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:
June
30,
2008
OR
|
o
|
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 Identification No.)
|
|
incorporation
or organization)
|
|
|
1850
McDonald Avenue, Brooklyn, New York
|
11223
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer's
telephone number, including area code: (718) 375-6700
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
|
Accelerated
filer
|
|
|
|
|
Non-accelerated
filer (Do not check if a smaller
reporting company)
|
Smaller
reporting company
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
APPLICABLE
ONLY TO CORPORATE REGISTRANTS
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 33,536,767 (as of
August
14, 2008
)
Part
I - FINANCIAL INFORMATION
|
Item
1.
|
|
Financial
Statements.
|
(a)
Our
unaudited financial statements for the second quarter (six months ended
June
30,
2008
),
are
set forth below. See Item 2 below for Management's Discussion and Analysis
of
Financial Condition and Results of Operations.
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
JUNE
30, 2008
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
December 31,
|
|
|
|
|
June 30, 2008
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,221,031
|
|
$
|
2,246,241
|
|
|
Due
from lending institution
|
|
|
40,600
|
|
|
-
|
|
|
Accounts
receivable, net of allowance for uncollectible amounts of $432,000
and
$548,000 respectively
|
|
|
7,964,096
|
|
|
8,298,837
|
|
|
Unbilled
services
|
|
|
117,018
|
|
|
137,079
|
|
|
Prepaid
expenses and other current assets
|
|
|
185,821
|
|
|
120,857
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
13,528,566
|
|
|
10,803,014
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
8,696
|
|
|
22,090
|
|
|
Goodwill,
net
|
|
|
783,000
|
|
|
783,000
|
|
|
Other
intangible assets, net
|
|
|
600,229
|
|
|
628,056
|
|
|
Other
assets
|
|
|
158,642
|
|
|
181,046
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
15,079,133
|
|
$
|
12,417,206
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Note
payable under insurance financing agreement
|
|
$
|
3,677
|
|
$
|
25,054
|
|
|
Amounts
due to related parties
|
|
|
12,000
|
|
|
27,133
|
|
|
Accrued
payroll
|
|
|
924,555
|
|
|
871,171
|
|
|
Accounts
payable and accrued expenses
|
|
|
7,526,887
|
|
|
5,541,457
|
|
|
Income
taxes payable - current
|
|
|
17,150
|
|
|
28,450
|
|
|
Due
to HRA
|
|
|
9,089,007
|
|
|
8,754,408
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
17,573,276
|
|
|
15,247,673
|
|
|
|
|
|
|
|
|
|
|
|
Commitment
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
(deficiency):
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 5,000,000 shares authorized; Class A Preferred,
590,375 shares issued, none outstanding
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value, 100,000,000 shares authorized; 33,536,767
shares
issued and 33,532,722 outstanding
|
|
|
335,368
|
|
|
335,368
|
|
|
Additional
paid-in capital
|
|
|
37,174,185
|
|
|
37,174,185
|
|
|
Common
stock and options to be issued
|
|
|
-
|
|
|
774,220
|
|
|
Accumulated
deficit
|
|
|
(39,994,223
|
)
|
|
(41,104,767
|
)
|
|
Less:
Treasury stock (4,045 common shares at cost)
|
|
|
(9,473
|
)
|
|
(9,473
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' (deficiency)
|
|
|
(2,494,143
|
)
|
|
(2,830,467
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' (deficiency)
|
|
$
|
15,079,133
|
|
$
|
12,417,206
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
(Prior
year presentation reclassified for comparability)
|
|
|
For The Three Months Ended
June 30,
|
|
For The Six Months Ended
June 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
12,526,182
|
|
$
|
10,801,576
|
|
$
|
23,547,993
|
|
$
|
21,986,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional
care of patients
|
|
|
10,560,209
|
|
|
9,009,077
|
|
|
19,818,872
|
|
|
18,084,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income before other operating expenses
|
|
|
1,965,973
|
|
|
1,792,499
|
|
|
3,729,121
|
|
|
3,902,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
818,662
|
|
|
1,596,325
|
|
|
2,432,197
|
|
|
3,614,931
|
|
|
Product
development
|
|
|
68,922
|
|
|
178,794
|
|
|
101,991
|
|
|
471,254
|
|
|
Depreciation
and amortization
|
|
|
41,986
|
|
|
98,437
|
|
|
83,735
|
|
|
196,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other operating expenses
|
|
|
929,570
|
|
|
1,873,556
|
|
|
2,617,923
|
|
|
4,282,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
1,036,403
|
|
|
(81,057
|
)
|
|
1,111,198
|
|
|
(380,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
26,806
|
|
|
16,597
|
|
|
43,019
|
|
|
39,344
|
|
|
Interest
expense
|
|
|
(13,775
|
)
|
|
(3,610
|
)
|
|
(23,673
|
)
|
|
(5,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
13,031
|
|
|
12,987
|
|
|
19,346
|
|
|
33,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
|
1,049,434
|
|
|
(68,070
|
)
|
|
1,130,544
|
|
|
(346,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes - current
|
|
|
10,000
|
|
|
80
|
|
|
20,000
|
|
|
51,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,039,434
|
|
$
|
(68,150
|
)
|
$
|
1,110,544
|
|
$
|
(397,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
$
|
0.03
|
|
|
($0.00
|
)
|
$
|
0.03
|
|
|
($0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
33,536,767
|
|
|
33,536,767
|
|
|
33,536,767
|
|
|
33,536,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share:
|
|
$
|
0.03
|
|
|
($0.00
|
)
|
$
|
0.03
|
|
|
($0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
33,536,767
|
|
|
33,536,767
|
|
|
33,536,767
|
|
|
33,536,767
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
For The Six Months Ended June 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,110,544
|
|
$
|
(397,846
|
)
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating
activities
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
6,500
|
|
|
Depreciation
and amortization
|
|
|
83,735
|
|
|
196,439
|
|
|
Loss
on abandonment of property and equipment
|
|
|
-
|
|
|
5,654
|
|
|
Recovery
of bad debts
|
|
|
(116,000
|
)
|
|
(18,896
|
)
|
|
Reduction
of liability in connection with Emerald Asset settlement
|
|
|
(1,055,320
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable and unbilled services
|
|
|
470,802
|
|
|
(501,702
|
)
|
|
(Increase)
decrease in due from lending institution
|
|
|
(40,600
|
)
|
|
218,803
|
|
|
(Increase)
decrease in prepaid expenses and other current assets
|
|
|
(64,964
|
)
|
|
25,384
|
|
|
(Increase)
decrease in other assets
|
|
|
(1,640
|
)
|
|
85,548
|
|
|
Decrease
in note payable under insurance financing agreement
|
|
|
(21,377
|
)
|
|
-
|
|
|
Increase
(decrease) in accrued payroll
|
|
|
53,384
|
|
|
(37,927
|
)
|
|
Increase
(decrease)in accounts payable and accrued expenses
|
|
|
2,266,530
|
|
|
(628,453
|
)
|
|
(Decrease)
increase in income taxes payable - current
|
|
|
(11,300
|
)
|
|
39,450
|
|
|
Increase
in due to HRA
|
|
|
334,599
|
|
|
288,446
|
|
|
Decrease
in due to related parties
|
|
|
(15,133
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
|
2,993,260
|
|
|
(718,600
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions
to intangible assets
|
|
|
(18,470
|
)
|
|
(53,460
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(18,470
|
)
|
|
(53,460
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,974,790
|
|
|
(772,060
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
2,246,241
|
|
|
2,469,789
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
5,221,031
|
|
$
|
1,697,729
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2008 and 2007
NOTE
1 - ORGANIZATION, RECENT DEVELOPMENTS AND 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. The BioBalance
Corp (“BioBalance”) a Delaware corporation was formed in May 2001. BioBalance is
a biopharmaceutical company focused on the development of treatments for
gastrointestinal diseases that are poorly addressed by current therapies.
BioBalance is pursuing prescription drug development of its lead product,
PROBACTRIX® for the prevention of pouchitis. On March 24, 2006, the Company
received approval from the FDA to start Phase I/II clinical trials in the target
patient population.. There can be no assurance that BioBalance will complete
the
clinical trials or be successful in marketing any such products. 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 subsidiary BioBalance.
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 of
New
York Health Care, Inc. for the year ended
December
31, 2007
as filed
with the SEC.
The
accompanying interim consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company's
recurring losses and negative working capital raises substantial doubt about
its
ability to continue as a going concern. The consolidated financial statements
do
not include any adjustments that might result from the outcome of this
uncertainty.
Management’s plans in connection with this matter includes continued cost
cutting measures in BioBalance in connection with the temporary scaling back
of
operations and seeking additional capital to fund BioBalance
operations.
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 and six months ended
June
30,
2008
are not
necessarily indicative of the results to be expected for the full
year.
Recent
Developments:
On
August12, 2008, the Company entered into a settlement agreement with Emerald
Asset Management and Yitz Grossman (“the Emerald Agreement”) whereby the Company
settled its obligations under the original settlement agreement entered into
in
2006 with those parties (the “Emerald Settlement Agreement”, Note 7) for a
reduced amount with an aggregate value of $850,000, resulting in a benefit
to
the Company of $1,055,320. This benefit was recorded as an offset to general
and
administrative expenses for the quarter and six month period ended June 30,
2008.
The
parties have agreed to the following settlement terms: termination of the 2006
settlement agreement among the Company, Emerald and Grossman and a release
by
each party of prior claims against the other; an immediate cash payment by
the
Company to Grossman of $650,000; and a 33-1/3% interest in BioBalance LLC,
a
newly formed Delaware limited liability company (“the LLC”) into which
BioBalance will contribute its interest in intellectual property and patents
(valued at $600,000 at the date of the agreement), with BioBalance to retain
the
remaining 66-2/3% interest in the LLC. Contemporaneously with the settlement,
the LLC entered into a one-year consulting agreement with Grossman under which
Grossman will be paid a base consulting fee of $180,000 and be reimbursed for
approved expenses, with the opportunity to earn up to an additional $180,000
contingent on an increase in the valuation of the LLC over the agreed upon
base
valuation of $628,056, based on a specified formula. The Company has agreed
to
advance as loans $2 million to the newly formed limited liability company to
fund product development and administrative expenses during the one-year
consulting term. As reported in the Company’s Form 10-K for the year ended
December 31, 2007, the net carrying value of the intellectual property of
BioBalance after recording impairment losses was $628,056.
As
of
June
30,
2008
,
BioBalance had cash on hand of
$338,028
all of
which was available to fund operations. BioBalance management estimates that
its
capital requirements for an entire year of operations are approximately
$5,000,000. This amount includes the cost of the initial upfront payment for
the
Phase I/II clinical trial, in the amount of $3,000,000, for the Company's lead
product PROBACTRIX® that is not expected to be started in 2008. In connection
with the Emerald Agreement, the Company is obligated to fund $2,000,000 to
the
LLC throughout the next year as noted in the preceding paragraph. It will be
necessary for the Company to secure additional funding in order for BioBalance
to begin the Phase I/II clinical trial, which was approved by FDA on March
24,
2006. The Company has not been able to obtain additional funding up to the
present time and the BioBalance subsidiary has been operating solely by
utilizing funds from the health care operations, which are insufficient for
BioBalance's needs. Management is continuing to search for potential funding
sources but none have been found thus far. Accordingly, since additional funding
from outside sources has not been obtained, the Company began scaling back
the
operations of BioBalance at the end of November 2006, and BioBalance began
operating on a substantially reduced budget in 2007. Management has instituted
temporary cutbacks in consultant compensation until such time as additional
funds or a strategic partner can be found. There can be no assurances that
the
Company will be able to raise additional capital in the near term to allow
BioBalance to continue its normal level of operations.
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2008 and 2007
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.
Recently
Issued Accounting Pronouncements:
In
May
2008, the FASB issued SFAS No. 162 (“SFAS No. 162”), “The Hierarchy of Generally
Accepted Accounting Principles.” This statement identifies the sources of
accounting principles and the framework for selecting the principles to be
used
in the preparation of financial statements of nongovernmental entities that
are
presented in conformity with GAAP. While this statement formalizes the sources
and hierarchy of GAAP within the authoritative accounting literature, it does
not change the accounting principles that are already in place. This statement
will be effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS No.
162 is not expected to have a material impact on the Company’s consolidated
financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "
Business
Combinations.
"
SFAS
141(R) broadens the guidance of SFAS 141, extending its applicability to all
transactions and other events in which one entity obtains control over one
or
more other businesses. It broadens the fair value measurement and recognition
of
assets acquired, liabilities assumed, and interests transferred as a result
of
business combinations. SFAS 141(R) expands on required disclosures to improve
the statement users' abilities to evaluate the nature and financial effects
of
business combinations. SFAS 141(R) is effective for our fiscal year beginning
January 1, 2009. The adoption of SFAS 141(R) is not expected to have a material
impact on the Company's financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No. 160, "
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51.
" SFAS
160 requires that a noncontrolling interest in a subsidiary be reported as
equity and the amount of consolidated net income specifically attributable
to
the noncontrolling interest be identified in the consolidated financial
statements. It also calls for consistency in the manner of reporting changes
in
the parent's ownership interest and requires fair value measurement of any
noncontrolling equity investment retained in a deconsolidation. SFAS 160 is
effective for our fiscal year beginning January 1, 2009. We have not yet
determined the impact of adopting SFAS 160 on the Company's financial position,
results of operations or cash flows.
NOTE
2 – EARNINGS/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. For the three
and
six months ended
June
30,
2008
,
common
stock attributable to options and warrants outstanding of 7,631,659 were not
included in the computation of diluted earnings per share because their exercise
prices were all greater than the average market price of the common shares.
Due
to losses for the six months ended
June
30,
2007
,
potential common stock attributable to options and warrants outstanding of
8,657,046 for the three and six months ended
June
30,
2007
were not
included in the computation of diluted earnings per share, because to do so
would be antidilutive.
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2008 and 2007
NOTE
3 - INTANGIBLE ASSETS:
The
major
classifications of intangible assets and their respective estimated useful
lives
are as follows:
|
|
|
June 30, 2008
|
|
|
|
|
Gross Carrying Cost
|
|
Accumulated
Amortization
|
|
Net Carrying Cost
|
|
Estimated Useful
Life in Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents/trademarks
|
|
$
|
928,664
|
|
$
|
328,435
|
|
$
|
600,229
|
|
|
10
|
|
|
Customer
base
|
|
|
316,000
|
|
|
316,000
|
|
|
-
|
|
|
5
|
|
|
|
|
$
|
1,244,664
|
|
$
|
644,435
|
|
$
|
600,229
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
Gross Carrying Cost
|
|
Accumulated
Amortization
|
|
Net Carrying Cost
|
|
Estimated Useful
Life in Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents/trademarks
|
|
$
|
910,195
|
|
$
|
282,139
|
|
$
|
628,056
|
|
|
10
|
|
|
Customer
base
|
|
|
316,000
|
|
|
316,000
|
|
|
-
|
|
|
5
|
|
|
|
|
$
|
1,226,195
|
|
$
|
598,139
|
|
$
|
628,056
|
|
|
|
|
NOTE
4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts
payable and accrued expenses consist of the following:
|
|
|
June 30, 2008
|
|
December 31, 2007
|
|
|
Accounts payable
|
|
$
|
375,259
|
|
$
|
492,446
|
|
|
Accrued expenses
|
|
|
307,479
|
|
|
505,995
|
|
|
Accrued settlement per consulting agreement
|
|
|
850,000
|
|
|
1,131,100
|
|
|
Accrued employee benefits
|
|
|
5,994,149
|
|
|
3,411,916
|
|
|
|
|
$
|
7,526,887
|
|
$
|
5,541,457
|
|
NOTE
5 - LINE OF CREDIT:
On
September 20, 2007, the Company entered into a Loan and Security Agreement
with
CIT Healthcare LLC, as lender (“
Lender
”).
The
term of the Loan and Security Agreement is three years. The Loan and Security
Agreement provides for a revolving line of credit facility under which the
Company may borrow, repay and re-borrow an amount not exceeding the lesser
of
$5,000,000 or the borrowing base, which is an amount that may not exceed 85.00%
of the estimated net value of the Company's Eligible Accounts, as defined in
the
agreement. As of
June
30,
2008
,
approximately $3,336,000 of the line was available for borrowing by the
Company.
Interest
is payable on the outstanding principal balance of the credit facility at an
annual rate equal to 30-day LIBOR plus three and one-half percent (3.50%),
adjusted monthly in accordance with changes in 30-day LIBOR (2.46% at
June
30,
2008
).
The
Company’s interest rate for borrowings at
June
30,
2008
was
5.96%.
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2008 and 2007
The
Company's obligations to Lender under the Loan and Security Agreement are
secured by a first priority lien on all of the Company's accounts receivable,
general intangibles, instruments and documents, and the proceeds thereof.
However, no collateral consists of any assets or property of
BioBalance.
Beginning
with the quarter ended September 30, 2007, the Company is subject to meeting
periodic financial covenants contained in the Loan and Security Agreement.
As of
June
30,
2008
,
the
Company was in compliance with all of the specified financial
covenants.
The
Company is prohibited from making dividends, distributions and other withdrawals
during the term of the credit facility. However, the Company is permitted to
make loans, advances or contributions to its subsidiary, BioBalance provided
that certain liquidity requirements are met. The Company is further restricted
from mergers and acquisitions, as well as asset sales or dispositions outside
the ordinary course of business, provided that such sale restrictions are not
applicable to the sale of the stock or assets of BioBalance.
As
of
June
30,
2008
,
there
was no balance due on this line of credit. For the three and six months ended
June
30,
2008
,
the
company incurred interest expense of $13,476 and $22,787, respectively, on
this
line of credit. As of
June
30,
2008
,
there
was a balance due from CIT of $40,600 representing collections deposited with
CIT through a lockbox and then transferred to the Company's bank
account.
NOTE
6 - STOCK OPTIONS/WARRANTS:
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of SFAS 123(R), using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in 2006 and beyond includes:
(a) compensation cost for all share-based payments granted prior to, but
not yet vested as of January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No. 123, and
(b) compensation cost for all stock-based payments granted subsequent to
January 1, 2006, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123(R). Results for prior periods have not been
restated and there is no cumulative effect upon adoption of SFAS
123(R).
No
stock
based compensation was recognized during the six months ended
June
30,
2008
.
Total
stock based compensation recognized on the consolidated statement of operations
for the three and six months ended
June
30,
2007
was $0
and $6,500 respectively.
Performance
Incentive Plan:
On
August
31, 2005, the shareholders approved the Company's 2004 Incentive Plan, (the
“Incentive Plan”). Under the terms of the Incentive Plan, up to 5,000,000 shares
of common stock may be granted. The Incentive Plan is administered by the
Compensation Committee which is appointed by the Board of Directors. The
Committee determines which key employee, officer or director on the regular
payroll of the Company, or outside consultants shall receive stock options.
Granted options are exercisable after the date of grant in accordance with
the
terms of the grant up to ten years after the date of the grant. The exercise
price of any incentive stock option or nonqualified option granted under the
Incentive Plan may not be less than 100% of the fair market value of the shares
of common stock of the Company at the time of the grant.
On
March
26, 1996, the Company's Board of Directors adopted the Performance Incentive
Plan, (the “Option Plan”). The option plan has substantially the same terms as
the Incentive Plan above.
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2008 and 2007
Activity
in stock options and warrants, including those outside the Performance Incentive
Plan, for the six months ended
June
30,
2008
,
is
summarized as follows:
|
|
|
Shares Under
Options/ Warrants
|
|
Weighted Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
8,862,046
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
-
|
|
|
|
|
|
Options
cancelled/expired
|
|
|
(1,230,387
|
)
|
|
1.00
|
|
|
Options
exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2008
|
|
|
7,631,659
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
Options
eligible for exercise at June 30, 2008
|
|
|
7,631,659
|
|
$
|
0.86
|
|
NOTE
7 - COMMITMENTS AND CONTINGENCIES:
On
March
6, 2006, the Company entered into a settlement agreement (the “Emerald
Settlement Agreement”) with Emerald Asset Management, Inc. (“Emerald”) and Yitz
Grossman related to the resolution of disputes under a consulting agreement
dated June 1, 2001 between the Company and Emerald.
Pursuant
to the Emerald Settlement Agreement and in order avoid the cost and uncertainty
of litigation, the Company agreed to (i) the immediate payment of $700,000
to
Emerald, (ii) payment of $22,000 per month for eighteen months beginning January
1, 2006, (iii) the issuance of 400,000 shares of common stock, (iv) options
to
purchase 1,100,000 shares of common stock at $0.78 per share until March 1,
2010
and (v) health insurance for Grossman and his family for the eighteen month
period ending June 30, 2007 amounting to approximately $35,100. In return,
Emerald and Grossman executed a general release of all claims against the
Company. The Company has not paid any of this liability and expensed $1,545,931
for the above settlement during the year ended December 31, 2005. During the
year ended December 31, 2004 and 2003 the company expensed the $359,389 relating
to the consulting agreement. The Company has recorded a liability of $1,131,100
and common stock and options to be issued valued at $774,220 as of December
31,
2005.
On August
21, 2006, the Company unilaterally rescinded the settlement between the Company
and Emerald Asset and Yitz Grossman. The rescission of the settlement by the
Company was done without the consent of Emerald Asset and Yitz Grossman.
Accordingly there may be future litigation brought against the Company by
Emerald Asset and Yitz Grossman to seek enforcement of the agreement. The
Company continued to retain the accrual for the settlement agreement on its
books in its entirety based on the Company’s belief that if litigation were
brought by Emerald Asset and Yitz Grossman to enforce the settlement agreement,
there could be no assurance that at a future time the accrual that was recorded
would be sufficient to offset amounts resulting from the future litigation.
On
August
12, 2008, the Company entered into a second settlement agreement with Emerald
Asset management and Yitz Grossman (“the Emerald Agreement”) whereby the Company
settled its obligations under the original settlement agreement (Note 7) for
a
reduced amount with an aggregate value of $850,000, resulting in a benefit
to
the Company of $1,055,320. This benefit was recorded as an offset to general
and
administrative expenses for the quarter and six month period ended June 30,
2008.
The
parties have agreed to the following settlement terms: termination of the 2006
settlement agreement among the Company, Emerald and Grossman and a release
by
each party of prior claims against the other; an immediate cash payment by
the
Company to Grossman of $650,000; and a 33-1/3% interest in BioBalance LLC,
a
newly formed Delaware limited liability company (“the LLC”) into which
BioBalance will contribute its interest in intellectual property and patents
(valued at $600,000 at the date of the agreement), with BioBalance to retain
the
remaining 66-2/3% interest in the LLC. Contemporaneously with the settlement,
the LLC entered into a one-year consulting agreement with Grossman under which
Grossman will be paid a base consulting fee of $180,000 and be reimbursed for
approved expenses, with the opportunity to earn up to an additional $180,000
contingent on an increase in the valuation of the LLC over the agreed upon
base
valuation of $628,056, based on a specified formula. The Company has agreed
to
advance as loans $2 million to the newly formed limited liability company to
fund product development and administrative expenses during the one-year
consulting term. As reported in the Company’s Form 10-K for the year ended
December 31, 2007, the net carrying value of the intellectual property of
BioBalance after recording impairment losses was $628,056.
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2008 and 2007
In
connection with the settlement,
$774,220
which
was previously reported in the equity section of the balance sheet as common
stock and options to be issued was eliminated from the
presentation.
NOTE
8 - INCOME TAXES:
The
temporary differences that give rise to deferred tax assets are impairment
of
intangible assets for financial statement book purposes over tax purposes,
the
direct write-off method for receivables, using accelerated methods of
amortization and depreciation for property and equipment for tax purposes,
and
using statutory lives for intangibles for tax purposes. Also included in the
deferred tax asset is a net operating loss carryforward. At June 30, 2008 and
December 31, 2007, the Company has computed a deferred tax asset in the amount
of
approximately
$8,695,000 and $9,244,000, respectively. A full valuation allowance has been
recorded against the net deferred tax assets because it is not, more likely
than
not, that those assets will be realized in the foreseeable future. The valuation
allowance decreased by $549,000 during the six months ended June 30,
2008.
NOTE
9 - SUPPLEMENTAL CASH FLOW DISCLOSURES:
|
|
|
For the Six Months Ended June 30
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
23,673
|
|
$
|
5,581
|
|
|
Income
taxes
|
|
$
|
31,300
|
|
$
|
11,630
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of common stock and options to be issued to accrued expenses in connection
with settlement agreement
|
|
$
|
(774,220
|
)
|
$
|
-
|
|
NEW
YORK HEALTH CARE, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
June
30, 2008 and 2007
NOTE
10 - 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 segment that is developing a
probiotic agent for the treatment of gastrointestinal disorders. BioBalance
has
not generated any revenue as of June 30, 2008.
|
|
|
New
York
Health
Care
|
|
Bio-
Balance
|
|
Total
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
23,547,993
|
|
$
|
-
|
|
$
|
23,547,993
|
|
|
Total
revenue
|
|
$
|
23,547,993
|
|
$
|
-
|
|
$
|
23,547,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
$
|
469,826
|
|
$
|
660,718
|
|
$
|
1,130,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
14,128,376
|
|
$
|
950,757
|
|
$
|
15,079,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
21,986,478
|
|
$
|
-
|
|
$
|
21,986,478
|
|
|
Total
revenue
|
|
$
|
21,986,478
|
|
$
|
-
|
|
$
|
21,986,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
$
|
678,708
|
|
$
|
(1,025,474
|
)
|
$
|
(346,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
10,637,279
|
|
|
1,512,429
|
|
$
|
12,149,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
12,526,182
|
|
$
|
-
|
|
$
|
12,526,182
|
|
|
Total
revenue
|
|
$
|
12,526,182
|
|
$
|
-
|
|
$
|
12,526,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
$
|
233,449
|
|
$
|
815,985
|
|
$
|
1,049,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Net
patient service revenue
|
|
$
|
10,801,576
|
|
$
|
-
|
|
$
|
10,801,576
|
|
|
Total
revenue
|
|
$
|
10,801,576
|
|
$
|
-
|
|
$
|
10,801,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
$
|
270,510
|
|
$
|
(338,580
|
)
|
$
|
(68,070
|
)
|
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 the Company and its
subsidiaries (“we”, “our”, or the “Company”), 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 in Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. Other risks and uncertainties are 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.
All
references to fiscal year apply to the Company's fiscal year which ends on
December 31, 2008.
Overview
We
are
currently engaged in two industry segments, the delivery of home healthcare
services (sometimes referred to as the “home healthcare business”) and the
development of proprietary biotherapeutic agents for the treatment of various
gastrointestinal (“GI”) disorders, through our BioBalance
subsidiary.
The
Company is a New York corporation incorporated in 1983. The Company's principal
executive office is 1850 McDonald Avenue, Brooklyn, New York 11223, telephone
718-375-6700.
Critical
Accounting Policies
The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the unaudited Consolidated Financial Statements and accompanying
notes. Estimates are used for, but not limited to, the accounting for allowance
for doubtful accounts and potential impairment of goodwill and other
intangibles. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from these estimates under different
assumptions or conditions.
The
Company believes that there have been no significant changes, during the three
and six month periods ended June 30, 2008, to the items disclosed as critical
accounting policies and estimates in Management’s Discussion and Analysis of
Financial Condition and Results of Operations in the Company's Annual Report
on
Form 10-K for the year ended December 31, 2007.
Results
of Operations
THREE
AND SIX MONTHS ENDED JUNE 30, 2008 COMPARED WITH THREE AND SIX MONTHS ENDED
JUNE
30, 2007
The
following table reflects the results of operations for the three and six months
ended June 30, 2008 and for the three and six months ended June 30, 2007 for
each business segment.
OVERVIEW
OF OPERATING RESULTS
|
|
|
|
|
(Prior year presentation reclassified for comparability)
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
|
|
BioBalance
|
|
Healthcare
|
|
|
|
BioBalance
|
|
Healthcare
|
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Total
|
|
Segment
|
|
Segment
|
|
Total
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
12,526,182
|
|
$
|
12,526,182
|
|
$
|
-
|
|
$
|
10,801,576
|
|
$
|
10,801,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of patient care
|
|
|
-
|
|
|
10,560,209
|
|
|
10,560,209
|
|
|
-
|
|
|
9,009,077
|
|
|
9,009,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
|
(894,797
|
)
|
|
1,713,459
|
|
|
818,662
|
|
|
90,204
|
|
|
1,506,121
|
|
|
1,596,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Emarald settlement
|
|
|
(1,055,320
|
)
|
|
-
|
|
|
(1,055,320
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A,
excluding the effect of the Emerald Settlement
|
|
|
160,523
|
|
|
1,713,459
|
|
|
1,873,982
|
|
|
90,204
|
|
|
1,506,121
|
|
|
1,596,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Development
|
|
|
68,922
|
|
|
-
|
|
|
68,922
|
|
|
178,794
|
|
|
-
|
|
|
178,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
815,985
|
|
|
223,449
|
|
|
1,039,434
|
|
|
(338,580
|
)
|
|
270,430
|
|
|
(68,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss), excluding the effect of the Emerald
Settlement
|
|
|
(239,335
|
)
|
|
223,449
|
|
|
(15,886
|
)
|
|
(338,580
|
)
|
|
270,430
|
|
|
(68,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Prior year presentation reclassified for comparability)
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
|
|
June 30, 2008
|
|
June 30, 2007
|
|
|
|
|
BioBalance
|
|
Healthcare
|
|
|
|
BioBalance
|
|
Healthcare
|
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Total
|
|
Segment
|
|
Segment
|
|
Total
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
23,547,993
|
|
$
|
23,547,993
|
|
$
|
-
|
|
$
|
21,986,478
|
|
$
|
21,986,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of patient care
|
|
|
-
|
|
|
19,818,872
|
|
|
19,818,872
|
|
|
-
|
|
|
18,084,383
|
|
|
18,084,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
|
(809,093
|
)
|
|
3,241,290
|
|
|
2,432,197
|
|
|
404,302
|
|
|
3,210,629
|
|
|
3,614,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Emerald settlement
|
|
|
(1,055,320
|
)
|
|
-
|
|
|
(1,055,320
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A,
excluding the effect of the Emerald Settlement
|
|
|
246,227
|
|
|
3,241,290
|
|
|
3,487,517
|
|
|
404,302
|
|
|
3,210,629
|
|
|
3,614,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Development
|
|
|
101,991
|
|
|
-
|
|
|
101,991
|
|
|
471,254
|
|
|
-
|
|
|
471,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
660,718
|
|
|
449,826
|
|
|
1,110,544
|
|
|
(1,025,474
|
)
|
|
627,628
|
|
|
(397,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss), excluding the effect of the Emerald
Settlement
|
|
|
(394,602
|
)
|
|
449,826
|
|
|
55,224
|
|
|
(1,025,474
|
)
|
|
627,628
|
|
|
(397,846
|
)
|
The
following table represents a detailed analysis of operating results, changes
in
income and costs compared to the preceding year and certain percentage
relationships to revenues for the three and six month periods ended June 30,
2008.
ANALYSIS
OF OPERATING RESULTS
|
|
|
Three
Month Period
|
|
Six
Month Period
|
|
|
|
|
BioBalance
|
|
Healthcare
|
|
|
|
BioBalance
|
|
Healthcare
|
|
|
|
|
|
|
Segment
|
|
Segment
|
|
Total
|
|
Segment
|
|
Segment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) compared to same period in the preceding
year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
1,724,606
|
|
$
|
1,724,606
|
|
$
|
-
|
|
$
|
1,561,515
|
|
$
|
1,561,515
|
|
|
Percent
change from preceeding year
|
|
|
|
|
|
16
|
%
|
|
16
|
%
|
|
|
|
|
7
|
%
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of patient care
|
|
$
|
-
|
|
$
|
1,551,132
|
|
$
|
1,551,132
|
|
$
|
-
|
|
$
|
1,734,489
|
|
$
|
1,734,489
|
|
|
Percent
change from preceeding year
|
|
|
|
|
|
17
|
%
|
|
17
|
%
|
|
|
|
|
10
|
%
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of patient care as a percentage of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
year
|
|
|
|
|
|
84
|
%
|
|
84
|
%
|
|
|
|
|
84
|
%
|
|
84
|
%
|
|
Preeceding
year
|
|
|
|
|
|
83
|
%
|
|
83
|
%
|
|
|
|
|
82
|
%
|
|
82
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
$
|
(985,001
|
)
|
$
|
207,338
|
|
$
|
(777,663
|
)
|
$
|
(1,213,395
|
)
|
$
|
30,661
|
|
$
|
(1,182,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A,
excluding the effect of the Emerald Settlement
|
|
$
|
70,319
|
|
$
|
207,338
|
|
$
|
277,657
|
|
$
|
(158,075
|
)
|
$
|
30,661
|
|
$
|
(127,414
|
)
|
|
Percent
change from preceeding year
|
|
|
78
|
%
|
|
14
|
%
|
|
18
|
%
|
|
-39
|
%
|
|
1
|
%
|
|
-4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
Development
|
|
$
|
(109,872
|
)
|
$
|
-
|
|
$
|
(109,872
|
)
|
$
|
(369,263
|
)
|
$
|
-
|
|
$
|
(369,263
|
)
|
|
Percent
change from preceeding year
|
|
|
-61
|
%
|
|
|
|
|
-61
|
%
|
|
-78
|
%
|
|
|
|
|
-78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net income or loss from the preceeding year —
improvement/(decline)
|
|
$
|
1,154,565
|
|
$
|
(46,981
|
)
|
$
|
1,107,584
|
|
$
|
1,686,192
|
|
$
|
(177,802
|
)
|
$
|
1,508,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in net income or loss from the preceeding year, excluding the effect
of
the Emerald Settlement — improvement/(decline)
|
|
$
|
99,245
|
|
$
|
(46,981
|
)
|
$
|
52,264
|
|
$
|
630,872
|
|
$
|
(177,802
|
)
|
$
|
453,070
|
|
Home
Healthcare Segment
Our
revenues improved both for the three months and the year to date as compared
to
the preceding year. The improvement is are argely the result of obtaining fee
increases from our institutional clients. Part of the increase is also
attributable to our recruiting efforts. We added home health aides and were
then
able in increase our caseload commensurately.
Cost
of
professional care of patients increased both for the three months and the year
to date as compared to the preceding year, which was largely the result of
providing pay increases to our rank and file employees and hiring additional
home health aides. The cost of professional care of patients as a percentage
of
sales went up slightly compared to last year. This increase is largely
attributable to the fact that employee pay increases preceded the increases
in
the fees charged to our clients. It also takes some time before newly hired
home
health aides produce additional revenues for us. While an employee pay increase
will take effect immediately, it usually takes us a while longer to begin to
recover those costs from our clients with fee increases.
Selling,
general and administrative expenses ("SG&A") went up this year compared to
last year. We believe that most of the increase in SG&A resulted from
increased salaries to office employees and increases in several other
administrative costs,
The
net
income for the home healthcare segment for the three months ended June 30,
2008
went down by
$46,981
to
$223,449
from
$270,430
for the
three months ended June 30, 2007. We believe that the decrease in net income
was
mostly the result of the increase in SG&A expenses, offset by improved
margins on revenues for the quarter.
For
the
six months ended June 30, 2008 the net income from the home health care segment
went down by
$177,802
to
$449,826
from
$627,628
for the
six months ended June 30, 2007. We believe that the decrease in net income
for
the six month period was attributable to primarily the same factors as those
for
the three month period, except that the first quarter had a decline in the
gross
margin compared to last year with a resultant negative impact on the six month
results.
BioBalance
Segment
To
date
BioBalance has not generated any revenues and does not have any cost of sales.
We have excluded the effects of the Emerald settlement in our analysis because
we believe that the inclusion of the substantial reduction in SG&A related
to the settlement would result in an unfair period to period
comparison.
There
was
an increase in selling, general and administrative expenses ("SG&A") for the
three months ended June 30, 2008 of
$70,319
as
compared to the three months ended June 30, 2007. BioBalance is operating on
a
substantially reduced budget. It does not incur a meaningful amount of SG&A
expenses directly on its own. However, due to activities involving preservation
and development of Probactrix®, BioBalance does consume corporate resources,
particularly with respect to the efforts of executive officers, directors and
professional service providers. BioBalance also benefits from certain insurance
costs incurred by the home healthcare segment. These costs have increased
somewhat since last year and the resultant effect caused our SG&A to go up
for the quarter. However, for the six months ended June 30, 2008, SG&A went
down by
$158,075
as
compared to the six months ended June 30, 2007. The big decrease came in the
first quarter, as the cost cutting measures were not instituted until the second
quarter of 2007. We do expect however, that SG&A expenses will increase in
the balance of the year, as activity at BioBalance increases in response to
its
obligations under the second Emerald settlement.
We
reduced the product development spending for the BioBalance segment by
61%
and
78%
for the
three and six months ended June 30, 2008 compared to the same periods last
year
because we temporarily scaled back clinical testing and research activities
in
response to the lack of available funding. We also expect an increase in this
spending in the balance of the year as a result of our obligations under the
second Emerald settlement.
Excluding
the effects of the Emerald settlement, BioBalance posted a net loss of
$239,335
for the
three months ended June 30, 2008, as compared to
$338,580
for the
three months ended June 30, 2007, a decrease of
$99,245
or
61%
.
Excluding
the effects of the Emerald settlement, BioBalance posted a net loss of
$394,602
for the
six months ended June 30, 2008, as compared to
$1,025,474
for the
six months ended June 30, 2007, a decrease of
$630,872
or
78%
.
Liquidity
and Capital Resources
At
June
30, 2008 we had no long-term debt. Future minimum rental commitments for all
non-cancelable lease obligations at June 30, 2008, are as follows:
|
|
|
Payment due by period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
More than
|
|
|
|
|
Total
|
|
1 year
|
|
2 years
|
|
3-5 years
|
|
5 years
|
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt obligations
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Capital
lease obligations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Operating
lease obligations*
|
|
|
628,000
|
|
|
300,000
|
|
|
268,000
|
|
|
60,000
|
|
|
-
|
|
|
Purchase
obligations
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
628,000
|
|
$
|
300,000
|
|
$
|
268,000
|
|
$
|
60,000
|
|
$
|
-
|
|
|
*
|
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.
|
We
have
no off-balance sheet arrangements and have not entered into any transactions
involving unconsolidated, limited purpose entities or commodity
contracts.
Our
sources of liquidity and capital resources for the home healthcare segment
are
internally generated funds, cash in banks of $4,923,603 and the $5,000,000
line
of credit facility with CIT Healthcare LLC, of which approximately $3,336,000
was available at June 30, 2008.
For
the
six months ended June 30, 2008, net cash provided by operating activities was
$2,993,260
as
compared to cash used by operating activities of
$718,600
during
the six months ended June 30, 2007 an improvement of
$3,711,860
.
The
improvement in cash flows from operations is due in large part to additional
funding received under certain contracts and collections of accounts receivable.
The ultimate disposition of the additional funding received under those
contracts is not determinable at this time and, accordingly, have resulted
in
increases in current liabilities.
Net
cash
used in investing activities for the six months ended June 30, 2008 and 2007
totaled
$18,470
and
$53,460
respectively, and were for additions to intangible assets.
BioBalance
Segment
As
of
June 30, 2008, BioBalance has generated no revenues and has no accounts
receivable. The assets of BioBalance consist mainly of cash and intangibles
related to the patents it holds on its lead product PROBACTRIX.
As
of
June 30, 2008, BioBalance had cash on hand of $338,028 all of which was
available to fund operations. BioBalance management estimates that its capital
requirements for an entire year of operations are approximately $5,000,000.
This
amount includes the cost of the initial upfront payment for the Phase I/II
clinical trial, in the amount of $3,000,000, for the Company's lead product
PROBACTRIX® that is not expected to be started in 2008. In connection with the
Emerald Agreement, the Company is obligated to fund $2,000,000 to the LLC.
It
will be necessary for the Company to secure additional funding in order for
BioBalance to begin the Phase I/II clinical trial, which was approved by FDA
on
March 24, 2006. The Company has not been able to obtain additional funding
up to
the present time and the BioBalance subsidiary has been operating solely by
utilizing funds from the health care operations, which are insufficient for
BioBalance's needs. Management is continuing to search for potential funding
sources but none have been found thus far. Accordingly, since additional funding
from outside sources has not been obtained, the Company began scaling back
the
operations of BioBalance at the end of November 2006, and BioBalance began
operating on a substantially reduced budget in 2007. Management has instituted
temporary cutbacks in consultant compensation until such time as additional
funds or a strategic partner can be found. There can be no assurances that
the
Company will be able to raise additional capital in the near term to allow
BioBalance to continue its normal level of operations.
BioBalance
has also undertaken preliminary clinical studies in the treatment of refractory
Celiac disease (a dietary gluten intolerance) and refractory GERD
(gastroesophageal reflux disease), both conditions where changes in the gut
microbial flora may be altered and contribute to symptoms. While initial results
were not clinically or statistically useful in demonstrating efficacy, they
produced encouraging preliminary results and represent interesting targets
for
future development. However, the Company has decided to concentrate its next
development efforts on the pouchitis indication.
The
Company has taken steps to safeguard the biological strain of PROBACTRIX® by
storing it in two separate secure facilities. It is currently evaluating its
options for manufacturing of product to enable progress with clinical
development.
Recent
Accounting Pronouncements
In
May
2008, the FASB issued SFAS No. 162 (“SFAS No. 162”), “The Hierarchy of Generally
Accepted Accounting Principles.” This statement identifies the sources of
accounting principles and the framework for selecting the principles to be
used
in the preparation of financial statements of nongovernmental entities that
are
presented in conformity with GAAP. While this statement formalizes the sources
and hierarchy of GAAP within the authoritative accounting literature, it does
not change the accounting principles that are already in place. This statement
will be effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS No.
162 is not expected to have a material impact on the Company’s consolidated
financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "
Business
Combinations.
"
SFAS
141(R) broadens the guidance of SFAS 141, extending its applicability to all
transactions and other events in which one entity obtains control over one
or
more other businesses. It broadens the fair value measurement and recognition
of
assets acquired, liabilities assumed, and interests transferred as a result
of
business combinations. SFAS 141(R) expands on required disclosures to improve
the statement users' abilities to evaluate the nature and financial effects
of
business combinations. SFAS 141(R) is effective for our fiscal year beginning
January 1, 2009. The adoption of SFAS 141(R) is not expected to have a material
impact on the Company's financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS No. 160, "
Noncontrolling
Interests in Consolidated Financial Statements—an amendment of ARB No.
51.
" SFAS
160 requires that a noncontrolling interest in a subsidiary be reported as
equity and the amount of consolidated net income specifically attributable
to
the noncontrolling interest be identified in the consolidated financial
statements. It also calls for consistency in the manner of reporting changes
in
the parent's ownership interest and requires fair value measurement of any
noncontrolling equity investment retained in a deconsolidation. SFAS 160 is
effective for our fiscal year beginning January 1, 2009. We have not yet
determined the impact of adopting SFAS 160 on the Company's financial position,
results of operations or cash flows.
In
June,
2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109, Accounting for Income Taxes
(FIN48),
to create a single model to address accounting for uncertainty in tax positions.
FIN 48 clarifies the accounting for income taxes by prescribing a minimum
recognition threshold a tax position is required to meet before being recognized
in the financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest, and penalties, accounting in interim
periods, disclosure and transition. The Company adopted FIN 48 as of
January 1, 2007. Based on our evaluation, we have concluded that there are
no significant uncertain tax positions requiring recognition in our financial
statements. Our evaluation was performed for the tax years which remain subject
to examination by major tax jurisdictions as of December 31, 2007. We may from
time to time be assessed interest or penalties by major tax jurisdictions,
although any such assessments historically have been minimal and immaterial
to
our financial results. In the event we have received an assessment for interest
and/or penalties, it has been classified in the financial statements as selling,
general and administrative expense. The Company is currently subject to a three
year statue of limitations by major tax jurisdictions. The Company and its
subsidiaries file income tax returns in the U.S. federal jurisdiction, New
York
State, New York City and New Jersey.
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 June 30, 2008.
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") and Principal Financial Officer,
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 not
effective with respect to supervision as of the end of the period covered by
this report, as we have not had sufficient time to implement the remediation
of
the weakness as discussed in the form 10-K for the year ended December 31,
2007.
The remediation is currently scheduled to be implemented in the third quarter
of
the current fiscal year.
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 June 30, 2008 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Based on that evaluation,
other than the changes reported in the Company's Annual Report on Form 10-K
for
the year ended December 31, 2007, which remained in effect during the quarter
ended June 30, 2008, there were no other changes during such
quarter.
ITEM
1 A. RISK FACTORS
There
have been no material changes in the Company's risk factors from those disclosed
in the Company's Annual Report on Form 10-K for the year ended December 31,
2007.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The
annual meeting of stockholders of the Company was held on July 11, 2008. The
annual meeting was held for the purposes of (1) electing three directors to
serve until the next annual meeting of stockholders or until their successors
are appointed and qualified, and (2) ratifying the appointment of Holtz
Rubenstein Reminick, LLP to serve as the Company’s independent registered public
accounting firm for the year ending December 31, 2008.
Murry
Englard, Howard Berg and Yoram Hacohen were each elected as directors of the
Company, with the number of votes for and withheld, respectively, for such
persons as follows:
|
|
|
For
|
|
Withheld
|
|
|
|
|
|
|
|
|
|
Murry
Englard
|
|
|
21,328,254
|
|
|
3,254,034
|
|
|
Howard
Berg
|
|
|
21,601,336
|
|
|
2,980,952
|
|
|
Yoram
Hacohen
|
|
|
21,346,884
|
|
|
3,235,404
|
|
The
accounting firm of Holtz Rubenstein Reminick, LLP was ratified as the Company’s
auditor, receiving votes as follows:
|
For
|
|
|
22,887,012
|
|
|
Against
|
|
|
1,397,483
|
|
|
Abstain
|
|
|
297,793
|
|
ITEM
6. EXHIBITS
|
Exhibit
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
10.1
|
|
Settlement
Agreement and Release, dated August 12, 2008, effective July 25,
2008,
among Emerald Asset Management, Inc., Yitz Grossman, NY Health Care,
Inc.
and The BioBalance Corporation
|
|
|
|
|
|
10.2
|
|
Consulting
Agreement, dated August 12, 2008, effective July 25, 2008, between
BioBalance LLC and The Meister Group, LLC
|
|
|
|
|
|
10.3
|
|
Limited
Liability Company Operating Agreement of BioBalance LLC, dated August
12,
2008, effective July 25, 2008
|
|
|
|
|
|
10.4
|
|
Subscription
Agreement, dated August 12, 2008, effective July 25, 2008, between
BioBalance LLC and Yitz Grossman
|
|
|
|
|
|
31.1
|
|
Certification
of the Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.1
|
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2
|
|
Certification
of the Principal Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
|
NEW
YORK HEALTH CARE, INC.
|
|
|
|
|
|
August
14, 2008
|
By:
|
/s/ Murry
Englard
|
|
|
|
Name:
Murry Englard
Title:
Chief Executive Officer
|
|
August
14, 2008
|
By:
|
/s/ Stewart
W. Robinson
|
|
|
|
Name:
Stewart W. Robinson
Title:
Chief Financial Officer
|
EXHIBIT
INDEX
|
Exhibit
|
|
|
|
No.
|
|
Description
|
|
|
|
|
|
10.1
|
|
Settlement
Agreement and Release, dated August 12, 2008, effective July 25,
2008,
among Emerald Asset Management, Inc., Yitz Grossman, NY Health Care,
Inc.
and The BioBalance Corporation
|
|
|
|
|
|
10.2
|
|
Consulting
Agreement, dated August 12, 2008, effective July 25, 2008, between
BioBalance LLC and The Meister Group, LLC
|
|
|
|
|
|
10.3
|
|
Limited
Liability Company Operating Agreement of BioBalance LLC, dated August
12,
2008, effective July 25, 2008
|
|
|
|
|
|
10.4
|
|
Subscription
Agreement, dated August 12, 2008, effective July 25, 2008, between
BioBalance LLC and Yitz Grossman
|
|
|
|
|
|
31.1
|
|
Certification
of the Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
31.2
|
|
Certification
of the Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.1
|
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2
|
|
Certification
of the Principal Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
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