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UNITED STATES
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: March 31, 2005
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 No. 1-12451
NEW YORK HEALTH CARE, INC.
(Exact name of registrant as specified 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)
Registrant's telephone number, including area code: (212) 679-7778
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 requirements for the past 90 days. Yes _X_ No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 2b-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 the latest practicable date: 32,843,183 (as of May 12,
2005)
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
(a) Our unaudited financial statements for the first quarter (three months ended
March 31, 2005) are set forth below. See Item 2 below for Management's
Discussion and Analysis of Financial Condition and Results of Operations for our
first quarter.
2
NEW YORK HEALTH CARE , INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2005 2004
------------ ------------
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 5,907,652 $ 2,186,756
Due from lending institution 78,941 566,523
Accounts receivable, net of allowance for uncollectible
amounts of $495,000 and $460,000 respectively 8,543,951 8,656,311
Current portion of notes receivable 275,797 --
Unbilled services 79,265 65,627
Prepaid expenses and other current assets 550,281 466,625
------------ ------------
Total current assets 15,435,887 11,941,842
Property and equipment, net 117,386 87,006
Notes receivable, net of current portion 78,100 --
Goodwill, net 900,587 900,587
Other intangible assets, net 3,351,914 3,496,295
Other assets 78,105 77,465
------------ ------------
Total assets $ 19,961,979 $ 16,503,195
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued payroll $ 1,303,692 $ 1,328,127
Accounts payable and accrued expenses 7,257,038 7,326,115
Due to HRA 5,551,305 5,264,695
------------ ------------
Total current liabilities 14,112,035 13,918,937
------------ ------------
Commitment and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; 5,904 5,904
Class A Preferred, 590,375 authorized, issued and outstanding
Common stock, $.01 par value, 100,000,000 shares authorized;
32,843,183 shares issued and 32,839,138 outstanding as of March 31, 2005: 328,432 249,438
24,943,821 shares issued and 24,939,776 outstanding as of December 31, 2004
Additional paid-in capital 36,458,431 32,313,470
Accumulated deficit (30,933,350) (29,975,081)
Less: Treasury stock (4,045 common shares at cost) (9,473) (9,473)
------------ ------------
Total shareholders' equity 5,849,944 2,584,258
------------ ------------
Total liabilities and shareholders' equity $ 19,961,979 $ 16,503,195
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The Three Months Ended
March 31,
------------------------------
2005 2004
------------ ------------
Net patient service revenue $ 12,462,405 $ 11,506,458
------------ ------------
Expenses:
Professional care of patients 10,024,030 9,187,896
------------ ------------
General and administrative
(excluding noncash compensation) 2,986,120 2,949,425
Noncash compensation -- 3,690
------------ ------------
Total general and
administrative expenses 2,986,120 2,953,115
------------ ------------
Product development
(excluding noncash compensation) 193,411 427,584
Noncash compensation 26,559 (170,304)
------------ ------------
Total product development 219,970 257,280
------------ ------------
Bad debts expense 35,000 120,000
Depreciation and amortization 171,941 223,049
------------ ------------
Total operating expenses 13,437,061 12,741,340
------------ ------------
Loss from operations (974,656) (1,234,882)
------------ ------------
Non-operating income (expenses):
Interest income 35,630 12,307
Interest expense (2,081) (5,009)
------------ ------------
Non-operating income (expenses), net 33,549 7,298
------------ ------------
Loss before provision for income taxes (941,107) (1,227,584)
Provision for income taxes:
Current 17,162 --
------------ ------------
Net loss $ (958,269) $ (1,227,584)
============ ============
Basic and diluted loss per share $ (0.03) $ (0.05)
------------ ------------
Weighted and diluted average shares
outstanding 28,099,521 24,939,776
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
Common Stock Preferred Stock Treasury Stock
-------------------- ----------------- Additional ----------------- Total
Paid-In Accumulated Shareholders'
Shares Amount Shares Amount Capital Shares Amount Deficit Equity
---------- --------- -------- ------- ------------ ------- -------- ------------- ------------
Balance at January 1, 2005 24,943,821 $249,438 590,375 $ 5,904 $ 32,313,470 4,045 $ (9,473) $ (29,975,081) $ 2,584,258
Proceeds from issuance
of Common Stock
and Warrants on
February 24, 2005 7,899,362 78,994 4,118,402 4,197,396
Increase in compensation
expense due to a
revaluation of
options/warrants 26,559 26,559
Net loss (958,269) (958,269)
---------- --------- -------- ------- ------------ ------- -------- ------------- ------------
Balance at March 31, 2005 32,843,183 $ 328,432 590,375 $ 5,904 $ 36,458,431 4,045 $ (9,473) $ (30,933,350) $ 5,849,944
========== ========= ======== ======= ============ ======= ======== ============= ============
The accompanying notes are an integral part of
these consolidated financial statements.
5
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
March 31,
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss $ (958,269) $(1,227,584)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash compensation 26,559 (166,614)
Depreciation and amortization 171,941 223,049
Bad debts expense 35,000 120,000
Changes in operating assets and liabilities:
Increase in accounts receivable
and unbilled services (290,175) (452,032)
Increase in prepaid expenses and other current
assets (83,656) (132,119)
Decrease (increase) in due from lending institution 487,582 (127,923)
Increase in other assets (640) (9,812)
Decrease in accrued payroll (24,435) (541,816)
(Decrease) increase in accounts payable and
accrued expenses (69,077) 160,970
Increase in due to HRA 286,610 366,754
Decrease in due to related parties -- (250,000)
Decrease in income tax payable -- (24,394)
----------- -----------
Net cash used in operating activities (418,560) (2,061,521)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (43,687) (8,500)
Acquisition of intangible assets (14,253) (6,683)
----------- -----------
Net cash used in investing activities (57,940) (15,183)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants 4,197,396 --
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,720,896 (2,076,704)
Cash and cash equivalents at beginning of period 2,186,756 7,337,896
----------- -----------
Cash and cash equivalents at end of period $ 5,907,652 $ 5,261,192
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
6
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Consolidation:
New York Health Care, Inc. ("New York Health Care") was organized under the laws
of the State of New York in 1983. New York Health Care provides services of
registered nurses and paraprofessionals to patients throughout New York and New
Jersey. The BioBalance Corporation, ("BioBalance") a Delaware Corporation, was
formed in May 2001. BioBalance is a specialty pharmaceutical company focused on
the development of proprietary biotherapeutic agents for various
gastrointestinal diseases that are poorly addressed by current therapies.
BioBalance is pursuing accelerated prescription drug approval of its lead
product, PROBACTRIX(R), for the treatment and/or prevention of pouchitis with
the U.S. Food and Drug Administration ("FDA"). There can be no assurance that
BioBalance will be successful in gaining approval for this indication. The
consolidated entity, collectively referred to, unless the context otherwise
requires, as the "Company", "we", "our" or similar pronouns, includes New York
Health Care and its wholly-owned subsidiaries, BioBalance and NYHC Newco Paxxon,
Inc. D/B/A Helping Hands Healthcare ("Helping Hands"). All significant
inter-company balances and transactions have been eliminated.
The accompanying interim consolidated financial statements have been prepared by
the Company without audit, in accordance with the instructions for Form 10-Q
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") and therefore do not include all information and notes normally provided
in the annual financial statements and should be read in conjunction with the
audited financial statements and the notes thereto included in Form 10-K/A of
New York Health Care for the year ended December 31, 2004 as filed on April 28,
2005 with the SEC.
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (which consist of normal and recurring adjustments)
necessary for a fair presentation of the financial statements. The results of
operations for the three months ended March 31, 2005 are not necessarily
indicative of the results to be expected for the full year.
Recent Developments:
In connection with the consummation of the Offering (see Note 2), at the close
of business on February 24, 2005, at the request of the Placement Agent, (i) Mr.
Jerry Braun resigned as a director and as the Company's Chief Executive Officer
and President and (ii) Mr. Jacob Rosenberg resigned as a director and as the
Company's Vice President, Chief Operating Officer, Chief Financial Officer,
Chief Accounting Officer and Secretary. In connection with Braun and Rosenberg's
agreement with the Placement Agent to resign as officers and directors of the
Company, in order to secure the obligations of the Company and Helping Hands, to
(i) consummate the sale of all the assets relating to the Company's home
healthcare business (the "Asset Sale") to New York Health Care, LLC, a company
controlled by Messrs. Braun and Rosenberg (the "LLC"), pursuant to the terms of
the Purchase Agreement signed July 15, 2004 among the Company, Helping Hands and
the LLC ("Purchase Agreement") or (ii) to comply with any future payment
obligations of the Company to Braun and Rosenberg under their respective
employment agreements with the Company, the Company entered into an agreement
(the "Security Agreement"), on February 24, 2005, which granted Messrs. Braun
and Rosenberg a security interest in the assets of the Company's home healthcare
business being conducted in the states of New York and New Jersey and provided
for the deposit of up to $3.55 million in a cash collateral account
(collectively, the "Collateral"). Under terms of the Security Agreement, none of
BioBalance funds will be used as Collateral.
7
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Mr. Braun continues to be employed by the Company as the President of its home
healthcare division and Mr. Rosenberg continues to be employed by the Company as
the Vice President of the Company's home healthcare division. Other than their
ceasing to be officers of the Company, and the resulting changes in their duties
and responsibilities, their respective employment agreements with the Company
remain in effect. In addition, Messrs. Braun and Rosenberg have board observer
rights with respect to the Company's board of directors until such time as the
Asset Sale is consummated. Pursuant to the terms of their respective employment
agreements, as a result of their resignations from the Company's Board of
Directors, on February 24, 2005, each of Braun and Rosenberg received ten year
stock options ("Options") to purchase 500,000 shares of Common Stock at an
exercise price of $0.85 per share, pursuant to the Company's Performance
Incentive Plan.
As of the close of business on February 24, 2005, Mr. Dennis O'Donnell became
the Company's Chief Executive Officer and Secretary. Mr. O'Donnell also retained
his position as the Chief Executive Officer and a director of BioBalance and as
a director of the Company.
On March 23, 2005, the security interest that was granted pursuant to the
Security Agreement was terminated and Messrs. Braun and Rosenberg agreed that
the Company could enter into an agreement with a third party for the sale of the
New Jersey portion of the Company's home healthcare operations (the "NJ
Business") under specified conditions without being in breach of the Purchase
Agreement.
On April 11, 2005, the Company entered into an agreement to sell the NJ Business
to Accredited Health Services, Inc. ("Accredited Health"), a subsidiary of
National Home Health Care Corp., for $3,000,000. In addition to Messrs. Braun
and Rosenberg, the LLC also consented to the sale of the NJ Business to
Accredited Health and agreed that such sale would not result in a breach of the
Purchase Agreement. Funding of the purchase price in the amount of $3,000,000
was made on April 11, 2005 and a formal closing for the sale, which is subject
only to an orderly transition of the NJ Business to Accredited Health, will
occur by May 26, 2005. An aggregate of $150,000 of the purchase price was placed
in escrow to cover actual losses, if any, incurred by Accredited Health for
which the Company is required to indemnify Accredited Health pursuant to the
agreement. If no claims by Accredited Health for indemnification by the Company
are made, the escrowed funds will be released to the Company 90 days after the
formal closing of the transaction.
8
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Below is selected financial data for the New Jersey home healthcare business
(unaudited):
March 31,
-------------------
2005 2004
-------- --------
Current assets $574,442 $518,140
======== ========
Total assets $597,438 $554,962
======== ========
Total current liabilities $371,426 $391,904
======== ========
Quarter Ended Quarter Ended
March 31, March 31,
2005 2004
----------- -----------
Net patient service revenue $ 1,709,624 $ 1,580,575
=========== ===========
Professional care of patients $ 1,174,594 $ 1,057,456
=========== ===========
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 and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock Based Compensation:
The Company uses the intrinsic-value method of accounting for stock-based awards
granted to employees. No stock-based compensation cost is included in net loss,
as all options granted during periods presented had an exercise price equal to
the market value of the stock on the date of grant.
Recently Issued Accounting Pronouncements:
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," or SFAS No. 123R. SFAS No. 123R, which replaces SFAS No. 123 and
supersedes APB Opinion No. 25, requires that compensation cost relating to
share-based payment transactions be recognized in the financial statements,
based on the fair value of the equity or liability instruments issued. SFAS No.
123R is effective as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005 and applies to all awards granted,
modified, repurchased or cancelled after the effective date. We do not expect
the adoption of this standard to have a significant impact on our consolidated
results of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets-an amendment of APB Opinion No. 29," or SFAS No. 153. SFAS No. 153
eliminates the exception for non-monetary exchanges of similar productive assets
of APB Opinion No. 29 and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for non-monetary asset exchanges occurring in the fiscal periods
beginning after June 15, 2005. We do not expect the adoption of this standard to
have a significant impact on our consolidated results of operations or financial
position.
9
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - PRIVATE PLACEMENT:
On February 24, 2005, the Company consummated a private offering (the
"Offering") which resulted in its issuing an aggregate of 7,899,362 shares (the
"Shares") of the Company's common stock, par value $0.01 per share (the "Common
Stock"), and warrants to purchase 3,949,681 shares of Common Stock (the
"Warrants") to persons who qualify as "accredited investors" within the meaning
of rule 501 of Regulation D promulgated under the Securities Act of 1933 (the
"Act"). The aggregate purchase price for the Shares and Warrants was $4,897,600
and net proceeds received by the Company were $4,197,396. Each Warrant is
exercisable to purchase one share of the Company's Common Stock at an exercise
price of $0.78 per share during the five-year period commencing on February 24,
2005. In connection with the Offering, the Company paid to the placement agent
for the Offering (the "Placement Agent") commissions of $470,260 and an
additional $146,616 to cover non-accountable and certain other expenses of the
Placement Agent, other costs of $83,328 and the value of the Placement Agent
Warrants, described below. In addition, the Company issued to the Placement
Agent and its designees five-year warrants (the "Placement Agent Warrants") to
purchase an aggregate of 1,777,356 shares of Common Stock at $0.62 per share.
The Company based on the Black Scholes calculation has assigned a fair value to
the Placement Agent Warrants of $624,705. The Company allocated $2,679,518 and
$893,173 of net proceeds using the relative fair value method of allocation to
the Common Stock and Warrants, respectively. Under the terms of the Offering,
the Company has the right to call the Warrants that were issued in the Offering
upon thirty days notice, at a price of $0.01 per Warrant, provided the closing
price of the Common Stock on its principal trading market exceeds $2.00 per
share, subject to anti-dilution adjustments, for a period of 10 consecutive
trading days, ending within 30 days prior to the date on which the notice of
redemption is given and a registration statement covering the shares underlying
the Warrants has been declared and remains effective or the shares issuable upon
exercise of the Warrants are not otherwise subject to any restrictions for their
public sale.
The Company has agreed to file a registration statement with respect to the
Common Stock and Warrants issued in the Offering within 45 days after the
closing of the Offering (the"Required Due Date"). If the registration statement
is not filed by the Required Due Date (unless the failure to file resulted from
the financial statements of the Company for the year 2004 not being available),
or if the registration statement is not declared effective within 180 days after
the closing, then monthly cash delay payments equal to 1.5% of the aggregate
gross proceeds from the Offering are due to the holders of the Common Stock and
Warrants.
The net proceeds from the Offering are being used to support BioBalance's
operations including research and development, clinical trials and working
capital. In addition, a $1.7 million loan from the Company to BioBalance was
repaid from the proceeds of the Offering.
NOTE 3 - LOSS PER SHARE:
Basic loss per share excludes dilution and is computed by dividing net loss
available to common shareholders by the weighted average number of common shares
outstanding for the period.
Diluted earnings per share is computed by dividing income 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 its issuance. Due to
losses for the three months ended March 31, 2005 and 2004, potential common
stock attributable to options, warrants and preferred stock outstanding of
9,973,738 for the three months ended March 31, 2005 and 4,099,234 for the three
months ended March 31, 2004, were not included in the computation of diluted
earnings per share, because to do so would be antidilutive.
10
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - NOTES RECEIVABLE:
The Company entered into an agreement on February 3, 2005, with one of its
customers converting that customer's accounts receivable balance into a note
receivable. The note is payable in monthly installments of $19,525 until July
14, 2006. In addition, five additional monthly payments are being made
commencing February 14, 2005, aggregating to $41,497 at March 31, 2005. Interest
is paid monthly at 6% per annum on the remaining balance of the successive
monthly installments of $19,525 ($312,400 at March 31, 2005).
NOTE 5 - INTANGIBLE ASSETS:
The major classifications of intangible assets and their respective estimated
useful lives are as follows:
March 31, 2005
-------------------------------------------------------
Estimated
Gross Carrying Accumulated Net Carrying Useful Life
Amount Amortization Amount Years
-------------- ------------ ------------- ------------
Intellectual property $2,706,337 $ 964,498 $1,741,839 10
Patents/trademarks 1,127,158 306,333 820,825 10
Non-compete agreement 770,000 250,250 519,750 5
Patient list 100,000 45,000 55,000 5
Customer base 390,000 175,500 214,500 5
---------- ---------- ----------
$5,093,495 $1,741,581 $3,351,914
========== ========== ==========
December 31, 2004
-------------------------------------------------------
Estimated
Gross Carrying Accumulated Net Carrying Useful Life
Amount Amortization Amount Years
-------------- ------------ ------------- ------------
Intellectual property $2,706,337 $ 896,840 $1,809,497 10
Patents/trademarks 1,112,905 278,357 834,548 10
Non-compete agreement 770,000 211,750 558,250 5
Patient list 100,000 40,000 60,000 5
Customer base 390,000 156,000 234,000 5
---------- ---------- ----------
$5,079,242 $1,582,947 $3,496,295
========== ========== ==========
As of March 31, 2005, approximately $3.1 million of the intangible assets net of
accumulated amortization relate to BioBalance. BioBalance is a research and
development company and has had significant losses since inception. The Company
cannot assure that BioBalance will be able to generate revenues or profits from
operations of its business or that BioBalance will be able to generate or
sustain profitability in the future.
11
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at:
March 31, 2005 December 31, 2004
-------------- -----------------
Accounts payable $ 573,762 $ 622,730
Accrued expenses 1,974,229 2,150,896
Accrued employee benefits 4,709,047 4,552,489
---------- ----------
$7,257,038 $7,326,115
========== ==========
NOTE 7 - LINE OF CREDIT:
New York Health Care has a $4,000,000 line of credit with G.E. Capital Health
Care Financial Services that expires November 29, 2005. The availability of the
line of credit is based on a formula of eligible accounts receivable. The loan
agreement was amended in 2004 to allow New York Health Care to lend money to
BioBalance if there is no outstanding loan under this agreement. The agreement
has also been amended to allow New York Health Care to invest money in
BioBalance. As of March 31, 2005, approximately $4,000,000 was available to the
Company. Certain assets of the Company collateralize the line of credit. The
agreement contains various restrictive covenants, which among other things,
require that the Company maintain a minimum tangible net worth. Borrowings under
the agreement bear interest at prime plus 1 1/2% at March 31, 2005 (7.25%).
At March 31, 2005, there was an amount due from G.E. Capital Health Care
Financial Services of $78,941. This is due to a lockbox being used by the
Company; all collections are deposited with G.E. Capital Health Care Financial
Services and then transferred to the Company's bank account.
On April 11, 2005, the Company's loan agreement was modified to permit the sale
of the NJ Business to Accredited Health and to lift the lender's lien with
respect to the assets of the NJ Business. As a result of this modification, no
loans under the agreement may be requested or occur until such time as the
parties agree on the adjusted amount of the borrowing base. Such an amendment
will result in a decrease in the amount available for borrowing under the
facility.
NOTE 8 - STOCK OPTIONS/WARRANTS:
In accordance with SFAS No. 148, "Accounting for Stock Based Compensation -
Transition and Disclosure," the following table presents the effect on net loss
and net loss per share if compensation cost for the Company's stock plans had
been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation".
12
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The fair value of each option grant is estimated on the date of grant by use of
the Black-Scholes option pricing model:
For The Three Months Ended
March 31,
--------------------------
2005 2004
----------- -----------
Net loss, as reported $ (958,269) $(1,227,584)
Less stock-based compensation expense
determined under fair value method for
all employee stock options, net of tax effect (686,889) (601,230)
----------- -----------
Pro forma net loss $(1,645,158) $(1,828,814)
=========== ===========
Basic and diluted loss per share, as reported $ (0.03) $ (0.05)
Basic and diluted loss per share, pro forma $ (0.06) $ (0.07)
The options' assumptions used to estimate these values are as follows:
For The Three Months Ended
March 31,
--------------------------
2005 2004
-------- ------
Risk free interest rate 1.59% 1.72%
Expected volatility of common stock 88% 92%
Dividend yield 0% 0%
Expected option term 3-5 yrs. 3 yrs.
During the quarter ended March 31, 2005, the following options were issued to
employees in accordance with the Company's Performance Incentive Plan. Since the
options were given to employees at not less than fair value on the date of
grant, no compensation expense was recorded.
Grant Date Number of Options Exercise Price Expiration Term
- ----------------- ----------------- -------------- ---------------
February 24, 2005 1,000,000 $ 0.85 10 Years
The NASD implemented a marketplace rule on July 1, 2003 that requires a company
whose securities are listed on Nasdaq to obtain shareholder approval prior to
the issuance of options or warrants to certain categories of recipients
including among others, consultants or non-employee members of the Board of
Directors.
The Company committed to issue warrants to certain consultants subsequent to
July 1, 2003 at a time when it was subject to the NASD marketplace rule.
Therefore, these commitments of warrants will be re-valued at each balance sheet
date with the appropriate adjustment made to compensation expense. Once
shareholder approval is obtained, no further adjustment to compensation expense
will be recorded. For the three months ended March 31, 2005, the revaluation of
the warrants resulted in an increase in compensation of $26,559.
On February 24, 2005, in connection with the Offering the Company issued
3,949,681 Warrants to investors in the Private Placement and 1,777,356 Warrants
to the Placement Agent (see Note 2).
13
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On May 6, 2005, Dennis O'Donnell was issued 100,000 options and a cash bonus of
$90,000 pursuant to the terms of his employment agreement with the Company and
in consideration of his performance on behalf of the Company.
NOTE 9 - INCOME TAXES:
The temporary differences that give rise to deferred tax assets are impairment
of intangible assets for financial statement 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. Also included in the
deferred tax asset is a net operating loss carry-forward. At March 31, 2005 and
December 31, 2004, the Company has computed a deferred tax asset in the amount
of approximately $5,027,000 and $4,652,000, respectively. A full valuation
allowance has been recorded against the net deferred tax assets because, it is
not more likely than not, such assets will be recognized in the foreseeable
future. The valuation allowance increased by $375,000 during the three months
ended March 31, 2005.
NOTE 10 - SUPPLEMENTAL CASH FLOW DISCLOSURES:
For The Three Months Ended
March 31,
-------------------
2005 2004
-------- --------
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $ 2,081 $ 5,009
======== ========
Income taxes $ 17,162 $ 48,355
======== ========
Supplemental Schedule of noncash financing activity:
The Company entered into an agreement on
February 3, 2005 to convert an accounts receivable
balance to a note receivable with one of its customers $353,897 $ 0
======== ========
The Company issued Placement Agent Warrants
as part of the Private Placement Offering $624,705 $ 0
======== ========
NOTE 11 - SEGMENT REPORTING:
The Company has two reportable business segments: New York Health Care, a home
health care agency that provides a broad range of health care support services
to patients in their homes, and BioBalance, a company that is developing a
probiotic agent for the treatment of gastrointestinal disorders. BioBalance has
not generated any revenue as of March 31, 2005.
14
NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
New York Bio- Total
Health Care Balance Consolidated
----------- ------- ------------
Three Months Ended March 31, 2005
Revenue:
Net patient service revenue $ 12,462,405 $ -- $ 12,462,405
Sales -- -- --
------------ ------------ ------------
Total revenue $ 12,462,405 $ -- $ 12,462,405
============ ============ ============
Net income (loss) $ 74,489 $ (1,032,758) $ (958,269)
Total assets $ 15,245,646 $ 4,716,333 $ 19,961,979
Three Months Ended March 31, 2004
Net patient service revenue $ 11,506,458 $ -- $ 11,056,458
Sales $ -- $ -- $ --
------------ ------------ ------------
Total revenue $ 11,506,458 $ -- $ 11,506,458
============ ============ ============
Net income (loss) $ 43,047 $ (1,270,631) $ (1,227,584)
Total assets $ 13,921,844 $ 6,024,440 $ 19,946,284
15
Item 2: MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FORWARD-LOOKING STATEMENTS
Certain information contained in this report is forward-looking in nature. All
statements in this report, including those made by New York Health Care and its
subsidiaries, other than statements of historical fact, are forward-looking
statements. Examples of forward-looking statements include statements regarding
the Company's future financial condition, operating results, business and
regulatory strategies, projected costs, services, research and development,
competitive positions and plans and objectives of management for future
operations. These forward-looking statements are based on management's
estimates, projections and assumptions as of the date hereof and include the
assumptions that underlie such statements. Forward-looking statements may
contain words such as "may," "will," "should," "would," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential," "continue," or the
negative of these terms or other comparable terminology. Any expectations based
on these forward-looking statements are subject to risks and uncertainties and
other important factors, including those discussed below and those disclosed in
the Company's prior SEC filings. These and many other factors could affect the
Company's future financial operating results, and could cause actual results to
differ materially from expectations based on forward-looking statements made in
this report or elsewhere by the Company or on its behalf. The Company assumes no
obligation to update such statements.
Overview
The Company operates in two business segments; the home healthcare business,
which has been in operation for more than 15 years, and the specialty
pharmaceutical business of BioBalance, a wholly-owned subsidiary of the Company,
which commenced in 2001 and is still in its development stage.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires that we make estimates and judgments
that affect the amounts reported of assets, liabilities, revenues and expenses
and the related disclosure of contingent assets and liabilities. We base our
estimates on historical experience and on various other assumptions we believe
to be applicable and reasonable under the current circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
In addition, we are periodically faced with uncertainties, the outcomes of which
are not within our control and will not be known for prolonged periods of time.
16
We believe the following to be critical accounting policies that affect the most
significant estimates and judgments used in the preparation of our consolidated
financial statements:
Revenue Recognition
The Company recognizes patient service revenue on the date services are
rendered. Unbilled services represent amounts due for services rendered that had
not been billed at the end of each period because authorization had not been
received from the referral source.
Accounts Receivable
Accounts receivable of our home healthcare business consist of trade receivables
recorded at original invoice amounts, less an estimated allowance for
uncollectible accounts. We generally extend trade credit on a short-term basis.
Accordingly, our trade receivables do not bear interest, although we may apply a
finance charge to receivables that are past due. We periodically evaluate
accounts receivable for collectability, based on past credit history of
customers and the current financial condition of those customers. Changes in the
estimated collectability of accounts receivable are recorded in the results of
operations for the fiscal period in which the estimate is revised. Accounts
receivable that we judge to be uncollectible are offset against the allowance
for uncollectible accounts. Generally, we do not require account debtors to
secure the payment of accounts payable.
Goodwill and Other Intangible Assets
Prior to fiscal 2002, the Company amortized goodwill and intangible assets using
the straight-line method over periods of up to 10 years. SFAS No.142 requires
that goodwill and intangible assets having indefinite lives not be amortized,
but instead be tested for impairment at least annually. Intangible assets
determined to have definite lives are amortized over their remaining useful
lives.
Stock Based Compensation
The Company uses the intrinsic-value method of accounting for stock-based awards
granted to employees and the fair value method of accounting for warrants
granted to consultants for services. See Note 8 of Notes to Condensed
Consolidated Financial Statements (Unaudited) under Item 1 of this Report.
Long-Lived Assets
We evaluate long-lived assets, such as intangible assets, equipment and
leasehold improvements, for impairment when events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable through
estimated undiscounted cash flows from the use of these assets, when an
impairment exists, the related assets are written down to fair value.
17
Three Months Ended March 31, 2005 Compared With Three Months Ended March 31,
2004.
Results of Operations
Revenues for the three months ended March 31, 2005 increased to approximately
$12,462,000 from approximately $11,506,000 for the three months ended March 31,
2004. The increase in revenues is primarily the result of increased sales volume
to some of our existing clients.
Cost of professional care of patients for the three months ended March 31, 2005
increased to approximately $10,024,000 from approximately $9,188,000 for the
three months ended March 31, 2004. The increased costs primarily resulted from
the increased revenue.
General and administrative expenses ("G&A") for the three months ended March 31,
2005 increased to approximately $2,986,000 from approximately $2,953,000 for the
three months ended March 31, 2004. The increase in G&A expenses is primarily the
result of increased professional fees of approximately $200,000 which was offset
by a reduction in insurance expense and business consulting expense of
approximately $135,000.
There was also a decrease of approximately $42,000 in amortization expense as a
result of the partial write off of the NexGen technology by the BioBalance
division of approximately $1,740,000 at December 31, 2004.
The Company sustained a net loss of approximately $958,000 for the three months
ended March 31, 2005 as compared to a net loss of approximately $1,228,000 for
the three months ended March 31, 2004.
The net loss for the three months ended March 31, 2004 includes net income of
$43,000 from the Company's home healthcare operations which were offset by a net
loss of $1,271,000 from the operations of BioBalance segment.
The net loss of approximately $958,000 for the three months ended March 31, 2005
includes net income of $75,000 from the home healthcare operations segment and a
net loss of $1,033,000 from the operations of BioBalance which to date has not
generated any revenue.
Liquidity and Capital Resources
At March 31, 2005, the Company had no long-term debt. Future minimum rental
commitments for all non-cancelable lease obligations at March 31, 2005, are as
follows:
Payment due by period
--------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
- ----------------------- ---------- ---------- ---------- ---------- ----------
Long-term debt obligations $ -- $ -- $ -- $ -- $ --
Capital lease obligations -- -- -- -- --
Operating lease obligations* 1,019,000 275,000 584,000 128,000 32,000
Purchase obligations -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total $1,019,000 $ 275,000 $ 584,000 $ 128,000 $ 32,000
========== ========== ========== ========== ==========
18
* These leases also generally contain provisions allowing rental obligations to
be accelerated upon default in the payment of rent or the performance of other
lease obligations. These leases generally contain provisions for additional rent
based upon increases in real estate taxes and other cost escalations.
The Company has no off-balance sheet arrangements and has not entered into any
transactions involving unconsolidated, limited purpose entities or commodity
contracts.
The sources of liquidity and capital resources for the home healthcare segment
are internally generated funds, cash on hand and amounts available under a
$4,000,000 revolving credit facility. Currently, there is no outstanding
indebtedness under this facility.
Loans under this revolving credit loan facility, which expires on November 29,
2005, may be used only for working capital of the Company's home healthcare
business and other costs arising in the ordinary course of that business. The
Company's obligations to pay the principal of, and interest on, loans advanced
under this facility are secured by substantially all the assets of the Company's
home healthcare business, and not by any assets of BioBalance. Borrowings under
the facility are permitted to the extent of a borrowing base of up to 85% of
"qualified accounts receivable" of the Company's home healthcare business and
there being no events of default under the relevant loan documents subject to
the lender's right to reduce the borrowing base by applying a liquidity factor
percentage based upon a calculation relating to recent collection histories of
certain classes of qualified accounts receivable. Currently, application of the
liquidity factors formula results in 97% of qualified accounts receivable being
part of the borrowing base. At March 31, 2005, the amount available for
borrowing under this facility, based on the borrowing base formula was
$4,000,000. The loan agreement contains various restrictive covenants, which
among other things, require that the Company have a minimum tangible net worth
greater than $500,000. The Company has amended its loan agreement to allow it to
lend money to BioBalance if there is no outstanding loan under this agreement.
The loan agreement has also been amended to allow the Company to invest money in
BioBalance. The principal amount of loans borrowed under this facility bear
interest at a variable annual rate equal to the prime rate charged from time to
time by CitiBank, N.A. plus 1.5% (currently, 5.75% per annum) and the loan
agreement creating this facility provides for monthly payments of interest on
the outstanding loan balance on the basis of the actual number of days elapsed
over a year of 360 days.
The Company's loan agreement was modified on April 11, 2005, to permit the sale
of the NJ Business to Accredited Health and to lift the lender's lien with
respect to the assets of the NJ Business. As a result of this modification, no
loans under the agreement may be requested or occur until such time as the
parties agree on the adjusted amount of the borrowing base. Such an amendment
will result in a decrease in the borrowing amount available for borrowing under
the facility.
For the three months ended March 31, 2005, net cash used in operating activities
was approximately $419,000 as compared to cash used in operating activities of
approximately $2,062,000 during the three months ended March 31, 2004, a
decrease of $1,643,000. The $419,000 of cash used in operations for the three
months ended March 31, 2005 was principally due to an increase in accounts
receivable, a decrease in amounts due to HRA and a decrease in amounts due from
lending institution.
19
The net cash provided by financing activities of approximately $4,197,000 during
the three months ended March 31, 2005 represented the proceeds from the issuance
of common stock and warrants in the Offering.
Net cash used in investing activities for the three months ended March 31, 2005
totaled approximately $58,000 and consisted of the acquisition of property and
equipment and intangible assets.
As of March 31, 2005, approximately $8,623,000 (approximately 43.2%) of the
Company's total assets consisted of accounts receivable from clients who are
reimbursed by third-party payers, as compared to $7,009,000 (approximately
35.1%) as of March 31, 2004. The increase is the result of slower payments by
some clients exceeding their normal 120-day payment cycle.
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 three months ended March 31, 2005, the DSO of the
home care segment of the Company was 73, compared to 63 days for the three
months ended March 31, 2004. The increase is the result of slower payments by
our net 120-day clients. As of March 31, 2005 BioBalance had no accounts
receivable.
BioBalance Segment
As of March 31, 2005, BioBalance had cash on hand of $1,494,902, all of which
was available to fund operations. On April 11, 2005, the Company entered into an
agreement to sell certain assets of its home healthcare division in New Jersey
to Accredited Health and the proceeds from the sale in the amount of $2,850,000
were transferred to BioBalance. A total of $150,000 of the purchase price was
placed in escrow to cover actual losses, if any, incurred by Accredited Health
for which the Company is required to indemnify Accredited Health pursuant to the
agreement relating to the sale of the New Jersey Business to Accredited Health.
If no claims are made by the third party for indemnification by the Company the
escrowed funds will be released to the Company 90 days after the formal closing
of the transaction. BioBalance estimates that its capital requirements for the
remainder of 2005 will be approximately $2,700,000.
BioBalance has incurred product development costs excluding noncash compensation
of approximately $193,000 for the three months ended March 31, 2005. The
majority of these costs were for manufacturing clinical supplies, conducting
clinical studies to assess the safety and efficacy of PROBACTRIX and the costs
for preparing and filing the Investigational New Drug ("IND") application for
PROBACTRIX. During this period, BioBalance completed an extended safety study in
healthy human volunteers at ten times the normal dose in 35 subjects for a six
month period. The data from this study has been submitted for publication in a
peer-reviewed medical journal. BioBalance began an Irritable Bowel Syndrome
("IBS") medical food clinical trial at Ichilov Medical Center in Tel Aviv in
November 2003. An additional site (St. Michael's Hospital in Toronto) became
operational in the first quarter this year, but enrollment was significantly
delayed due to personnel issues. Additional sites in New York and Jerusalem were
added in the third quarter to compensate for the slow enrollment. Total
enrollment of 150-200 patients is anticipated for this trial, which will
continue throughout 2005.
20
BioBalance is pursuing accelerated regulatory approval of PROBACTRIX as a
prescription drug for the prevention and/or treatment of pouchitis and has filed
an IND application with the U.S. Food and Drug Administration ("FDA"). Pouchitis
is a non-specific inflammation of the "pouch" or ileal reservoir, which usually
occurs during the first two years after bowel reconstruction due to ulcerative
colitis. Symptoms of pouchitis include steadily increasing stool frequency that
may be accompanied by incontinence, bleeding, fever and/or a feeling of urgency.
There are currently no approved treatments for pouchitis. BioBalance also will
seek orphan drug designation for this indication. "Orphan drug" refers to a
product that treats a rare disease affecting less than a specified number of
persons (200,000 in the U.S.). The orphan drug regulatory strategy provides a
significantly shorter approval process and less costly clinical studies.
Additional clinical studies can subsequently be conducted to determine whether
there is support for broader usage. BioBalance submitted the IND to the FDA at
year-end 2004. On February 2, 2005, we were notified by the FDA that the IND was
on clinical hold and that comments would be sent to us within 30 days. Comments
on the IND were received on March 4, 2005. BioBalance has reviewed the comments
and is currently working to provide a response to all of the issues raised by
the FDA. We expect to have a response prepared and sent back to the FDA by July
2005. We feel that all of the issues raised by the FDA can be properly
addressed, but we can give no assurance that the FDA will agree with all of our
responses to the issues raised or give us clearance to move forward with the
clinical trials.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," or SFAS No. 123R. SFAS No. 123R, which replaces SFAS No. 123 and
supersedes APB Opinion No. 25, requires that compensation cost relating to
share-based payment transactions be recognized in the financial statements,
based on the fair value of the equity or liability instruments issued. SFAS No.
123R is effective as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005 and applies to all awards granted,
modified, repurchased or cancelled after the effective date. We do not expect
the adoption of this standard to have a significant impact on our consolidated
results of operations or financial position.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets-an amendment of APB Opinion No. 29," or SFAS No. 153. SFAS No. 153
eliminates the exception for non-monetary exchanges of similar productive assets
of APB Opinion No. 29 and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. A non-monetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for non-monetary asset exchanges occurring in the fiscal periods
beginning after June 15, 2005. We do not expect the adoption of this standard to
have a significant impact on our consolidated results of operations or financial
position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Generally, the fair market value of fixed rate debt will increase as interest
rates fall and decrease as interest rates rise. The Company had no interest rate
exposure on fixed rate debt or other market risk at March 31, 2005.
21
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company's management, with the participation of the
Company's Chief Executive Officer ("CEO") who is also the Company's Principal
Financial Officer ("CFO"), evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by this
report in reaching a reasonable level of assurance that the information required
to be disclosed by the Company in the reports that it files with the Securities
and Exchange Commission ("SEC") is recorded, processed, summarized and reported
within the time period specified in the SEC's rules and forms. Based upon that
evaluation, the CEO and CFO concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this report.
As required by Exchange Act Rule 13a-15(d), the Company's management, including
the Chief Executive Officer and Principal Financial Officer, conducted an
evaluation of the Company's internal control over financial reporting to
determine whether any changes occurred during the fiscal quarter ended March 31,
2005 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting. Based on that
evaluation, there were no changes during such quarter.
PART II.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
- ------- -----------
10.1 Amendment No. 4 dated January 13, 2005 to Loan and Security Agreement by
and among New York Health Care, Inc., NYHC Newco Paxxon, Inc. and GE HFS
Holdings, Inc. (incorporated by reference to the exhibit filed with the
Company's Current Report on Form 8-K for the event dated January 13, 2005)
10.2* Amendment dated February 7, 2005 to the Placement Agent agreement dated
November 19, 2004, between the Company and Sterling Financial Group, Inc.
10.3* Amendment dated February 18, 2005 to the Placement agent agreement dated
November 19, 2004, between the Company and Sterling Financial Group, Inc.
10.4* Agreement dated February 24, 2005, among the Company, Jerry Braun and
Jacob Rosenberg.
10.5* Agreement dated March 24, 2005, among the Company, Jerry Braun and Jacob
Rosenberg
10.6* Form of Investor Warrant issued by New York Health Care, Inc. in
connection with the Private Offering of its securities that closed on
February 24, 2005.
10.7* Form of Placement Agent Warrant issued by New York Health Care, Inc. in
connection with the Private Offering of its securities that closed on
February 24, 2005.
10.8* Summary of Executive Compensation.
31.1* Certification of the Principal Executive Officer/Principal Financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of the Principal Executive Officer/Principal Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
*Filed herewith.
22
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 thereunto duly authorized.
NEW YORK HEALTH CARE, INC.
May 20, 2005 By: /s/ Dennis M. O'Donnell
-------------------------------------
Dennis M. O'Donnell
Chief Executive Officer and Secretary
(Principal Executive, Financial
and Accounting Officer)
23
EXHIBIT INDEX
10.1 Amendment No. 4 dated January 13, 2005 to Loan and Security Agreement by
and among New York Health Care, Inc., NYHC Newco Paxxon, Inc. and GE HFS
Holdings, Inc. (incorporated by reference to the exhibit filed with the
Company's Current Report on Form 8-K for the event dated January 13, 2005)
10.2* Amendment dated February 7, 2005 to the Placement Agent agreement dated
November 19, 2004, between the Company and Sterling Financial Group, Inc.
10.3* Amendment dated February 18, 2005 to the Placement agent agreement dated
November 19, 2004, between the Company and Sterling Financial Group, Inc.
10.4* Agreement dated February 24, 2005, among the Company, Jerry Braun and
Jacob Rosenberg.
10.5* Agreement dated March 24, 2005, among the Company, Jerry Braun and Jacob
Rosenberg
10.6* Form of Investor Warrant issued by New York Health Care, Inc. in
connection with the Private Offering of its securities that closed on
February 24, 2005.
10.7* Form of Placement Agent Warrant issued by New York Health Care, Inc. in
connection with the Private Offering of its securities that closed on
February 24, 2005.
10.8* Summary of Executive Compensation
31.1* Certification of the Principal Executive Officer/Principal Financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1* Certification of the Principal Executive Officer/Principal Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
*Filed herewith
24