for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the issuer, including its consolidated
subsidiaries, is made known to them by others within those entities,
particularly during the period in which the periodic Reports are being
prepared;
(ii) Evaluated the effectiveness of the issuer's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the
Report ("Evaluation Date"); and
(iii) Presented in the Report their conclusions about the effectiveness of
the disclosure controls and procedures based on their evaluation as of the
Evaluation Date;
(5) I and the other certifying officers have disclosed, based on their most
recent evaluation, to the issuer's auditors and the audit committee of the board
of directors (or persons fulfilling the equivalent function):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuer's ability to record,
process, summarize and Report financial data and have identified for the
issuer's auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuer's internal controls;
and
(6) The registrant's other certifying officers and I have indicated in the
Report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
By: /s/ David Schoenberg
-------------------------------
David Schoenberg
Director of Finance,
Secretary and Chief Financial Officer
14
INDEX OF EXHIBITS
99.1 Chief Executive Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
15