SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to _________
Commission file number: 000-32887
FAMILY HOME HEALTH SERVICES INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
NEVADA 02-0718322
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
801 WEST ANN ARBOR TRAIL
SUITE 200
PLYMOUTH, MICHIGAN
48170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(734) 414-9990
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.)
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at September 30, 2006
----- ---------------------------------
Common stock, $0.001 par value 26,851,273
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2006 and
December 31, 2005 1
Condensed Consolidated Statements of Operations for the three months
and nine months ended September 30, 2006 and 2005 2
Condensed Consolidated Statements of Changes in Stockholders' Equity
as of September 30, 2006 and December 31, 2005 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2006 and 2005 4
Notes to Interim Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 14
Item 3. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19-22
Item 6. Exhibits 22-23
(ii)
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
FAMILY HOME HEALTH SERVICES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2006 2005
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 94,955 $ 55,109
Accounts receivable, net 4,513,745 2,295,718
Advances to affiliates 168,599 115,599
Prepaid expenses and other current assets 264,135 135,844
Deferred income taxes 440,000 120,000
----------- ----------
TOTAL CURRENT ASSETS 5,481,434 2,722,270
Net property and equipment 878,308 782,256
Intangible assets, net 270,000 --
Other assets 336,671 170,742
Deferred financing costs 663,641 127,593
Goodwill 6,434,632 1,250,000
----------- ----------
TOTAL ASSETS $14,064,686 $5,052,861
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 444,192 $ 494,141
Line-of-credit borrowings 1,300,000 485,208
Current portion of capital lease obligations 95,142 45,907
Current portion of long-term debt 1,863,023 275,728
Accrued compensation 623,982 474,750
Accrued expenses 891,100 436,827
Deferred revenue 1,455,770 1,160,000
----------- ----------
TOTAL CURRENT LIABILITIES 6,673,209 3,372,561
Deferred income taxes 90,000 --
Capital lease obligations, net of current portion 317,931 168,489
Long-term debt, net of current portion 3,684,489 118,812
----------- ----------
TOTAL LIABILITIES 10,765,629 3,659,862
COMMITMENT (NOTE 6)
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; authorized 100,000,000 shares,
issued and outstanding 26,851,273 shares 26,851 26,617
Preferred stock, $.001 par value; authorized 10,000,000 shares,
issued and outstanding 4,812,000 shares 4,812 --
Additional paid-in capital 4,910,608 1,636,792
Accumulated deficit (1,643,214) (270,410)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,299,057 1,392,999
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,064,686 $5,052,861
=========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
STATEMENT OF OPERATIONS
FAMILY HOME HEALTH SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2006 2005 2006 2005
------------- ------------- ------------- -------------
REVENUE
Net Medicare patient service revenue $ 5,267,208 $ 3,678,178 $15,109,783 $11,012,730
Staffing service revenue 1,593,713 -- 3,451,113 --
Management fee income and other revenues -- 210,181 -- 492,144
----------- ----------- ----------- -----------
TOTAL REVENUE 6,860,921 3,888,359 18,560,896 11,504,874
Cost of services sold 3,039,979 1,491,982 8,287,991 4,136,444
----------- ----------- ----------- -----------
GROSS PROFIT 3,820,942 2,396,377 10,272,905 7,368,430
Selling, general and administrative expenses 3,929,245 2,571,377 10,526,285 6,771,826
----------- ----------- ----------- -----------
OPERATING (LOSS) INCOME (108,303) (175,000) (253,380) 596,604
Interest expense (280,719) (13,468) (489,424) (33,272)
----------- ----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES (BENEFIT) (389,022) (188,468) (742,804) 563,332
Income tax expense (benefit) (120,000) (57,000) (230,000) 203,000
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (269,022) (131,468) $ (512,804) $ 360,332
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE:
Weighted average shares outstanding 26,680,000 26,372,000 26,680,000 26,372,000
NET (LOSS) INCOME PER SHARE $ (0.01) $ (0.00) $ (0.05) $ 0.01
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
STOCKHOLDERS' EQUITY
FAMILY HOME HEALTH SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
---------------------------------------------------------------------------
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------- --------- ------ ---------- ------------ ----------
BALANCES, JANUARY 1, 2005 -- $ -- -- $ -- $ 200 $ 933,209 $ 933,409
Outstanding shares prior to recapitalization 2,200,000 2,200 (2,200) --
Issuance of common stock in exchange for
member interest 12,025,000 12,025 (12,025) --
Issuance of common stock in exchange for
member interest 12,025,000 12,025 (12,025) --
Contribution of retained earnings resulting from
recapitalization 933,209 (933,209) --
Issuance of common stock to reconcile ledger 1,400 1 (1) -- --
Issuance of common stock upon acquisition
of subsidiary 365,854 366 599,634 -- 600,000
Issuance of share-based payment in connection
with loan guarantee by officer 130,000 130,000
Net loss -- (270,410) (270,410)
---------- ------- --------- ------ ---------- ----------- ----------
BALANCES, DECEMBER 31, 2005 26,617,254 $26,617 -- $ -- $1,636,792 $ (270,410) $1,392,999
Issuance of share-based payment in connection
with acquisition indebtedness (Note 12) 240,000 240,000
Issuance of common stock (Note 13) 50,000 50 19,950 -- 20,000
Sale of preferred Series A shares, net (Note 13) 4,812,000 4,812 1,485,188 -- 1,490,000
Non-cash dividend related to beneficial conversion
feature associated with issuance of warrants 860,000 (860,000) --
Issuance of share-based payment in connection
with acquisition indebtedness (Note 12) 21,000 -- 21,000
Issuance of share-based payment in connection
with loan guarantee by officer (Note 14) 420,000 -- 420,000
Sale of common stock to officer and key
employees (Note 8) 184,019 184 185,678 -- 185,862
Issuance of share-based compensation to
non-employee directors (Note 8) 42,000 -- 42,000
Net loss (512,804) (512,804)
---------- ------- --------- ------ ---------- ----------- ----------
BALANCES, SEPTEMBER 30, 2006 26,851,273 $26,851 4,812,000 $4,812 $4,910,608 $(1,643,214) $3,299,057
========== ======= ========= ====== ========== =========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
CASH FLOWS
FAMILY HOME HEALTH SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2006 2005
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (512,804) $ 360,332
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities
Depreciation and amortization 182,177 41,861
Deferred income tax benefit (230,000) --
Share-based compensation 42,000
Changes in assets and liabilities that (used) provided cash,
Accounts receivable, net (884,162) 423,563
Prepaid expenses and other current assets (128,291) 40,266
Other assets and deferred financing costs 39,408 (115,143)
Accounts payable 187,145 (243,735)
Advances from third-party payors -- 183,984
Income taxes payable -- 203,000
Accrued expenses and other current liabilities 447,321 168,309
----------- ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (857,206) 1,062,437
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (228,414) (245,799)
Purchases of business assets, net of cash acquired (4,109,173) (215,966)
Advances to affiliates (53,000) (55,071)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (4,390,587) (516,836)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of preferred and common stock, net 1,675,862 --
Proceeds from long-term debt 3,750,000 --
Net line-of-credit borrowings 814,792 --
Repayments on long-term debt (888,347) (96,238)
Repayments on capital leases (64,668) (16,133)
Repayments on net advances from related-party -- (300,000)
----------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,287,639 (412,371)
----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 39,846 133,230
Cash and cash equivalents, beginning of period 55,109 209,088
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 94,955 $ 342,318
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ -- $ --
Interest $ 220,061 $ 33,272
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Family
Home Health Services Inc., a Nevada corporation (the "Company"), include the
accounts of the Company and its subsidiaries: Family Home Health Services, LLC,
a Delaware limited liability company ("FHHS Florida"), FHHS, LLC, a Michigan
limited liability company ("FHHS Michigan"), New PTRS, LLC, a Florida limited
liability company ("New PTRS") and RPRE Holdings, LLC, a Florida limited
liability company ("RPRE Holdings"), which are wholly-owned by the Company, and
Illinois Family Home Health Services, LLC, an Illinois limited liability company
("FHHS Illinois"), which is majority-owned by the Company. In this report, the
terms "the Company," "we," us" and "our" refer to Family Home Health Services
Inc., a Nevada corporation, and all of its subsidiaries that are included in its
consolidated financial statements. All material intercompany transactions and
accounts have been eliminated in consolidation. The condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 2006 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006. In general, operating income tends to be lower in the second
and third quarters of the fiscal year due to seasonality associated with
material numbers of the senior population residing in our South Florida markets
primarily during our first two quarters. In addition, we closed on a significant
business acquisition in April 2006 (see Note 11) which will impact expected
earnings for the remainder of the year. For further information, refer to the
consolidated financial statements and footnotes included in our recent annual
report on Form 10-KSB filed with the Securities and Exchange Commission
("Commission") on May 22, 2006 which contains audited financial statements for
the years ended December 31, 2005 and 2004.
NOTE 2 - RECAPITALIZATION
On January 17, 2005, the Company, which was then an inactive public shell
company known as Myocash, Inc., issued an aggregate of 20,000,000 shares of its
common stock to the members of FHHS Florida (10,000,000 to each) in exchange for
all of the members' outstanding membership interests in FHHS Florida. Also in
connection with the transaction, the Company's former sole stockholder
transferred an aggregate of 4,050,000 shares of common stock to the former
members of FHHS Florida (2,025,000 to each) for no additional consideration.
Concurrent with the above transactions, the former members of FHHS Florida
became officers of the Company (the former members of FHHS Florida were
appointed to the Board of Directors of the Company in November 2004). For
accounting purposes, the transaction has been treated as a recapitalization of
the Company with FHHS Florida as the acquirer (i.e., a reverse acquisition) and
accordingly, the operations presented in these consolidated financial statements
are those of FHHS Florida prior to the merger. The financial position of the
Company as of the date of the reverse merger was de minimis as the inactive
shell company had no business operations. Since the transaction is considered a
recapitalization and not a business combination for accounting purposes, no
proforma information is presented. If presented, however, the results would be
essentially the same as the operating results presented herein since the Company
had virtually no activity prior to the recapitalization.
NOTE 3 - USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions and select accounting
policies that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting year. Our condensed consolidated financial statements include
amounts that are based on management's best estimates and judgments. Actual
results could differ from those estimates.
The most critical estimates relate to revenue recognition, the collectibility of
accounts receivable and related reserves, obligations under workers
compensation, professional liability, Medicare settlement issues, and the
realization of deferred income tax assets and goodwill.
5
NOTE 4 - NET REVENUES
Under the Prospective Payment System ("PPS") for Medicare reimbursement, net
revenues are recorded based on a reimbursement rate which varies with the
severity of the patient's condition, their service needs, and certain other
factors. At the onset of each patient episode, total estimated Medicare billings
under PPS are recognized as receivables and deferred revenue. Deferred revenue
is subsequently amortized into revenue over the 60-day episodic period with
accounts receivable being adjusted by actual cash collections.
The process for recognizing revenue under the Medicare program is subject to
certain assumptions and judgments, including the appropriateness of the clinical
assessment of each patient at the time of certification and the level of
adjustments to the fixed reimbursement rate for patients who receive a limited
number of visits, have significant changes in condition, or are subject to
certain other factors during the episode. As a result of these variables, there
is at least a reasonable possibility that some patient revenue estimates will
fluctuate up or down in the near term. Those differences between estimated and
actual reimbursement amounts are deducted from or added to gross accounts
receivable as revenue adjustments in the period when the actual reimbursement is
first quantified.
NOTE 5 - RECLASSIFICATION
Certain amounts in the unaudited September 30, 2005 and the audited December 31,
2005 financial statements have been reclassified to conform to the
classifications used in the current period. These reclassifications relate
principally to the balance sheets at those dates and do not affect reported
results of operations for any period.
NOTE 6 - COMMITMENT
Lot Purchase and Development Agreement: In October 2005, we established a
wholly-owned subsidiary, RPRE Holdings, to purchase real estate and a new
building to support our growing operations in Southwest Florida. Specifically,
we entered into a lot purchase and development agreement to acquire a 5,000
square foot building including the building lot, site upgrades and fees. The
total purchase price is approximately $970,000 with 10% due at the signing of
the agreement, 50% due at closing and the remaining balance due upon applicable
construction benchmarks. We can cancel the agreement and forfeit any deposit
monies at any point prior to closing. As of September 30, 2006, a $97,000
deposit was included in "Other Assets" on the balance sheet. Financing for the
remaining purchase price has been negotiated with our lender under a non-binding
term sheet. Management has also explored other lease options for the property
which would not require the purchase of the building or the addition of
formalized debt. We anticipate a final decision on these alternatives by the end
of 2006.
NOTE 7 - LEGAL MATTERS
We are involved in litigation and regulatory investigations arising in the
normal course of conducting our business. Management estimates that these
matters will be resolved without material adverse effect on our future financial
position, results of operations or cash flows.
NOTE 8 - COMPENSATION AND STOCK PLAN
In August 2006, we adopted a non-employee director compensation plan and the
2006 Stock Plan. The plans provide for certain cash compensation for
non-employee directors and various forms of stock-based awards, including
options and restricted shares, to be awarded to such directors, key employees
and outside consultants.
We reserved 3,500,000 shares of common stock for issuance under the Stock Plan.
The exercise price is the fair market value of our common stock on the date of
grant. The maximum term of any option granted under the Stock Plan is ten years
from the date of grant.
Also, in August 2006, we granted a total of 148,515 options for the purchase of
common stock at an exercise price of $1.01 per share to recently appointed
non-employee directors. The options are subject to vesting over a two year
period and, as of September 30, 2006, had a non-cash impact on our operations of
$42,000.
We also sold an aggregate of 184,019 shares of restricted common stock at a
price of $1.01 to twelve employees including one officer.
6
NOTE 9 - SHARE BASED COMPENSATION ARRANGEMENTS
In April 2005, the Commission adopted a new rule that amended the compliance
dates for implementation of the Financial Accounting Standard Board's ("FASB")
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment ("SFAS No. 123R"). SFAS No. 123R requires that compensation cost
relating to share-based payment transactions be recognized in financial
statements and that this cost be measured based on the fair value of the equity
or liability instruments issued. SFAS No. 123R covers a wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans.
We adopted SFAS No. 123R on January 1, 2006 using the modified prospective
method for our financial statement presentation. As there were no options as of
December 31, 2005 that were unvested, the adoption of the new standard had no
initial effect on our results of operations. During 2006 and future periods, the
adoption of SFAS 123R will have a significant impact on our non-cash operating
results.
We currently use the Black-Scholes option pricing model to estimate the fair
value of stock-based compensation with the following weighted-average
assumptions for the three months ended September 30, 2006:
Expected term (in years) 7.5
Expected volatility 62.50%
Expected annual dividend yield --
Risk-free interest rate 4.83%
The assumptions above are based on multiple factors, including:
- Stock price determined using quoted market prices on the Pink Sheets
- Term is based on the applicable term in the option or warrant
agreement as we have no data to determine a historical average
- Volatility is determined by reference to companies of similar size and
maturity in our industry as we have insufficient history to estimate
our expected volatility
- Annual dividend rate is zero as we do not anticipate issuing dividends
during the term of our options or warrants
- Discount rate is determined from the Federal T-Bill rate in effect at
the date of issuance
Changes in shares outstanding from both options and warrants are summarized as
follows:
Weighted Avg.
Shares Exercise Price
--------- --------------
December 31, 2005 650,000 $0.20
Granted 917,265 $0.76
Exercised -- --
Terminated -- --
September 30, 2006 1,567,265 $0.53
Exercisable 1,517,760 $0.51
As of September 30, 2006, there was approximately $66,000 of unrecognized
compensation cost related to share-based compensation that is expected to be
recognized over the next 21 months.
NOTE 10 - COMPUTATIONS OF EARNINGS PER SHARE
Basic earnings or loss per share is based on the weighted average common shares
outstanding during the period. Diluted earnings or loss per share includes the
dilutive effect of additional potential common shares that could be issued upon
the exercise of common stock options.
As of September 30, 2005, there were no adjustments in the computation of
diluted earnings per common share since we had no common stock equivalents. As
of September 30, 2006, diluted loss per share and basic loss per
7
share are equivalent because the assumed exercise of outstanding common stock
options and warrants would be anti-dilutive.
NOTE 11 - BUSINESS ACQUISITION
On April 5, 2006, we entered into and closed on a Purchase and Sale Agreement
("Purchase Agreement") between New PTRS, Coastal Health Care Solutions, LLC, a
Florida limited liability company ("CHCS"), Professional Therapy &
Rehabilitation Services, LLC, a Florida limited liability company ("PTRS LLC"),
Professional Therapy & Rehab Services, Inc., a Florida corporation ("PTRS
Inc."), Nursing Solutions International, Inc., a Florida corporation ("NSI"),
Marc Domb, and David Kyle.
PTRS Inc. and NSI each owned 50% of the membership interests of CHCS and PTRS
LLC. Mr. Domb owned 100% of the issued and outstanding shares of capital stock
of PTRS Inc., and is an executive officer of PTRS Inc., PTRS LLC and CHCS. Mr.
Kyle owned 100% of the issued and outstanding shares of capital stock of NSI
Inc. and is an executive officer of NSI, PTRS LLC and CHCS.
Pursuant to the Purchase Agreement, we purchased substantially all of the assets
of CHCS, PTRS LLC and PTRS Inc. (collectively, "Sellers") through New PTRS. With
those assets, New PTRS, LLC operates a medical staffing and recruiting firm
in Southeast Florida.
Under the terms of the Purchase Agreement, we agreed to pay the Sellers an
aggregate purchase price of:
(a) $4,224,578, payable in cash at closing, which equals the difference between:
(i) 65% of the Sellers' combined earnings before interest, taxes, depreciation
and amortization ("EBITDA") for the period beginning July 1, 2004 and ending
June 30, 2005, multiplied by five ("Down Payment"); and (ii) one-half of the
purchase price adjustment ("Adjustment Amount");
(b) $2,291,319, payable in cash on the first anniversary of closing, which
represents 35% of the Sellers' combined EBITDA for the period beginning July 1,
2004 and ending June 30, 2005, multiplied by five. This amount represents a
balloon payment to Sellers' for their subordinated debt on the initial purchase
price plus an additional $183,305 in cash which represents interest at 8%.
(c) an amount (to be determined if positive), payable in cash on the first
anniversary of the closing, equal to the difference between (A) the Sellers'
combined EBITDA for the period beginning January 1, 2005 and ending December 31,
2005, multiplied by five, and (B) the Sellers' combined EBITDA for the period
beginning July 1, 2004 and ending June 30, 2005, multiplied by five.
(d) an amount (to be determined), payable on the first anniversary of the
closing in shares of our common stock as valued based on the
average daily closing price during the period beginning June 1, 2006 and ending
June 30, 2006, equal to the difference between: (i) the Seller's combined EBITDA
for the period beginning July 1, 2005 and ending at the closing, and the Buyer's
EBITDA for the period beginning at the closing and ending June 30, 2006;
multiplied by five; and (ii) the Sellers' combined EBITDA for the period
beginning January 1, 2005 and ending December 31, 2005, multiplied by five.
(e) an amount (to be determined), payable on the second anniversary of the
closing in shares of our common stock as valued based on the average daily
closing price during the period beginning June 1, 2007 and ending June 30, 2007,
equal to the difference between: (i) the Buyer's EBITDA for the period beginning
July 1, 2006 and ending June 30, 2007, multiplied by five; and (ii) the sum of
the cash and the value of the shares of common stock transferred to Sellers
pursuant to paragraphs (a) through (c) above.
The total number of shares of common stock to be issued to the Sellers shall not
exceed one million shares.
In connection with the Purchase Agreement, Messrs. Ruark and Pilkington,
directors, executive officers and principal stockholders of our Company, entered
into an agreement with Sellers pursuant to which Messrs. Ruark and Pilkington
will assign and deliver to Sellers, for no further consideration, any additional
shares of common stock to which Sellers would be entitled, but for the one
million share limitation contained in the Purchase Agreement, based upon the
earnings of Sellers' businesses for the periods specified in paragraphs (c) and
(d) above.
8
PTRS Inc., NSI, and Messrs. Domb and Kyle joined the Purchase Agreement to make
the representations, warranties, covenants and indemnifications set forth in the
Purchase Agreement. Also, Messrs. Domb and Kyle agreed to be employed by and not
to compete with the Company for a period of five years.
The following table summarizes the estimated fair values of the underlying
tangible and intangible assets acquired and the liabilities assumed at the date
of acquisition.
Assets acquired (rounded to the nearest thousand):
Cash $ 335,000
Accounts receivable $1,040,000
Intangible assets 300,000
Goodwill 5,185,000
----------
Total assets $6,860,000
Liabilities assumed and accrued (205,000)
----------
Net assets acquired $6,655,000
==========
The following supplemental unaudited pro forma information presents the combined
operating results of the Company and New PTRS as if the acquisition had occurred
at the beginning of the periods presented. The pro forma information is based on
the historical financial statements of the Company and New PTRS. Amounts are not
necessarily indicative of the results that may have been obtained had the
combinations been in effect at the beginning of the periods presented or that
may be achieved in the future.
Six Months Ended June 30, 2006 2005
- ------------------------- ----------- -----------
Pro forma net revenues $13,390,000 $10,555,000
Pro forma net (loss) income $ (134,000) $ 1,022,000
Basic earnings per share:
Pro forma net (loss) income $ (0.01) $ 0.04
Weighted average shares outstanding 27,642,149 26,250,000
NOTE 12 - AMENDED LOAN AGREEMENT
On April 5, 2006, we entered into an Amended and Restated Loan Agreement
("Amended Loan Agreement") with Comerica Bank as our lender. The Amended Loan
Agreement replaced the Loan Agreement with Master Revolving Note and Security
Agreement dated November 10, 2005. In addition to the $1,300,000 revolving line
of credit previously extended by our lender, the Amended Loan Agreement provides
for a term loan of up to $3,750,000 to finance a portion of the consideration to
be paid under the Purchase Agreement outlined in Note 11.
The term loan is evidenced by a term note dated April 5, 2006 in the principal
amount of $3,750,000. The principal of the term note is payable in equal
installments of $125,000 per month plus interest for the first twelve months and
$187,500 per month plus interest in year two. All outstanding principal and
accrued but unpaid interest is due and payable on April 5, 2008 (unless sooner
accelerated pursuant to the Amended Loan Agreement). The outstanding principal
balance of the master revolving note and the term note shall bear interest at a
rate equal to the greater of (a) the prime rate or (b) the overnight rate plus
1%; plus or minus 0.50% in the case of advances under the line of credit, or
1.50% in the case of the term loan.
As a fee for the term loan, we delivered to our lender on April 5, 2006 a
warrant for the purchase of 250,000 shares of common stock at a strike price of
$1.20 per share, exercisable for five years; and agreed to pay on July 5, 2006 a
commitment fee of $28,125, and deliver a warrant for the purchase of 50,000
shares of common stock at a strike price of $1.20 per share, exercisable for
five years. Pursuant to the anti-dilution provisions of the warrant issued on
April 5, 2006, that warrant was subsequently adjusted in connection with the
equity funding agreement described in Note 11 below to cover 294,117 shares of
common stock at a strike price of $1.02 per share.
9
The line of credit and term loan are collateralized by a security interest in
substantially all of our assets under a Security Agreement dated April 5, 2006,
and certain property of Mr. Ruark pursuant to Aircraft Security Agreements and
Continuing Collateral Mortgages, each dated April 5, 2006. The line of credit
and term loan are also secured by the corporate guarantees of New PTRS, FHHS
Florida, FHHS Michigan, and FHHS Illinois, and the personal guarantees of
Messrs. Ruark and Pilkington.
The Amended Loan Agreement contains customary affirmative covenants for this
type of financing arrangement including maintenance of books and records, notice
of adverse events, maintenance of insurance, payment of taxes, and no payments
on any subordinated indebtedness. There are also negative covenants against the
issuance of shares of our capital stock, borrowing money, acting as a guarantor,
subordinating any obligations, creating liens, transferring assets outside the
ordinary course of business, making certain organizational changes and extending
credit other than trade credit.
We also agreed to comply with the following financial covenants: (a) maintain a
tangible net worth of not less than ($4,856,000) from March 31, 2006 until
December 30, 2006, ($1,850,000) from December 31, 2006 until December 30, 2007,
and $2,282,000 from December 31, 2007 and at all times thereafter; and (b)
maintain a fixed-charge coverage ratio of not less than 1.25 to 1.00. The
Amended Loan Agreement provides for customary events of default, including
failure to pay principal, interest or fees when due, breach of covenants,
termination of any guarantees of the indebtedness, commencement of certain
insolvency or receivership events, adverse changes in our business, our
management or our majority ownership. Upon the occurrence of an event of
default, all outstanding obligations may be accelerated and declared immediately
due and payable.
On July 5, 2006, in satisfaction of the terms of the Amended Loan Agreement
dated April 5, 2006, we became obligated to issue to our lender a warrant for
the purchase of 50,000 shares of common stock at a strike price of $1.20 per
share, exercisable until July 5, 2011. We issued this warrant to our lender on
July 18, 2006. The fair value of the warrant, which was calculated at $21,000
(see Note 9), has been included in deferred financing cost and is being
amortized as additional interest over the term of the debt instrument.
On September 27, 2006, we entered into an Amendment to the Amended Loan
Agreement dated April 5, 2006 and Amendment to Master Revolving Note
(collectively, the "Amendment") with Comerica Bank. The Amendment increased the
Company's maximum line of credit amount to $1,800,000. The Amendment also
included a requirement that, upon the earlier of (a) the receipt of additional
equity from Barron Partners, LP ("Barron") or (b) December 31, 2006, the Company
shall make a mandatory prepayment so that the outstanding principal balance of
the Company's term loan is less than $1,500,000. As a condition to the
effectiveness of the Amendment, we paid our lender an amendment fee of $5,000.
As of September 30, 2006, we were in violation of both the tangible net worth
and the fixed debt coverage ratio covenants. Those covenants were both waived by
our Lender.
NOTE 13 - EQUITY FUNDING AGREEMENT
On May 24, 2006, we entered into and closed a funding agreement with Barron.
Pursuant to a Preferred Stock Purchase Agreement that was dated effective May
18, 2006, which set forth the terms of the funding, we issued 4,375,000 shares
of restricted Series A Preferred Stock to Barron at $0.40 per share for gross
proceeds of $1,750,000. The Series A Preferred Stock is convertible, subject to
certain limitations, at the option of the holder at any time, into an equivalent
number of shares of our common stock on a share-for-share basis, and is subject
to adjustment or automatic conversion in the event of certain corporate
transactions. This Series A Preferred Stock also has preferential liquidation
privileges at $0.40 per share.
We also issued to Barron 4,000,000 A Warrants exercisable at $0.60 per share,
1,750,000 B Warrants exercisable at $0.75 per share, and 5,750,000 C Warrants
exercisable at $2.80 per share. The warrants are exercisable immediately and
expire on May 24, 2011. At any time that the average closing sale price of our
common stock is equal to or in excess of $1.02 for the A Warrants, $1.30 for the
B Warrants and $4.76 for the C Warrants, for a period of at least 17 out of 20
consecutive trading days, or in the case of the C Warrants the Company acquires
another company in the home health care industry at a multiple not to exceed 5.5
times the acquired company's trailing EBITDA, and in each case there is an
effective registration statement covering the shares underlying the warrants, we
have the right, upon twenty days written notice to the warrant holders, to call
the warrant for cancellation at the exercise price in
10
whole or in part under our agreements with Barron. If we fail to meet certain
per share income targets for 2006, we will decrease the conversion value of the
Series A Preferred Stock and the exercise price of the Warrants to a maximum
decrease of 40% if we are below the targets and a maximum of 70% if we have no
income or if we incur a net loss. The Preferred Stock Purchase Agreement also
prevents any executive officer or director of our company from selling any
shares for a period of eighteen months from the closing date.
Concurrently with the entry into and closing upon the Preferred Stock Purchase
Agreement on May 24, 2006, we entered into a Registration Rights Agreement with
Barron pursuant to which we agreed to register the common shares issuable upon
conversion of the outstanding shares of the Series A Preferred Stock and the
common shares issuable upon exercise of the warrants held by Barron.
Under our agreements with Barron we also agreed to take the following actions
when indicated:
-- Twenty days after filing a Schedule 14C with the Commission, to amend
our Articles of Incorporation to increase our authorized capitalization
to 100,000, 000 shares of common stock, par value $0.001 per share and
10,000,000 shares of preferred stock, par value $.001 per share.
-- To file a Certificate of Designations of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock.
-- Immediately upon the filing of the amended Articles of Incorporation and
Certificate of Designations and in any event within 35 days following
the closing date, to issue the share certificates for the Series A
Preferred Stock.
-- Within 45 days after closing, to file a registration statement covering
the resale of such registrable securities as determined by Barron.
-- Within 60 days after the closing date, to apply for listing on higher
exchange or trading market.
-- Within 90 days of closing date, to cause the appointment of the majority
of the board of directors to be qualified independent directors.
-- Within 90 days of closing date, to cause the appointment of a majority
of outside directors to the audit and compensation committees of the
board of directors.
The Preferred Stock Purchase Agreement, the Registration Rights Agreement and
the Warrants all contain liquidated damages provisions requiring us to issue
additional shares or pay cash to Barron if we breach our covenants.
The maximum potential funding pursuant to our agreements with Barron, including
the purchase of the Series A Preferred Stock and assuming the exercise of all of
the warrants, of which there is no assurance, is approximately $22,000,000. At
closing, we paid a $50,000 due diligence fee to Barron and agreed to issue the
following consideration to the following listed financial advisers for services
rendered by them to us in connection with this transaction: Westminster
Securities Corporation ("Westminster"), which acted as placement agent for this
transaction, $87,500 plus a non-accountable expense allowance of $52,500,
437,000 shares of Series A Preferred Stock, 400,000 A Warrants exercisable at
$0.60 per share, 175,000 B Warrants exercisable at $0.75 per share, and 575,000
C Warrants exercisable at $2.80 per share, issuable to Westminster or its
designees, including Park Financial Group, Inc.
Also in connection with the above transaction, on May 24, 2006, we entered into
a Placement Agent Agreement with Westminster dated effective January 25, 2006,
pursuant to which Westminster would act as the exclusive placement agent for the
Company on a best efforts basis with respect to the offering of securities to
Barron. For acting as Placement Agent, Westminster or its designees received the
consideration consisting of cash and securities as described above. We also
agreed to register the common shares underlying the warrants and the Series A
Preferred Stock issued to Westminster. Further, on May 9, 2006, we issued 50,000
shares of our common stock as a retainer pursuant to the terms of our engagement
letter dated effective January 25, 2006 with Westminster.
11
We are accounting for the Series A Preferred Stock and warrants issued in
connection with the Barron financing transaction as equity in accordance with
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" and
EITF 00-19, "Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in a Company's Own Stock" based on our conclusion that all
applicable requirements for equity treatment were met, including that there is a
limit on the number of shares issuable under the agreements, and such limit,
when considered with all issued and outstanding equity and convertible
instruments, options and warrants does not exceed our authorized shares; there
are specific provisions to prohibit net-cash settlement of the instruments; and
the potential liquidated damages under the Registration Rights Agreement are
limited to a fixed amount.
NOTE 14 - RELATED PARTY STOCK OPTIONS
On July 6, 2006, our Board of Directors authorized the issuance to Mr. Ruark of
options to purchase 468,750 shares of our common stock at an exercise price of
$0.40 per share. The options were issued in exchange for his personal guarantee
of our $3,750,000 term loan with Comerica Bank. The Board determined the amount
of consideration based on a formula of 10% of the amount of the loan, an amount
Mr. Ruark offered to discount by 50% for total consideration of $187,500.
The options are immediately exercisable and expire on July 6, 2016. The fair
value of the options, which was calculated at $420,000 (see Note 9), has been
included in deferred financing costs and is being amortized as additional
interest over the term of the debt instrument.
NOTE 15 - CAPITAL STOCK
On July 5, 2006, we amended and restated our Articles of Incorporation to
increase the number of common shares authorized from 50,000,000 to 100,000,000
shares. We also increased the number of preferred shares from 5,000,000 to
10,000,000, all of which is Series A Convertible Preferred Stock with certain
rights and preferences which include, but are not limited to, no dividends or
voting rights and conversion rights under certain circumstances into common
stock on a one-to-one basis.
NOTE 16 - SUBSEQUENT EVENTS
RELATED PARTY STOCK OPTIONS
On October 1, 2006, pursuant to the terms of our non-employee director
compensation plan (Note 8), we issued options to our non-employee directors for
the purchase of 14,000 shares of common stock at a strike price of $1.25 per
share, exercisable until October 1, 2016. As of September 30, 2006, the fair
value of those options totaled $12,000 and is included in accrued expenses on
the balance sheet.
NOTE 17 - NEW ACCOUNTING STANDARDS
In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
in Income Taxes ("FIN No. 48"), an interpretation of SFAS No. 109, Accounting
for Income Taxes. FIN No. 48 seeks to reduce the significant diversity in the
practice associated with financial statement recognition and measurement in
accounting for income taxes and prescribes a recognition threshold and
measurement attribute for disclosure of tax provisions taken or expected to be
taken on an income tax return. This interpretation will be effective for our
financial reporting as of July 1, 2007. As of September 30, 2006, we have not
completed our evaluation of the impact on our financial statements of the
adoption of FIN No. 48.
In September 2006, the Securities and Exchange Commission ("Commission") issued
Staff Accounting Bulletin No. 108 ("SAB No. 108") on quantifying financial
statement misstatements. In summary, SAB No. 108 was issued to address the
diversity in practice in quantifying financial statement misstatements and the
potential under current practice for build up of improper amounts on the
statement of financial position. SAB No. 108 states that both a balance sheet
approach and an income statement approach should be used when quantifying and
evaluating the materiality of a misstatement, and contains guidance on
correcting errors under this dual approach. SAB No. 108 is effective for the
annual financial statements covering our year ending December 31, 2006. As of
September 30, 2006, we have not completed our evaluation of the impact on our
financial statements of the adoption of SAB No. 108.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
No. 157"), to eliminate the diversity in practice that exists due to the
different definitions of fair value and the limited guidance for applying those
definitions. SFAS No. 157 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. SFAS No. 157 is
12
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. We do not
expect the adoption of SFAS No. 157 will have a significant impact on our
results of operations, financial position or cash flows.
NOTE 18 - SEGMENT INFORMATION
We currently have two reportable segments, Medicare Home Health Care and Medical
Staffing. Reportable segments have been identified based upon how management has
organized the business by services industry and the criteria in SFAS 131,
Disclosures about Segments of and Enterprise and Related Information.
Our Medicare Home Health Care segment provides home health care services to
individual patients through approximately 20 branch locations in Florida,
Michigan and Illinois. We offer all six disciplines reimbursable under Medicare,
including: skilled nursing, physical therapy, occupational therapy, speech
therapy, medical social work and home health aides. Medicare Home Health Care
revenues are generated on a per episode basis and are recognized evenly over the
term of the episode. Approximately 99% of the Medicare Home Health Care
segment's revenues are generated from the Medicare program with the remaining 1%
is from private insurance or individual payors.
Our Medical Staffing segment provides both skilled and unskilled professionals
to various medical businesses throughout southeast and central Florida. This
segment staffs both nurses and therapists on assignments ranging from one day in
length to over one year. Medical Staffing revenues are billed typically on an
hourly or per visit basis to commercial customers who are primarily facility
based or agency based. Therapy services and nursing services account for
approximately 60% and 40% of our revenues, respectively. We currently operate
out of three branch locations.
Summary financial data for each segment is as follows for the nine months, ended
September 30, 2006:
Medicare Staffing Elimination Total
----------- ---------- ----------- -----------
Net revenues $15,110,000 $3,660,000 ($210,000) $18,561,000
Cost of services 5,760,000 2,737,000 (210,000) 8,288,000
----------- ---------- ----------- -----------
Gross profit 9,350,000 923,000 10,273,000
Operating expenses 7,503,000 970,000 8,473,000
----------- ---------- -----------
Gross operating income (loss) 1,847,000 (47,000) 1,800,000
Unallocated corporate expenses =========== =========== 2,053,000
Net operating loss (253,000)
===========
Total assets $10,013,000 $6,603,000 ($2,551,000) $14,065,000
=========== ========== =========== ===========
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SAFE HARBOR AND FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended
("Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended ("Exchange Act"). Any statements about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and may be forward-looking. These statements are often, but not always, made
through the use of words or phrases such as "anticipate," "estimate," "plans,"
"projects," "continuing," "ongoing," "expects," "management believes," "we
believe," "we intend" and similar words or phrases. Accordingly, these
statements involve estimates, assumptions and uncertainties, which could cause
actual results to differ materially from those expressed in them.
Because the factors discussed in this quarterly report could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements made by us or on behalf of our Company, you should
not place undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update any forward-looking statement or statements to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events. New factors emerge from
time to time, and it is not possible for us to predict which will arise. In
addition, we cannot assess the impact of each factor on our business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
BUSINESS OVERVIEW
The Company was incorporated in Nevada in 2000 under the name Myocash, Inc. as a
special purpose acquisition entity that had no operations or business activity.
On January 17, 2005, we closed on a reverse merger with FHHS Florida. That
entity was engaged in providing home health care services since September 2003
and was owned by our largest stockholders, Messrs. Ruark and Pilkington.
Following the reverse merger, we changed our corporate name to its current name.
We are primarily an inactive holding company with our operations being conducted
through our four principal subsidiaries. Those subsidiaries operate in two
distinct business segments, Medicare Home Health and Medical Staffing, with each
segment representing approximately 80% and 20% of our gross revenue,
respectively.
There are four broad categories of home health care services: (1) home health
skilled services including nursing, physical therapy, occupational therapy,
speech therapy, and medical social work, (2) infusion therapy, (3) respiratory
therapy, and (4) home medical equipment. We are a leading provider of home
health skilled services in Florida, Michigan and Illinois. We offer all six
disciplines reimbursable under Medicare, thereby providing comprehensive care
and "one-stop" shopping convenience for our customer base. This is a fundamental
strategy designed to maximize referrals from third parties such as physicians
who will benefit from the convenience of having a single source for services
rather than coordinating multiple service providers. The services we offer on a
24 hour per day, 365 day per year basis include:
Skilled nursing
Physical therapy
Occupational therapy
Speech therapy
Medical social work
Home health aids
Our medical staffing segment started with a $6.5 million asset acquisition that
was completed in April 2006. Within that segment, we provide both skilled and
unskilled professionals to various medical businesses throughout three locations
in southeast and central Florida. Our business model includes staffing both
nurses and therapists on assignments ranging from one day in length to over one
year. Staffing revenues are typically billed on an hourly or per visit basis to
customers who are primarily facility based or agency based. Therapy services and
nursing services account for approximately 60% and 40% of our staffing revenues,
respectively. In additional to providing the opportunity for diversified
revenues and increased profitability, the staffing segment also provides
opportunities to staff our own growing Medicare Home Health operations.
14
During the second quarter of 2006, our capitalization was changed significantly,
as described throughout this report, by the issuance of equity capital and
long-term debt. That series of transactions also included the issuance of
various stock options and warrants which required the recognition of significant
non-cash compensation and interest charges.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2006 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2005.
REVENUE: For the three months ended September 30, 2006, revenues increased
$2,973,000 to $6,861,000, a 76% increase over the same period in 2005. The
increase was mainly attributable to the acquisition of our staffing operations
in April 2006. That new segment accounted for nearly $1,594,000 of the increase.
The remaining increase was driven by our expansion into six new home health
markets in Michigan and Illinois during the second and third quarters of 2006.
GROSS PROFIT: As expected, gross profit margin decreased to 56% for the three
months ended September 30, 2006 from 62% for the three months ended September
30, 2005 due to the addition of lower margin volume from our staffing division.
Our consolidated margin for the quarter was blended between 25% margins in our
staffing segment and 67% margins in our Medicare Home Health segment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: For the three months ended
September 30, 2006, selling, general and administrative expenses increased
approximately $1,358,000 to $3,929,000 over the same period in 2005. This 53%
increase included over $500,000 in administrative costs from our staffing
segment. Other factors include increases in salary and benefits paid to business
development and clinical management staff in our new home health markets. Those
personnel were hired to procure and process the growing patient census at each
of our new branches. We continue to spend significant resources for corporate
level compliance costs which are directly attributable to our public filing
requirements. Those costs are in addition to corporate personnel who have been
hired to support our growing operations.
OPERATING INCOME: Operating losses were reduced by $67,000, or 38% to a loss of
$108,000 for the three months ended September 30, 2006 from a loss of $175,000
for the three months ended September 30, 2005. Essentially, the contribution
margin from our increase in revenue was absorbed by our increase in
administrative and overhead costs.
OTHER INCOME (EXPENSE): Interest expense increased by $267,000 during the
comparative periods as we financed our staffing acquisition through
approximately $6.5 million in term debt and as we utilized our revolving credit
facility. Our 2005 balance sheet had nominal debt. As shown in the statement of
cash flows, much of this interest represents non-cash charges related to newly
issued common stock options and warrants associated principally with our changes
in capitalization during 2006.
INCOME TAXES: The provision for income taxes for the three months ended
September 30, 2006 resulted in a benefit of $120,000 as compared to $57,000 for
the third quarter 2005. The provision for both periods was based on pre-tax
results at statutory rates of 34% with only minimal impact from non-deductible
expenses.
NET LOSS: Net losses increased $138,000 to $270,000 in the three months ended
September 30, 2006 from a net loss of $131,000 during the comparable three
month period of 2005.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2006 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2005.
REVENUE: For the nine months ended September 30, 2006, revenues increased
$7,056,000 to $18,561,000, a 61% increase over the same period in 2005. The
increase was mainly attributable to two acquisitions: our Michigan home health
agency in July 2005 and our staffing operations in April 2006 which accounted
for $1,600,000 and $3,450,000 of the increase, respectively. Our expansion into
five new home heath markets in Florida during the second and third quarters of
2005 also contributed over $2,000,000 in new revenue during 2006 as those
markets matured from their initial opening in 2005.
15
GROSS PROFIT: As expected, gross profit margin decreased to 55% for the nine
months ended September 30, 2006 from 64% for the nine months ended September 30,
2005. The most significant reason for this decrease was the introduction of our
staffing segment which has budgeted margins of 30%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: For the nine months ended
September 30, 2006, selling, general and administrative expenses increased
approximately $3,754,000 to $10,526,000 over the same period in 2005. This 55%
increase was directly attributable to over $900,000 in administrative costs from
our staffing segment. Other factors include increases in salary and benefits
paid to business development and clinical management staff in our home health
segment. Those personnel were hired to procure and process the growing patient
census at each of our branches. We continue to spend significant resources for
corporate level compliance costs which are directly attributable to our public
filing requirements. Those costs are in addition to corporate personnel who have
been hired to support our growing operations.
OPERATING INCOME: As a result of the foregoing factors, income from operations
decreased $850,000, or 142% to a loss of $253,000 for the nine months ended
September 30, 2006 from operating income of $597,000 for the nine months ended
September 30, 2005. Specifically, many of the new markets that were opened in
2005 continued to be a drain on our operations. Those markets yielded operating
losses of approximately $650,000. This amount is in addition to start up losses
sustained in some of our new Midwest branches that totaled over $115,000.
Management restructured many of those specific branches during the third quarter
of 2006 in an effort to minimize short-term losses. While some improvement was
shown, the goal for all of our branch locations is to to return to profitability
by the end of the fourth quarter of 2006.
OTHER INCOME (EXPENSE): Interest expense increased dramatically during the
comparative periods as we financed our staffing acquisition through term debt
and as we utilized our revolving credit facility. Our 2005 balance sheet had
nominal debt while our current estimated monthly charge is over $90,000.
INCOME TAXES: The provision for income taxes for the nine months ended September
30, 2006 resulted in a benefit of $230,000 as compared to $203,000 in expense
for the first three quarters of 2005. The provision for both periods was based
on pre-tax results and certain deferred tax items valued at statutory rates of
34% with only minimal impact from non-deductible expenses.
NET INCOME (LOSS): Net income decreased $873,000 to a loss of $513,000 in the
nine months ended September 30, 2006 from net profit of $360,000 during the
first nine months of 2005.
INFLATION
The rate of inflation had no material effect on operations for either the three
months or nine months ended September 30, 2006 or 2005.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were approximately $95,000 and $55,000, respectively,
as of September 30, 2006 and December 31, 2005. At September 30, 2006, we had
negative working capital of $1,192,000 that was nearly double the deficit level
at December 31, 2005. This decrease in working capital was directly attributable
to the current portion of long term acquisition indebtedness used in financing
our April 2006 staffing business acquisition.
We used approximately $860,000 in cash in our operations during the nine months
ended September 30, 2006, a marked contrast to the $1,060,000 in cash that was
generated from operations for the same period in 2005. The 2006 operating
deficiency resulted primarily from a $830,000 increase in our net receivable
position with Medicare. Conversely, operating cash from the first three quarters
of 2005 was a direct result of $360,000 in net income and the decrease in our
net receivable position with Medicare totaling over $600,000.
Cash outflows from investing activities totaled over $4,390,000 and $517,000,
respectively, for the nine months ended September 30, 2006 and 2005. Investing
activity in both periods included similar equipment purchases and advances to
affiliates, but the 2006 period included approximately $4.1 million in net asset
purchases from the staffing business acquisition completed in April. Both
investing activity and financing activity were net of approximately $2.3 million
in non-cash asset purchases from the same transaction.
16
Cash provided by financing activities totaled $5,287,000 for the nine months
ended September 30, 2006 and consisted of three components: $1,675,000 in net
proceeds from the issuance of preferred and common stock, $2,862,000 in net
proceeds from term debt less repayments, and an increase of $815,000 in
short-term borrowings on our credit facility. Net cash used in financing
activities totaled $412,000 for the same six month period in 2005, consisting of
$300,000 in repayments on related party advances and approximately $100,000 in
repayment on debt.
Our working capital needs consist primarily of support for operations such as
salaries and normal vendor payments. The nature of our business requires
bi-weekly payments to health care personnel at the time patient services are
rendered. We typically receive payments for these services within a range of 90
days with respect to Medicare programs. Our operations are not capital intensive
with the exception of expenditures for software and computer equipment. We
intend to fund our short-term liquidity needs through a combination of current
cash balances,, improved earnings, and increased cash flows from operations. As
we did in September 2006 when we increased our credit facility to $1.8 million,
we expect to fund our growing operations through increased credit facilities.
Our long-term needs are highly dependent on our acquisition strategy. We cannot
readily predict the timing, size, and success of our acquisition efforts and the
associated capital commitments. If we do not have sufficient cash resources, our
growth could be limited unless we obtain additional equity or debt financing and
no assurance can exist as to the availability of such financing. At some future
point we may elect to issue additional equity securities in conjunction with
raising capital or completing an acquisition.
CRITICAL ACCOUNTING POLICIES
We have identified the following accounting policies that require significant
judgment. We believe our judgments relating to revenue recognition and the
collectibility of accounts receivable are appropriate. See Note 4 in the Notes
to Interim Condensed Consolidated Financial Statements for further discussion
and interpretation.
SEASONALITY
Our business normally experiences some seasonality in its operations. In
general, operating income tends to be lower in the second and third quarters due
to the seasonality associated with the senior population residing in our South
Florida markets. For further information, refer to the financial statements and
footnotes included in our annual report on Form 10-KSB filed with the Commission
on May 22, 2006 which contains audited financial statements for the years ended
December 31, 2005 and 2004.
OFF-BALANCE SHEET ARRANGEMENTS
As of September 30, 2006 and 2005, we had not entered into any material
off-balance sheet arrangements.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, the
Company's management, with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) as of September 30, 2006. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of
September 30, 2006, because of the material weaknesses and inadequacies
described below and in prior filings which have not been fully remediated, our
disclosure controls and procedures were not effective to ensure that information
required to be disclosed by us pursuant to the Exchange Act was recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and regulations. However, that review concluded that there
were no new problems with, or changes to, our internal controls and procedures
during the third quarter of 2006 that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.
As of December 31, 2005, management concluded that our financial software and
internal processes were inadequate to ensure that our revenue was recorded,
calculated, summarized and reported within the time periods specified in the
Exchange Act. In addition, management's assessment concluded that, as of
December 31, 2005, due to staffing and personnel issues, our internal controls
were not effective to ensure that information required to be disclosed by us
pursuant to the Exchange Act was recorded, processed, summarized and reported
within the time
17
periods specified in the Commission's rules and regulations. We had insufficient
staffing and existing personnel involved in our disclosure controls and
procedures and financial reporting processes lacked sufficient training with
respect to the requirements of the Exchange Act and the rules and regulations
promulgated thereunder.
During 2005, management implemented several measures to address these
deficiencies. We purchased new software programs and implemented new systems for
processing billings and collections. Those systems were fully operational as of
January 1, 2006. We also expanded our financial staff by hiring a corporate
controller and other accounting personnel. As a result of these corrective
actions, management believes that it at least partially remediated the
deficiencies that were identified in its review of disclosure controls and
procedures, and rectified some of the processing and reporting delays caused by
these deficiencies.
During 2006, we have taken additional steps to address remaining deficiencies.
We have engaged a consultant to coordinate the preparation of outstanding audits
of the financial statements required by Rule 3-05 of Regulation S-X to be filed
by amendment of our Current Reports on Form 8-K filed with the Commission on
July 8, 2005 and April 11, 2006 (File No. 000-32887). We have continued to train
our personnel involved in our disclosure controls and procedures process and
responsible for financial reporting, and to improve our internal communications
in order to facilitate timely Exchange Act reporting. We intend to continue to
pursue this process of remediation, and to evaluate and implement measures to
continue to improve our disclosure controls and procedures.
18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
ISSUANCE OF WARRANT TO LENDER
On July 5, 2006, in satisfaction of the terms of the Amended Loan Agreement
dated April 5, 2006, we became obligated to issue to our lender a warrant for
the purchase of 50,000 shares of common stock at an exercise price of $1.20 per
share, exercisable until July 5, 2011. We issued this warrant to our lender on
July 18, 2006 in reliance upon the exemption from registration for non-public
offerings under Section 4(2) of the Securities Act.
RELATED PARTY TRANSACTIONS
On July 6, 2006, our Board of Directors authorized the issuance to Mr. Ruark of
options to purchase 468,750 shares of our common stock at an exercise price of
$0.40 per share. The options were issued in exchange for his personal guarantee
of our $3,750,000 term loan with Comerica Bank. The Board determined the amount
of consideration based on a formula of 10% of the amount of the loan, an amount
Mr. Ruark offered to discount by 50% for the total consideration of $187,500.
The options are immediately exercisable and expire on July 6, 2016.
In August 2006, we sold an aggregate of 184,019 shares of restricted common
stock at a price of $1.01 to twelve employees including one officer. Those
shares were issued in reliance upon the exemption from registration for
non-public offerings under Section 4(2) of the Securities Act.
On October 1, 2006, pursuant to the terms of our non-employee director
compensation plan, we issued to each of our non-employee directors options to
purchase 14,000 shares of our common stock at an exercise price of $1.25 per
share. The options are exercisable immediately and expire on October 1, 2016.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
AMENDMENT AND RESTATEMENT TO ARTICLES OF INCORPORATION
On July 5, 2006, we amended and restated our Articles of Incorporation to
increase the number of shares of common stock that we are authorized to issue
from 50,000,000 to 100,000,000 shares. We also increased the number of shares of
preferred stock that we are authorized to issue from 5,000,000 to 10,000,000 all
of which is Series A Convertible Preferred Stock with certain rights and
preferences, including no dividend or voting rights and conversion rights for
common stock on a one-to-one basis under certain circumstances. The foregoing is
a summary of certain material terms and conditions of the Amended and Restated
Articles of Incorporation and the Certificate of Designations of Preference,
Right and Limitations of Series A Convertible Preferred Stock. Accordingly, the
foregoing is qualified in its entirety by reference to the full text of those
documents, copies of which are attached hereto as Exhibit 3.1 and 4.1,
respectively, and are incorporated herein by reference.
RESIGNATION OF DIRECTOR AND COMPANY OFFICER
Effective as of August 8, 2006, Vicki L. Welty resigned as our Secretary and as
a member of our Board of Directors. Ms. Welty resigned in connection with the
overall plan of the Board of Directors to reconstitute the Board with a majority
independent Board.
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APPOINTMENT OF SECRETARY
On August 8, 2006, the Board of Directors elected James Mitchell to replace Ms.
Welty as our Secretary effective immediately. Mr. Mitchell is also our Chief
Financial Officer and Treasurer.
EXPANSION OF SIZE OF BOARD OF DIRECTORS/FILLING OF VACANCIES/ELECTION OF
CHAIRMAN
On August 8, 2006, pursuant to authority vested in the Board of Directors by
Article 10 of our Bylaws, the Board of Directors adopted a resolution to
increase from three to five the number of directors that shall constitute the
whole Board of Directors. In addition, the Board of Directors resolved to fill
two of the three vacancies on the Board of Directors caused by the increase in
the size of the Board of Directors and elected Stuart M. Robbins and David
Russell, Jr. to serve as members of the Board of Directors. Furthermore, Mr.
Robbins was elected by the newly-constituted Board of Directors to serve as
Chair of the Board of Directors. Subsequently on August 18, 2006, by unanimous
written consent, the Board of Directors resolved to fill the remaining vacancy
on the Board of Directors and elected Steven M. Looney to serve as a member of
the Board of Directors.
The following is biographical information about Messrs. Robbins, Russell and
Looney:
Stuart M. Robbins, age 63, has served as Chair and a member of the Board of
Directors since August 2006. Mr. Robbins spent 33 years in the investment
banking industry prior to his retirement in 2000. From 1994 to 2000, Mr. Robbins
served as Managing Director of Global Equities and as a member of the Board of
Directors for Donaldson, Lufkin & Jenrette. From 1987 to 1994, he was Managing
Director and Director of Research for DLJ. While at DLJ, he was also Chair of
DLJ International (Equities), Chair of Autranet and a member of the firm's
Executive Committee. Since 2000, Mr. Robbins has participated in miscellaneous
business, consulting and charitable activities. Among them, he served as Chair
of the Board of Directors of SoundView Technology Group, an independent research
provider specializing in technology research, from 2002 to 2004, leading up to
its merger with Charles Schwab. He also served as a director of Archipelago
Holdings, a leading electronic securities exchange, from its initial public
offering through its merger with the New York Stock Exchange. Before 1987, Mr.
Robbins was a research analyst and retail industry specialist and was designated
an Institutional Investor All Star analyst for 10 consecutive years. He received
his Bachelor of Arts degree in History from West Virginia University.
David Russell, Jr., age 64, has served as a member of our Board of Directors
since August 2006. Since 1991, he has served as the Managing Director of Cove
Hill Advisory Services, Inc., which provides financial services consulting to
small businesses. He served as a principal of Jeffries & Co. from 1989 to 1991,
and of Donaldson, Lufkin & Jenrette from 1985 to 1989, as managing partner of
Russell & Co. from 1981 to 1985, and as a partner of Cowen & Co. from 1974 to
1981. Mr. Russell received a Bachelor of Arts degree in History in 1963 from the
State University of New York at Binghamton, completed his masters program in
Political Science in 1967 at the State University of New York at Binghamton, and
received a Masters of Business Administration in Finance from New York
University in 1971.
Steven M. Looney, age 57, has served as a member of our Board of Directors since
August 2006. Since February 2005, he has served as the Managing Director of
Peale Davies & Company Inc., a mergers and acquisitions and strategic advisory
boutique. From 2000 to January 2005, he was the Chief Financial Officer of
Pinkerton Computer Consultants, Inc., an information technology firm, and from
1992 through 1999, he as the Chief Financial Officer of WH Industries Inc., a
precision metal parts manufacturing company. Mr. Looney has served as a director
of Sun Healthcare Group, Inc., an operator of skilled nursing facilities and
related healthcare businesses, since 2004, of WH Industries, Inc. since 1992 and
of APW Ltd., a global manufacturer of enclosures, racks, kiosks and related
products serving telecommunications equipment, computer and related industries,
since 2005. From 1990 to 1997, he served as a director of Computers at Work Ltd,
a hand-held computer consulting firm. Mr. Looney received a Bachelor of Arts
degree in Accounting and a Juris Doctor degree, each from the University of
Washington, and is licensed in the State of Illinois as a certified public
accountant.
In September 2005, Mr. Russell entered into a consulting agreement with us under
which he provided financial and business consulting services to us for a monthly
payment of $8,000 through December 2005 and $6,000 beginning January 2006. That
agreement was terminated in August 2006 by mutual agreement. Mr. Russell is an
employee of Cove Hill Advisory Services, Inc. which provided certain
broker-dealer services to us in connection with the funding agreement with
Barron and which received $35,000 in consideration for such services.
20
CREATION OF STANDING COMMITTEES OF THE BOARD OF DIRECTORS AND COMMITTEE
ASSIGNMENTS
On August 8, 2006, pursuant to authority vested in the Board of Directors by
Article 15.1 of our Bylaws, the Board of Directors established Audit,
Compensation and Nominating and Governance Committees. Messrs. Robbins and
Russell were appointed as members of the Audit Committee and the Compensation
Committee, and Messrs. Robbins, Russell, Ruark and Pilkington were appointed as
members of the Nominating and Governance Committee. Mr. Robbins was appointed
the Chair of the Audit Committee and the Nominating and Governance Committee and
Mr. Russell was appointed the Chair of the Compensation Committee. The Chair of
each committee was directed and authorized to prepare their respective committee
charters for presentation to the entire Board of Directors. Subsequently on
August 18, 2006, by unanimous written consent, the Board of Directors appointed
Mr. Looney as a member of the Audit, Compensation and Nominating and Governance
Committees. Mr. Robbins was replaced by Mr. Looney as the Chair of the Audit
Committee.
APPROVAL OF NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
On August 8, 2006, the Board of Directors approved and adopted a compensation
plan for the non-employee directors of the newly-constituted Board of Directors
following its review of various matrices and other industry data related to
board compensation and consultation with board compensation specialists. The
compensation plan provides that non-employee directors shall receive: (a)
$30,000 ($50,000 for the non-employee chair of the Board of Directors) annually,
paid in quarterly increments following each fiscal quarter of service as a
director; (b) initial grants of stock options to purchase our common stock, the
number of which shall be determined by dividing $50,000 by the fair market value
of our common stock as of the close of trading on the date of issuance, and
which shall vest over a two year period - one-third immediately, one-third at
the end of the first year of service as a director, and the last one-third at
the end of the second year of service as a director; (c) annual grants of stock
options to purchase our common stock granted quarterly following the fiscal
quarter of service, the number of which shall be determined by dividing $20,000
($30,000 for the non-employee chair of the Board of Directors) by the fair
market value of our common stock as of the close of business on the last day of
the fiscal quarter, and which shall vest immediately; and (d) reimbursement of
reasonable travel expenses and costs related to participation on the Board of
Directors to be determined and paid according to our documented policies. In
addition to the compensation listed above, the non-employee directors, other
than the chair of the entire Board of Directors, who serve as the chair of a
committee of the Board of Directors, shall receive $10,000 annually, paid in
quarterly increments following each fiscal quarter of service as a director. The
non-employee directors will not receive compensation for attendance at meetings
of the Board of Directors. Pursuant to the compensation plan, on August 8, 2006
and August 18, 2006, respectively, the Board of Directors authorized the grant
of options to purchase 49,505 shares at an exercise price of $1.01 to each of
Messrs. Robbins, Russell and Looney.
The Board of Directors also directed and authorized the newly-formed
Compensation Committee to review the non-employee director compensation plan and
the 2006 Stock Plan, and make recommendations related thereto to the entire
Board of Directors on an annual basis.
APPROVAL OF 2006 STOCK PLAN
On August 8, 2006, subject to stockholder approval, the Board of Directors
approved and adopted a Stock Plan under which employees, non-employee directors
and consultants providing services to the Company shall be eligible for the
direct award of restricted shares of our common stock and/or the grant of
nonstatutory options and/or incentive options (intended to qualify under Section
422 of the Internal Revenue Code of 1986, as amended) to purchase shares of our
common stock. We reserved 3,500,000 shares of our common stock for issuance
under our Stock Plan. In any 12 month period, we may not grant options covering
more than 500,000 shares of common stock nor more than 500,000 shares of
restricted stock to the same participant. The exercise price shall be the fair
market value of our common stock on the date of grant. The maximum term for an
option granted under the Stock Plan is 10 years from the date of grant. The
foregoing is a summary of certain material terms and conditions of the Stock
Plan, and not a complete discussion of the plan. Accordingly, the foregoing is
qualified in its entirety by reference to the full text of the Stock Plan, a
form of which is attached hereto as Exhibit 10.2 and is incorporated herein by
reference.
AMENDED AND RESTATED LOAN AGREEMENT
On September 27, 2006, we entered into an Amendment to the Amended Loan
Agreement dated April 5, 2006 and Amendment to Master Revolving Note
(collectively, the "Amendment") with Comerica Bank as "Lender." The Amendment
increased the Company's maximum line of credit amount to $1,800,000. The
Amendment also included a requirement that, upon the earlier of (a) the receipt
of additional equity from Barron Capital Partners, or
21
(b) December 31, 2006, the Company shall make a mandatory prepayment so that the
outstanding principal balance of the Company's term loan is less than
$1,500,000. As a condition to the effectiveness of the Amendment, the Company
paid to Lender an amendment fee of $5,000.
RELATED PARTY TRANSACTIONS
On October 1, 2006, pursuant to the terms of our non-employee director
compensation plan, we issued to each of our non-employee directors options to
purchase 14,000 shares of our common stock at an exercise price of $1.25 per
share. The options are exercisable immediately and expire on October 1, 2016.
As of October 23, 2006, we entered into a separate indemnification agreement
with each of the following directors: Messrs. Robbins, Russell, Looney, Ruark
and Pilkington. Our Board of Directors may from time to time authorize us to
enter into additional indemnification agreements with future directors, officers
or employees of the Company. In general, the indemnification agreements provide
that we will indemnify each indemnitee to the fullest extent authorized or
permitted by our bylaws and the Nevada Revised Statutes ("NRS"), and shall
indemnify each indemnitee against all expenses, fees, damages, judgments,
penalties, fines and amounts paid in settlement or incurred by him or her in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that the indemnitee is or was a director of the Company. In addition, the
indemnification agreements provide for the advancement of expenses incurred by
the indemnitee in connection with any proceeding covered by the agreement as
permitted by applicable law, provided that the indemnitee shall repay the
amounts advanced if it is determined that the indemnitee is not entitled to
indemnification under the agreement, our bylaws, the NRS or otherwise. The
foregoing is a summary of certain material terms and conditions of the
indemnification agreements, and not a complete discussion of those agreements.
Accordingly, the foregoing is qualified in its entirety by reference to the full
text of the form of indemnification agreement attached as Exhibit 10.3 hereto
and incorporated herein by reference.
ITEM 6. EXHIBITS.
3.1 Amended and Restated Articles of Incorporation.*
3.2 Bylaws (as amended and restated) dated November 10, 2005.**
4.1 Certificate of Designations of Preference, Right and Limitations of
Series A Convertible Preferred Stock.*
4.2 Form of Series A Preferred Stock Certificate.***
4.3 Form of A Warrant.***
4.4 Form of B Warrant.***
4.5 Form of C Warrant.***
10.1 Warrant to Purchase Common Stock issuable by Company to Lender on July 5,
2006.*
10.2 Form of Family Home Health Services Inc. 2006 Stock Plan (filed
herewith).
10.3 Form of Indemnification Agreement, entered into as of October 23, 2006,
between the Company and each of the Company's directors.****
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
22
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
- ----------
* Incorporated by reference to the corresponding exhibit to the Registrant's
Quarterly Report on Form 10-QSB filed with the Commission on July 10, 2006
(File No. 000-32887).
** Incorporated by reference to the corresponding exhibit to the Registrant's
Quarterly Report on Form 10-QSB filed with the Commission on November 14,
2005 (File No. 000-32887).
*** Incorporated by reference to the corresponding exhibit to the Registrant's
Current Report on Form 8-K filed with the Commission on May 31, 2006 (File
No. 000-32887).
**** Incorporated by reference to the corresponding exhibit to the Registrant's
Current Report on Form 8-K filed with the Commission on October 27, 2006
(File No. 000-32887).
23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there under
duly authorized.
FAMILY HOME HEALTH SERVICES INC.
Date: November 20, 2006 /s/ Kevin R. Ruark
----------------------------------------
By: Kevin R. Ruark
Its: Chief Executive Officer and
President
/s/ James M. Mitchell
----------------------------------------
By: James M. Mitchell
Its: Chief Financial Officer and
Treasurer
24
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation.*
3.2 Bylaws (as amended and restated) dated November 10, 2005.**
4.1 Certificate of Designations of Preference, Right and Limitations of
Series A Convertible Preferred Stock.*
4.2 Form of Series A Preferred Stock Certificate.***
4.3 Form of A Warrant.***
4.4 Form of B Warrant.***
4.5 Form of C Warrant.***
10.1 Warrant to Purchase Common Stock issuable by Company to Lender on July 5,
2006.*
10.2 Form of Family Home Health Services Inc. 2006 Stock Plan (filed
herewith).
10.3 Form of Indemnification Agreement, entered into as of October 23, 2006,
between the Company and each of the Company's directors.****
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
- ----------
* Incorporated by reference to the corresponding exhibit to the Registrant's
Quarterly Report on Form 10-QSB filed with the Commission on July 10, 2006
(File No. 000-32887).
** Incorporated by reference to the corresponding exhibit to the Registrant's
Quarterly Report on Form 10-QSB filed with the Commission on November 14,
2005 (File No. 000-32887).
*** Incorporated by reference to the corresponding exhibit to the Registrant's
Current Report on Form 8-K filed with the Commission on May 31, 2006 (File
No. 000-32887).
**** Incorporated by reference to the corresponding exhibit to the Registrant's
Current Report on Form 8-K filed with the Commission on October 27, 2006
(File No. 000-32887).
25